Simon.LSR

Hello. If someone whose common law domicile is outside the UK becomes 'deemed domicile' by virtue of the 15-out-of-20 years rule, can you confirm that they are treated the same as someone who is actually domiciled in the UK for inheritance tax purposes - that is, any transfer between a deemed domiciled individual and their deemed or actually domiciled spouse would not be subject to IHT?

Thanks for the reply. I disagree with your analysis however because of the specific source of the pension. Whilst I agree with your analysis for general Pensions from the US, this pension is specifically from government service and therefore Article 19(2) applies which states 2. Notwithstanding the provisions of paragraphs 21 and 2 of Article 17 of this Convention: (a) any pension paid by, or out of funds created by, a Contracting State of a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall, subject to the provisions of sub-paragraph b) of this paragraph, be taxable only in that State; (b) such pension, however, shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State. As I stated in my original question, the source of the US pension is military and state department which are both defined as being 'in respect of services rendered' to the US and so per paragraph 1 as quoted are taxable only in the state to which such service was rendered. Per paragraph 2, this would only change if the individual receiving the pension was not only a resident of the UK but also a citizen of the UK. As the individual in this scenario is a US citizen, paragraph 2 would not apply and we're back to the terms of paragraph 1 - ie it's taxable only in the US. And given Article 18(2) is a 'nothwithstanding' clause, this supersedes the terms of article 17. Surely this is the correct reading of the treaty?

Hello. I am considering the tax treatment of the income of a US Citizen who is a UK tax resident. They receive a pension from the US Government as a result of service in the US Military and the US State Department. Per the UK/USA Double Tax Convention, Article 17 paras 1&2, such a pension should only be taxable in the US unless the recipient is both a resident and national of the UK. As this individual is not a UK national, this pension income is not taxable in the UK. Could you please confirm?

OK thanks for the above - the comments are very helpful. So in summary, the treatment is as follows: The RRSP withdrawal is taxed in Canada where the taxable event is the withdrawal. This 25% tax charge is withheld by the Canadian tax authorities as part of the withdrawal. From a UK perspective, the taxable event is the liquidation of the assets within the RRSP. This liquidation is a chargeable event and is chargeable to Income Tax. As it's chargeable to income tax, top slicing relief is available if the policy is over 1 year old Because the two taxable events are different (Canada on the withdrawal, the UK on liquidation) there is no ability to claim a Foreign Tax Credit for the Canadian tax withheld Grateful if you could confirm finally that this is the correct approach. Thank you

This is exactly the query I am looking for an answer to. In the above (very helpful) post from HMHippo, the treatment makes sense; the UK resident owner of the RRSP is taxed to income tax in the UK as part of their worldwide income, and receives a foreign tax credit for the 25% tax withheld in Canada. However, per DT4617 it seems clear that there are two separate taxable events when encashing an RRSP: 1) a Canadian taxable event when the funds are distributed from the RRSP, and 2) a UK taxable event when the assets of the funds are sold (ie prior to distribution). As these are two different taxable events, the UK Canada DTA only allows for FTC relief when tax is charged by both states on the same taxable event. Since this isn't the case above, a UK resident is double taxed - 25% withholding on the distribution in Canada, and then income tax on the gross proceeds of the disposal of the assets in the UK. So as a Higher Rate tax payer in the UK, the UK resident could have a marginal tax rate of 65%? The other thing that is still not clear to me is the UK income tax treatment within the RRSP. HMHippo's example is when the entire RRSP is liquidated but doesn't specifically cover the point about the UK tax treatment whilst the assets are accruing value (but have not been withdrawn). From a Canadian perspective it seems clear that unrealised gains are not taxed - because the tax treatment in Canada is based on withdrawal of funds. However, from a UK perspective, is it specifically the sale of the assets in the fund that creates the taxable event, or is it the revaluation of such assets on an annual basis? If it's the former - the sale of assets - it's hard to understand why this wouldn't be a capital gain rather than income, but if it is income, is there any top slicing relief available - because otherwise the tax is potentially incredibly punitive - say you made a £100,000 gain over ten years, if taxed annually (assume £10k a year and no other income) you would get the gains tax free due to the personal allowance. But if it's all taxed to income in the tenth year, you would end up as as higher rate tax payer - all while the economic performace of the RRSP has been identical. Thanks for confirming which way we should look at this!