US Disability/Savings/Rental Income: What is taxed where?

I just arrived in the U.K. with my husband and son (both dual citizens). I have Social Security Disability and VA Military Disability pensions. I also have Savings and rental income from the USA. I'm completely lost on what needs to be reported, to whom and what is/is not taxable.

Thank you for any advice you have!


Sent from my iPhone using Tapatalk

I just arrived in the U.K. with my husband and son (both dual citizens). I have Social Security Disability and VA Military Disability pensions. I also have Savings and rental income from the USA. I'm completely lost on what needs to be reported, to whom and what is/is not taxable.

Thank you for any advice you have!


Sent from my iPhone using Tapatalk

So can we assume that you are a US citizen, not a UK citizen and are you being taxed on an arising basis?

So can we assume that you are a US citizen, not a UK citizen and are you being taxed on an arising basis?

Yes and yes.


Sent from my iPhone using Tapatalk

UKbound is a UK resident US citizen. She is choosing (almost certainly correctly for the long term) not to be taxed using the remittance basis.

The overall structure of her tax is along the following lines-
•   As a UK resident (and given that she is not claiming the remittance basis) she is liable to tax on a worldwide basis.
•   The US chooses to tax its non-resident citizens, being one of the few countries to do so.
•   The above position under UK and US domestic tax rules is then modified by the UK US Double Tax Treaty.

The majority of the double tax treaty does not apply, because of the “savings” clause in Article 1(4) for US citizens. The main terms of the treaty that have application to US citizens are contained in –
•   Article 1(5)(a), which lists seven parts of the treaty that do apply.
•   Article 24(6), which sets out the way in which relief from double taxation is to be given for US citizens.

For instance, for US rental income the position is-
•   Rental income is not within any of the seven parts of the treaty which apply to US citizens. The treaty therefore does not provide any rules for preventing this type of income from being taxed in both the UK and the US.
•   The rental income is US sourced. The rules for dealing with double tax are therefore as set out in Article 24(6)(c). This provides that the UK is to give credit for the US tax that would have been imposed on a UK resident who was not a US citizen.
•   The rules for taxing the US rental income of UK residents are contained within Article 6, which covers income from real property. The rules permit the US as well as the UK to tax such income, and do not impose any limit on the level of taxation.
•   It follows that the US tax on the rental income should be computed, then the UK tax should be computed but giving credit for the US tax

The same type of analysis should be done on each of the other sources of income. For instance, for US dividends the full analysis can be seen at the following
http://www.trustedtaxadviser.co.uk/upfiles/USdividendincomeofUKresidentUScitizenf1.pdf

I shall leave it to others to comment on the other sources of income.

This is correct. Under US domestic law, the US will charge tax on US source rental profits (after depreciation and mortgage interest). Because the UK chooses not to allow most depreciation and mortgage interest, the profit for UK purposes will inevitably be higher than the profit for US purposes. Consequently, the UK will give a credit for US Federal and State tax on any doubly taxed profit.

Perhaps I could add some comments in respect of the social security pension income.

Under the double tax treaty, social security pensions fall within Article 17. For UK resident US citizens, Article 1(5)(a) preserves the rules in Article 17(3), (5). Article 17(3) says that social security pensions are taxable only in the state of residence.

Therefore UKbound’s US social security disability pension income should be taxable only in the UK, as her state of residence.

Perhaps I could add some comments in respect of the social security pension income.

Under the double tax treaty, social security pensions fall within Article 17. For UK resident US citizens, Article 1(5)(a) preserves the rules in Article 17(3), (5). Article 17(3) says that social security pensions are taxable only in the state of residence.

Therefore UKbound’s US social security disability pension income should be taxable only in the UK, as her state of residence.

With all the confusion, I had a web chat with HMRC. They stated that SSDI is not taxable.  And, my military disability pension would only be taxable when/if I become UK National.




Sent from my iPhone using Tapatalk

DT19876 in HMRC Manuals, says that it applies when a taxpayer elects to claim relief under Article 19 :"Pensions paid by the United States government to former members of the US armed forces (or to their surviving spouses or dependent children) in respect of their period of service continue to regarded as paid for services rendered to the United States. Such pensions therefore come within Article 19 (Government Service) of the agreement and are exempt from United Kingdom tax unless, exceptionally, the recipient is both a national and a resident of the United Kingdom in which case the pension is taxable only in the United Kingdom"

Overall, you'll need to register for self-assessment and file a UK return for 2017-18. This will probably be filed on a split-year resident basis and report US source rental and savings income as potentially UK taxable.

Overall, you'll need to register for self-assessment and file a UK return for 2017-18. This will probably be filed on a split-year resident basis and report US source rental and savings income as potentially UK taxable.

Thank you.


Sent from my iPhone using Tapatalk

web chat with HMRC.

Is that new?

UKBound, how did you find the process? Did you have to wait long to connect?

Is that new?

UKBound, how did you find the process? Did you have to wait long to connect?

I don't know if it is new. It took a while, and they disconnected from me several times before actually getting a chance to chat with someone. But, I prefer having a written record.

There is a link here:
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/self-assessment


Sent from my iPhone using Tapatalk

I think that the paragraph in HMRC manuals mentioned by Guya remains available. It can be seen at
https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt19876

I would like to clarify the advice to UKbound. The position, both as set out in the analysis that I set out and in the above HMRC extract is
•   The social security pension is taxable in the UK but not the US.
•   The military pension is taxable in the US but not in the UK (unless UKbound were to become a UK national).

I don't know if it is new. It took a while, and they disconnected from me several times before actually getting a chance to chat with someone. But, I prefer having a written record.

There is a link here:
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/self-assessment


Sent from my iPhone using Tapatalk

Thanks!

Yes, absolutely, I've written quite a few letters over the years, so that I could "have it in writing"!

For lesser questions I've been using the phone line (I take note of the date and time of the call and the name of the person I speak with) but it takes forever to get through usually and their hold music now drives me crazy! 

Next time I have a question, I'll try it out for sure.

I think that the paragraph in HMRC manuals mentioned by Guya remains available. It can be seen at
https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt19876

I would like to clarify the advice to UKbound. The position, both as set out in the analysis that I set out and in the above HMRC extract is
•   The social security pension is taxable in the UK but not the US.
•   The military pension is taxable in the US but not in the UK (unless UKbound were to become a UK national).

This is just slightly contrary to the excellent advice that the OP received from HMRC which was that the SSDI is not taxable because it is equivalent to non-taxable UK disability benefits. In practice, I would suggest claiming that both are non-UK taxable within a UK self-assessment tax return. Once we get to mandatory MTD, no-one knows how one will state this to HMRC, as MTD will not have a white space.