Mines on the seabed, with US/UK coinage features

Transatlantic minefields

Patrick Harney explores safe navigation of the US-UK Income Tax Convention for the private wealth practitioner

This article provides an introduction to the US-UK Income Tax Treaty (the Treaty) and how it impacts private individuals.

The goal of the Treaty is to prevent double taxation by broadly allocating taxing rights as follows:

  • Exclusive taxing rights to the country of residence, subject to a ‘savings clause’ in art.1(4), which retains the right of each country to tax its own nationals (this is only relevant to US citizens as the UK does not tax based on nationality).
  • Primary taxing rights to the source country with respect to:
    • permanent establishment (PE) income, including the US concept of effectively connected income (ECI) with a US trade or business; and
    • income derived from real estate.

Additionally, it provides a foreign tax credit (FTC) mechanism to avoid double taxation,[1] including provision to change the source of income to enhance the foreign tax credit.


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