IHTM27177 - Foreign property: Double Taxation Conventions: certification and taxing rights: USA

Before we give up our right to tax assets under Article 5 of the double taxation convention (DTC) with the USA, we need the US authorities to certify that: 

  • the assets have been disclosed to them and 

  • any tax due has been paid or will be enforced. 

This is because Article 5(5) of the DTC allows us to tax the property if the USA is unable to enforce its right to tax. HMRC needs to give a similar certification if Article 5 of the DTC requires the US authorities to give up their right to tax property. 

Until we have a Form 742 from the US authorities certifying that the property has been disclosed and that tax has been paid or will be enforced, you should not close any case where: 

  • Article 5 operates to exclude some UK property from the charge to IHT, and 

  • the case would be taxpaying without that exclusion. 

You should explain this requirement to the taxpayer and issue Form 742. You should draw their attention to the paragraphs of the form that they must complete. Where the UK is giving up its taxing rights under the convention, only paragraph 1 applies and paragraphs 2 to 7 are not appropriate.  

Where the USA gives up the right to tax property under Article 5(1), the US authorities will send a copy of US form 706 CE to us to certify. 

Once you have checked the forms you should send them to Technical together with a note of any errors or omissions. Technical will then issue the appropriate certificate. 

A form 742 is not required if no tax arises in the USA on the same assets and chargeable event, e.g. property comprised in a settlement (IHTM47071 – USA) and the customer or their representative should instead provide a signed declaration to that effect i.e.

"No tax arises in the USA in relation to these assets on this chargeable event"

Similarly, form 742 is not required if the estate is chargeable to Federal Estate Duty in the USA but is nil taxpaying only because of a specific exemption or relief and the customer or their representative should instead provide a signed declaration to that effect i.e. 

“The USA Estate is chargeable to tax in the USA however, no tax is payable as it is below the current threshold and/or a [details of a specific exemption] applies”.  

Only once this signed statement has been received can the USA assets be removed from the UK IHT account. The UK will retain its taxing rights on UK situs assets as per the convention.