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HMRC internal manual

Double Taxation Relief Manual

Double Taxation Relief Manual: Guidance by country: United States of America: Claims under the new Agreement

For periods on or after 6 April 2003, Article 4(2) of the new Agreement contains an exception to the general rule of Article 4(1) that residence under internal law also determines residence under the Agreement. The exception applies with respect to a US citizen or alien lawfully admitted for permanent residence (i.e., a “green card” holder). Under Article 4(1), a person is considered a resident of either the UK or the US for purposes of the Agreement if he is liable to tax in either country by reason of citizenship. Although this rule applies to both countries, only the US taxes its non-resident citizens in the same manner as its residents. In addition, aliens admitted to the US for permanent residence (“green card” holders) qualify as US residents under Article 4(1) because they are taxed by the United States as residents, regardless of where they physically reside.

Under the exception of paragraph 2, a US citizen or green card holder will be treated as a resident of the US for purposes of the Agreement, and, thereby entitled to treaty benefits, only if he meets two conditions.

First, he must have a substantial presence (IRC 7701(b)(3); see DT19860), permanent home or habitual abode in the United States. The rule requires that the U.S. citizen or green card holder have a reasonably strong economic nexus with the US.

Second, he must not be treated as a resident of a state other than the UK under any treaty between the United Kingdom and a third state. This rule prevents a US citizen or green card holder who is a resident of a country other than the US or the UK from choosing the benefits of the Agreement over those provided by the treaty between the UK and his country of residence. If the US citizen or green card holder’s country of residence does not have a treaty with the UK, however, then he will be treated as a resident of the US as long as he meets the first requirement of an economic nexus. If such a person is a resident of both the US and the UK, whether or not he is to be treated as a resident of the US for purposes of the Agreement is determined by the tie-breaker rules of paragraph - see DT19862

Any cases of doubt or difficulty should be submitted to Employment Income Technical.