Split tax year & domicile question

You're in a very good position. Most Brits 'wintering' in the US have to worry about not becoming resident for tax purposes by staying too long, and going through the hassle of filing the form establishing 'a closer nexus(?)' to the UK. You're a US citizen so you'll always have to file a US return.

On the other hand, you have no 'earned income' and will always have to use form 1116 (FTC) for your US tax return. That does away with the need to establish the PPT or Bona Fide residence test for 2555. A CAVEAT: nonetheless, you need to be sure that the US, and State, are happy you are indeed resident abroad (8938, for example) and not resident in the US, so you must be careful not to spend too much time in the US. I don't know if this would fall under the substantial presence test, or what, but it is something to be certain of before your first extended trip back to the US.

You're in a very good position. Most Brits 'wintering' in the US have to worry about not becoming resident for tax purposes by staying too long, and going through the hassle of filing the form establishing 'a closer nexus(?)' to the UK. You're a US citizen so you'll always have to file a US return.

On the other hand, you have no 'earned income' and will always have to use form 1116 (FTC) for your US tax return. That does away with the need to establish the PPT or Bona Fide residence test for 2555. A CAVEAT: nonetheless, you need to be sure that the US, and State, are happy you are indeed resident abroad (8938, for example) and not resident in the US, so you must be careful not to spend too much time in the US. I don't know if this would fall under the substantial presence test, or what, but it is something to be certain of before your first extended trip back to the US.

Excellent point around 8938 as I will be a bone Fide resident living abroad with a tax home abroad but not make the 330 days. So the year I buy a house, hopefully 2017, I'll be sure and file 8938. This year I don't expect to have more than $150k at any time during the year or more than $100k at year end.

If you spend 6 months ( ie 180 days) in the US you are always going to be classed as US resident. You will have to limit yourself to no more than 122 days in the US and then after 3 years of doing that you won't meet the US residency substantial presence test.

If you spend 6 months ( ie 180 days) in the US you are always going to be classed as US resident. You will have to limit yourself to no more than 122 days in the US and then after 3 years of doing that you won't meet the US residency substantial presence test.

Other than FATCA filing and ACA what difference does make?

I'm going to be filing taxes anyway in the US as a USC and if I'm spending enough time in the UK to be tax resident there as well, is there not a tie breaker to determine who is the primary tax authority? All very confusing.

Other than FATCA filing and ACA what difference does make?

Treaty provisions (Article 1.5). Totalisation Agreement provisions. US Social Security to start with.

If the US determine you are resident in the US, will it allow US SS to only be taxed in the UK? If not, will it also say the Totalisation Agreement does not apply since you are resident in the US. You pay tax on US SS in both countries, but will the US allow an offset of credits on 1116 for US SS tax paid to the UK? I don't know the answer to this, but it would be well worth while to check all your sources of income and their relation to the treaties for each source.

Form 1116 can become difficult if the US does not agree to allow the offset credit. Sorting 'nexus' or country of residence for taxing rights on a yearly basis might become tiring. Will you keep a US driving license? Vote in the US? At the same time, if you own no property in the US, your 'home' is in the UK, but a quick examination of how States view this (Virginia, for example) may be a precursor of the discussion between the US and UK.

Food for thought.

I agree with nun's figure of 122 days in the US for the substantial presence test, if you'll be there every year over a period of more than 2 years running.

EDIT to ADD: The following is a bit of a red herring for this discussion. This is Form 8840, the Closer Connection Exception, which is for ALIENS (not you). Nonetheless, have a read of page 2 for the type of questions the US deems relevant to determine 'tax residence'. Residence being the operative word. The treaty tie-breakers are similar, but do ,I believe, go into greater depth.

https://www.irs.gov/pub/irs-pdf/f8840.pdf


   

If the US determine you are resident in the US, will it allow US SS to only be taxed in the UK? If not, will it also say the Totalisation Agreement does not apply since you are resident in the US. You pay tax on US SS in both countries, but will the US allow an offset of credits on 1116 for US SS tax paid to the UK? I don't know the answer to this, but it would be well worth while to check all your sources of income and their relation to the treaties for each source.

Form 1116 can become difficult if the US does not agree to allow the offset credit. Sorting 'nexus' or country of residence for taxing rights on a yearly basis might become tiring. Will you keep a US driving license? Vote in the US? At the same time, if you own no property in the US, your 'home' is in the UK, but a quick examination of how States view this (Virginia, for example) may be a precursor of the discussion between the US and UK.

