Pensions, social security, etc.: Articles 17 and 18 of the Treaty are probably some of the most complex provisions of a bilateral treaty concluded by the United States. To be honest, this topic deserves an article in its own right. In those circumstances, the general rule is that pensions and similar allowances held by a foreign country are taxable only in that State. However, there are countless exceptions and restrictions to this rule. For example, point (b) provides that the amount of such a pension or remuneration, paid by a pension scheme established in the other State and which would be exempt from taxation in that other State if the beneficial owner were established in that State, is exempt from taxation in the first-mentioned State, even if that person is established in the first-mentioned State. A practical example helps to explain this confusing language; When a pension is held by a U.S. citizen, it is taxable in the U.S. under the general rule. However, if the UK pension was exempt in the UK, provided the person resides in the UK, it will also be exempt from tax in the US, whereas the person is not actually established in the UK.
Social security, pensions and other regular payments also have their own rules. People who live or work abroad and who have a dual domicile are taxable in both countries. In order to determine which country has priority in terms of taxation, the DBA will have a series of rules or “tie breaker” tests between the two countries to define where to pay taxes in order to avoid taxes in both countries. Look at the UK government`s aid sheet to find out if the second country has a DBA deal with the UK. Double taxation treaties do not apply to the taxation of profits from the sale of housing in the United Kingdom. Capital gains: Any profit made by a resident of one State and attributed to the transfer of immovable property to the other may be taxed in the other State. And the term “real estate” encompasses mineral rights and typical real estate rights. However, as regards the United Kingdom, that term effectively includes the sale of shares or similar securities which derive directly or indirectly part of their value from immovable property situated in the United Kingdom. It also includes the transfer of an interest in a partnership or trust in the United Kingdom, to the extent that the assets of the partnership or trust consist of immovable property located in the United Kingdom. . .