# distribution from a US based trust



## sueinwales (Oct 4, 2017)

Just when i thought things couldn't get more complicated.......

So, just as I get a handle on how the US tax filing works from the UK, of course another curve ball comes my way! My parents died in 2016 and have left their assets in a Generation Skipping Trust in the USA. Both i and my dual national adult children are beneficiaries of said trust and have started to receive distributions, which of course come complete with end of year K-1 notices from the bank.

As the complexities grow, i find myself considering taking on British nationality, for the first time in my 37 years here. I already have ILR and a Residency Permit, and now that i am 65 the Nationality Test is waived. 

What i am trying to find out is:
If I renounce my US citizenship, are there any implications for receiving distributions from the family trust based in Rhode Island? Would any tax be deducted at source before the distributions are made? Would I still have US filing issues even if i were no longer a citizen?


any thoughts would be very welcome.


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## Bevdeforges (Nov 16, 2007)

Trusts are very tricky things to deal with in the international sphere. Many other countries simply don't recognize them.

You may have to check with the trustee of your family trust (whoever is preparing the K-1s). If it's an attorney or accountant or a financial institution, they may have policies in place that "require" them to withhold 30% in NR taxes when remitting funds to any non-US person beneficiary.

If you were to renounce, you might wind up having to file a NR return (assuming the amounts involved are significant enough) if the trustee is not withholding any taxes. Distributions from the trust would be considered "US source income" for tax purposes. Depending on what your other revenue sources are, you could be better off paying US taxes as a US citizen on the trust distributions. The NR rate is pretty much a flat 30%.
Cheers,
Bev


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## Dunedin (Aug 12, 2013)

My advice would be for you to carefully consider the tax position of these distributions under UK tax.

Your question implies that you are UK resident, and therefore taxable on your worldwide income. You may or may not be UK domiciled, which affects whether you can claim the remittance basis.

You will have been focussing on the fact that this is a US trust set up by your late parents. As far as the UK is concerned you are a beneficiary of a non-resident trust. Non-resident trusts were used to avoid UK tax. As a result, the UK has extensive tax rules relating to them.

Broadly the position will be that you will be taxable in the UK as follows-
•	Income distributions. But the detail of the taxation depends on whether under the trust you have an entitlement or whether the payments are at the discretion of the trustees.
•	Capital payments. You will be taxed on these as and when they are matched against gains of the trust.

The nature of the trust will also determine any relief against double taxation that may be due under the UK US double taxation treaty.


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## JustLurking (Mar 25, 2015)

Bevdeforges said:


> The NR rate is pretty much a flat 30%.


Only for countries without US tax treaties.

The UK has a tax treaty with the US. US tax rates for UK residents (who are not US citizens or green card holders) are 15% for dividends, and 0% for interest, pension payments, and social security payments.

Also under this treaty, the general rule for trusts appears to be that income from the trust is characterised by type and then treated according to the above US rates (in other words, the trust becomes somewhat 'fiscally transparent'). Sort-of described in the technical explanation around Article 24. Trusts are not my area though, so take this for what it's worth.


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## Dunedin (Aug 12, 2013)

Some trust income is properly relieved under the double tax treaty. For instance this would apply to a UK resident US citizen in respect of a US grantor trust, where the US would give relief against the trust income for the UK tax on the trust income. But this does not apply to all trust income.


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## sueinwales (Oct 4, 2017)

Thank you all for the very helpful and informative replies (even if i do not fully understand them; i am new at this). As regards UK tax, my conversation with HMRC ended up with these instructions-

list all of the qualified dividends and interest (eg listed as such on the K-1 form) on the Foreign Pages. After the dividend/interest allowance (£5000 for 2017-18?) this will be taxable at 7.5%. Credited against this will be tax i paid to the USA on this income.

I duly completed my self-assessment for in october and sent it in. Have not yet heard back how much tax is due but i would like to pay it before the end of 2018 so i can use it as a tax credit for my 2018 US taxes.

Thanks for the suggestion to contact whoever completes the K-1 forms to ask what they withhold from distributions from the Trust to foreign beneficiaries. I did ask the Trustee at US Trust and she replied that there was no withholding for their non-american beneficiaries, but i don't get the impression that the people there know very much about international tax matters!

Ideally i would love to divest myself of all US source income. If only there was a way to dissolve the trust, or somehow move it to the UK.


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## underation (Oct 25, 2018)

sueinwales said:


> As regards UK tax, my conversation with HMRC ended up with these instructions-
> 
> list all of the qualified dividends and interest (eg listed as such on the K-1 form) on the Foreign Pages. After the dividend/interest allowance (£5000 for 2017-18?) this will be taxable at 7.5%. Credited against this will be tax i paid to the USA on this income.
> [..]
> ...


They probably do know when/whether they have to withhold on payments to a NRA. 



> Ideally i would love to divest myself of all US source income. If only there was a way to dissolve the trust, or somehow move it to the UK.


If it's correct that this US-source income is only taxable by the UK when paid to a UK resident who is not a US citizen, the source doesn't matter (provided you decide to renounce the US citizenship and can do so without being subject to the exit tax.)


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