Home > Projects > UK Tax Residency > US Income & US-UK Double Tax Treaty

The Problem

Our client was a US national who had historically lived and worked full time in the USA, whilst their spouse lived and worked in the UK.

However, in order to provide on-going care for their spouse, our client began to spend an increasing amount of their time in the UK.

With this in mind, they required advice on their residence status and their liability to UK tax on their worldwide income.


The Solution

We applied the rules of the statutory residence test to our client’s circumstances and determined that they were UK resident for tax purposes.

However, as our client was also tax resident in the USA, it was necessary for us to refer to the US-UK Double Tax Treaty in order to determine which country took priority.

Under Article 4 of the treaty, an individual is resident a) in the state in which they had a permanent home available to them, or if they have a permanent home available to them in both states, b) in the state with which their personal and economic relations are closer (i.e. “centre of vital interests”).

Our client had a permanent home available to them in both the UK and the USA. Therefore, the next step was to examine their circumstances and determine whether their centre of vital interests is in the USA or the UK. As part of this work, we considered the following:

  1. The source of their income (i.e. UK or USA) and the amounts;
  2. Where our client’s belongings and pets were kept;
  3. Where our client had the strongest network of friends and family;
  4. When our client was unwell, in which country did they receive medical treatment;
  5. Did our client hold a US and/or driving licence?
  6. Was our client on the electoral register for both countries? Did they vote?
  7. Our client’s long-term view, i.e. did they intend to return to the US to live permanently?

After taking into account the above factors, we found that on balance that our client’s centre of vital interests was in the US, and was therefore treated as US resident for tax purposes.

On the submission of our client’s self-assessment tax return, we set out our conclusions in the “white space” of the return in order to notify HMRC of their circumstances and to minimise the risk of a challenge in the future, should HMRC take a differing view.

The Result

As our client was non-UK resident, they were subject to UK tax on their UK source income only.

We prepared our client’s tax return in light of the above and made a claim for relief by submitting a HS302 dual residents claim form.

Following the submission of their tax return, our client could sleep easy knowing that their tax affairs were in order.