Dual citizenship and UK taxes

I'm a US citizen and currently have ILR. I plan to apply for UK citizenship in June. What I'm wondering is: what kind of UK tax obligations will I have if I become a UK citizen and then decide later to reside outside the UK and earn no money in the UK?

thanks

RonH

(Wasn't sure if I should ask this here or in the taxes subject area.)

You have to file US taxes on all worldwide income unless you renounce your US citizenship.

The question was UK taxes, and fortunately, the UK is like most countries besides the US in that you only have tax obligations here if you live here and/or have income here.

Apologies, sorry about that.

Thanks, DrSuperL99.

And, even if you are a UK resident but can claim somewhere else as your domicile (i.e., "permanent home") you pay UK taxes only on income received in the UK and any ex-UK income that you bring in to the UK.  Other ex-UK income is not taxable by the UK (but is almost undoubtedly taxed where it's made!)

As already mentioned, the US treats it a bit differently, if you are a US citizen living (and having income) abroad.

Thanks, walker.

Becoming a UK citizen may increase UK inheritance tax liabilities in some circumstances.

There seems to be some confusion regarding the effects of nationality, domicile, deemed domicile, habitual/ordinary residence and residence.

The definition of domicile differs as between US states and England/Scotland. Nationality is one (and a minor one at that, relating to "intent", i.e., animus manendi) element of determining domicile.

Look to the HMRC Web site for info, such as: http://www.hmrc.gov.uk/cnr/res-dom-tax-amends.htm
http://www.hmrc.gov.uk/cnr/residencedomicile.htm

There seems to be some confusion regarding the effects of nationality, domicile, deemed domicile, habitual/ordinary residence and residence.

The definition of domicile differs as between US states and England/Scotland. Nationality is one (and a minor one at that, relating to "intent", i.e., animus manendi) element of determining domicile.

Look to the HMRC Web site for info, such as: http://www.hmrc.gov.uk/cnr/res-dom-tax-amends.htm
http://www.hmrc.gov.uk/cnr/residencedomicile.htm

I am not sure who you think is confused or about what?

If you are not domiciled in the UK and choose to pay tax  only on income that you earn in the UK or bring into the UK, don't you incur a penalty for not paying tax on income you keep outside the UK after you have been here for a while - loss of personal allowance and £30,000 charge once you have lived here 7 out of the previous 9 years?

That might be something to consider if you plan to live in the UK permanently (or for at least 7 years).

I am not sure who you think is confused or about what?

This will show you; it's the quintessential case on domicile, studied by every American law student who takes a course in Conflict of Laws: http://www.uniset.ca/other/css/182NW227.html (In re Estate of Jones). Jones died aboard the Lusitania. He was domiciled in Wales under English/Welsh law but in Iowa under Iowa (and other US state) laws. The result (although irrelevant here) was that his nonmarital (what they used to call "illegitimate") Welsh daughter inherited, and not the Crown.

There is yet another definition of domicile in civil law countries.

Hence the importance of tiebreaker rules in tax treaties, although those rules don't help in every situation. And are further muddled by the US exception for its citizens in most cases and the UK invention of "deemed domicile".

Nobody said you are confused. But I find that tax inspectors often are. And there can be surprises with respect to US state income tax. Or more likely an advantage: whereas English/Scottish domicile is "sticky" and difficult to divest, domicile of choice under state law requires only (1) presence and (2) "animus manendi" to acquire, with some exception as to presence for certain dependants.

If you are not domiciled in the UK and choose to pay tax  only on income that you earn in the UK or bring into the UK, don't you incur a penalty for not paying tax on income you keep outside the UK after you have been here for a while - loss of personal allowance and £30,000 charge once you have lived here 7 out of the previous 9 years?

That might be something to consider if you plan to live in the UK permanently (or for at least 7 years).

sweetpeach, your statement about 'not paying tax on income you keep outside the UK after you have been here for a while' is not really clear to me, but you seem to be saying that a UK citizen who is domiciled elsewhere and earning income there is required to pay UK taxes there, which contradicts what others have said here.

Becoming a UK citizen may increase UK inheritance tax liabilities in some circumstances.

Could you explain the circumstances, guya? If I were living in the US and inherited something from another US citizen, are you implying I'd owe UK taxes? That sounds kind of unlikely to me.

sweetpeach, your statement about 'not paying tax on income you keep outside the UK after you have been here for a while' is not really clear to me, but you seem to be saying that a UK citizen who is domiciled elsewhere and earning income there is required to pay UK taxes there, which contradicts what others have said here.

No, you are not required to pay UK taxes.

However, if you live in the UK and are not domiciled in the UK and you choose to pay tax only on the income you bring into the UK, you may have to pay a hefty penalty depending on how long you have lived in the UK.

So it is your choice.

If you have lived in the UK 7 out of 9 years,
either:

1. Pay UK tax on all your income.
2. Pay tax only on the income you bring into the UK, plus pay a £30,000 charge.

It's possible that for someone who has A LOT of money outside the UK, paying the £30k charge is the better way to go.

I believe you also lose your UK personal allowance (the amount of money that you are allowed to earn before you start paying tax) if you earn money outside the UK and choose not to pay UK tax on it. I think this happens no matter how long you have lived in the UK, but I'm not 100% sure.

I also believed that you are exempt from all these penalties if the amount you earned in the UK is only a small amount. Possibly £2000 or under?

Unless this has changed very recently and I don't know about it.

Maybe Guya can set us straight about this?


ETA: This applies only to people living in the UK, so the income from abroad would have to be things like interest from bank accounts, stock dividends, etc.  You wouldn't be earning money (as in earning a salary) outside the UK because you would be living in the UK so you couldn't have a job outside the UK.