 

I imagine we'd get into the "Tie Breaker" rules and one country or the other would be given primary taxation authority and then the FTC could be arranged correctly.

I imagine we'd get into the "Tie Breaker" rules and one country or the other would be given primary taxation authority and then the FTC could be arranged correctly.

Undoubtedly, you're correct. It's trying to make sure the residence is in the UK if that is felt to give an easier solution. Perhaps it's not.

The following, from HS302, gives a 'Special Case - The United States of America'. It's from HMRC and slanted towards those US citizens who would prefer the US as a residence.

Article 4(2) of the DTC provides that a citizen or green card holder will be
treated as a resident of the US for the purposes of the DTC, and thereby
entitled to treaty benefits, only if two conditions are met:
• first, you must have a substantial presence (see below), permanent home or
habitual abode in the US
• second, you must not be treated as a resident of a state other than the UK
under any treaty between the UK and a third state.

The above doesn't indicate it must be the US. (The difference between 'only if' and 'if only') If the 'substantial residence' test is met, then it's back to the tie-breakers. Anyway, if the choice would be the US, then in this case staying for more than 122 days each year for 3 years would appear to open up the tie-breaker rules.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/328986/hs302.pdf

EDIT to ADD:
Tie-breaker rules:
Stop at the first positive determination and go no further
• permanent home - in this case, it should be the UK. Stop here, go no further.
• centre of vital interests - If it came to here, this could lean towards the US.
• habitual abode - Could be a toss up.
• nationality - IS a toss up.
italics mine

Thanks for the HMRC link and suggestions.  I'm think it must be the tie break that decides this, we can't be the only folks with homes in both the US and UK and have to go through this.

1) We are setting our permanent home in the UK, a 3 bed house as opposed to the rented 2 bed apartment we have here. (We sold our US house a few years ago in preparation for this day).  We will register to vote in the UK asap (we want to vote in the EU referendum in June)

2) Centre of vital interests - the UK is our place of birth, the town we are moving to is where our children were born and where I have direct ancestors going back to the 17th century. In fact my 8th great paternal grandfather was married in the same church as our children were baptized.
My sister and her family still live there, and we have numerous other siblings and cousins living in the UK.
Although most of our income is from the USA I do have 2 private UK pensions and the UK OAP.

3) Habitual mode - For the first UK tax year 2016/17, we will have spent 8 months in the UK, and ongoing we plan to spend 9 months a year in the UK. Longer term are talking about dropping the lease on our apartment here, then either keeping the furniture in storage and retrieving it each year when we come back for the winter or relying on finding furnished "Corporate" apartments each year. (There are always plenty of unfurnished apartments to rent for 3 months in this area)

4) Nationality - Natural born UK, Naturalized US so could go either way.

SS taxation is interesting but doesn't come into play immediately. We are planning for my wife to start collecting hers in 2018, myself in 2025.  I'll worry about that then, for now I'm just concerned about this next couple of years.

I'm also not sure what to do about driving licences here in Texas.  When we get back in November we should have our new UK licences and canceling our Texas licences will probably get us out of voting and jury duty (we get called a lot here, 4 times in 10 years for me, similar for my wife and the last twice she received notice we were overseas and my son had to send an excuse note - he called to explain but they like the excuse in writing).

For Federal voting we can register as overseas voters which we plan to do for this presidential election year.

Are you moving to Guisborough?


Sent from my iPhone using Tapatalk

Are you moving to Guisborough?


Sent from my iPhone using Tapatalk

Yes indeed, just up the road from your Aunty if I recall correctly.

I am assuming you are not traveling with lots and lots of guns/ammo??

Texas has no State income tax, or estate tax, what other issues are you thinking may be an issue?

Are you ......uh......carrying anything?

I am assuming you are not traveling with lots and lots of guns/ammo??

When we drove into Canada last year we had a laugh about this with the border crossing agent. When she asked us if we were carrying guns I replied that although the license plate said Texas, we didn't actually own any guns.  (I still have a County Durham accent so it's obvious I'm not a native Texan). She laughed when she said that she had to ask about guns because certain US license plates raised big red flags.

Yes indeed, just up the road from your Aunty if I recall correctly.

Actually not far from my brother in Stockton. I was back a couple of years ago to bury my Mum and gave a lot of stuff to the Teesside Hospice shop just off Westgate and made multiple trips to the recycling center. She's buried with my Dad at St. Mary's with a fantastic view of Rosberry Topping and the rest of the Cleveland Hills.


Sent from my iPhone using Tapatalk