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I've recently been awarded some prize money for scientific research. The awarding body is based in the US, while I'm a UK resident. I've never visited the US nor worked outside the UK or for a US employer.

Here are my questions:

  1. Will I have to pay US tax on this prize money?
  2. Will I have to pay UK tax on it?

Specifically, I've been given a W-8BEN form to complete, which I must send back to claim the prize money.

  1. Are there any specific steps I need to take to minimise the tax I pay on the prize money, beyond filling out the form and sending it to the awarding body along with the other information they've requested?

Finally, on this form is a "special rates and conditions" section asking whether there is any part of the relevant (UK-US) tax treaty that affects the rate of tax that I will have to pay.

  1. Is there any specific information about my circumstances that I can or should provide here? I don't really know what it's asking for.

In case it's relevant, the awarding body has asked separately (as part of the claims process) whether any of my activities relating to the prize occurred in the US (again, the answer is no).

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  • You are taxed in the country that you are awarded - in this situation the US. Since the US and U.K. have a tax treaty you will be taxed in one or the other. I think you can choose. – NuWin Dec 4 '16 at 23:02
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    +1 I was about to ask the same question (concerning the same prize). :-) – Emil Dec 5 '16 at 11:38
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    The US and UK have a tax treaty that is supposed to avoid double taxation. Prize money is not specifically mentioned but probably falls under Article 22 ("Other Income") which states that it should only be taxed in the UK. However, according to my own research you necessarily need a US iTIN to claim any benefits, which seems complicated to get. So the question still stands: How best to proceed? – Emil Dec 5 '16 at 11:38
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    @Emil Looking at the form's instructions, it says that "To claim certain treaty benefits, you must complete line 5 by submitting an SSN or ITIN, or line 6 by providing a foreign tax identification number (foreign TIN). So it seems that an ITIN isn't necessary. I assume that a national insurance number will do here? – Will Vousden Dec 5 '16 at 11:49
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    Indeed, the instructions seem to indicate that a foreign TIN might be enough. But the website of the IRS also states: "A reduced rate of withholding applies [...] only if the foreign person provides a U.S. Taxpayer Identification Number [...]." (Emphasis mine.) Expert advice might be needed here. – Emil Dec 5 '16 at 12:19
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In the end, I filled out the form with a foreign TIN (my UK National Insurance Number) on line 6, as well as a short sentence detailing my claim for 0% tax withholding according to the relevant section of the UK-US tax treaty.

It looks like this was good enough; the prize money arrived in my account a few days ago, and it seems that no tax was withheld!

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With the W8-Ben filed, tax will be withheld at a lower rate. (I would expect 10%). Tax treaty treatment will mean that this witholding will reduce your UK tax even if this payment is not taxable there. This is only effective if you actually pay tax. This is how it works for lotteries and dividends as well.

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