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Old Mar 21st 2017, 12:01 pm   #1
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Default US/UK dual Citizen capital gains tax

I'm a British citizen living in the UK with dual citizenship in the USA.

I have stocks from my former employer in the USA which I got though the employee share purchase plan when I worked there.

If I sell these stocks am I due to pay capital gains taxes in the USA, UK, or both ?
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Old Mar 21st 2017, 12:51 pm   #2
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Default Re: US/UK dual Citizen capital gains tax

Both (as Boris Johnson discovered, even if the UK doesn't charge CGT, the US does globally on its citizens), with a credit of one against the other, so you effectively pay the higher rate.
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Old Mar 21st 2017, 5:56 pm   #3
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Default Re: US/UK dual Citizen capital gains tax

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Originally Posted by Pulaski View Post
Both (as Boris Johnson discovered, even if the UK doesn't charge CGT, the US does globally on its citizens), with a credit of one against the other, so you effectively pay the higher rate.
US/UK dual citizen resident in the UK probably means that both the UK and the US are going to tax your world wide income on an arising basis. So you'll pay UK capital gains tax in full and then resource the US capital gains to the UK on your 1040 so you can claim a foreign tax credit and avoid double taxation.
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Old Mar 22nd 2017, 3:47 pm   #4
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Default Re: US/UK dual Citizen capital gains tax

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US/UK dual citizen resident in the UK probably means that both the UK and the US are going to tax your world wide income on an arising basis. So you'll pay UK capital gains tax in full and then resource the US capital gains to the UK on your 1040 so you can claim a foreign tax credit and avoid double taxation.
Do you mean I'll be able to claim the tax back in the US, or the UK ?
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Old Mar 22nd 2017, 4:18 pm   #5
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Default Re: US/UK dual Citizen capital gains tax

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Do you mean I'll be able to claim the tax back in the US, or the UK ?
Neither, one is a credit against the other. If the one you have to pay first is greater, you'll owe nothing for the second tax computation. If the first one is smaller, you'll have to pay the difference for the second one. ... As I said in post #2 above, you effectively pay the higher of the two rates.
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Old Mar 22nd 2017, 5:08 pm   #6
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Default Re: US/UK dual Citizen capital gains tax

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Originally Posted by gjscott View Post
Do you mean I'll be able to claim the tax back in the US, or the UK ?
You will pay your UK capital gains tax in full because you are a UK resident and presumably taxed on your worldwide income. The UK has quite generous capital gains tax allowances and if the gains fall below those there'll be no UK tax due. As a US citizen you are also liable to US tax on the gains so need to take a credit for foreign tax to avoid double taxation. The difficulty is that your capital gains originate in the US and so to be able to take a foreign tax credit the US capital gains need to be resourced to the UK to make them look like non-US gains. When you take the FTC you'll see a check box for "treaty resourcing". If there's no UK tax due then the FTC thing is moot.
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Old Oct 2nd 2017, 9:55 am   #7
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Default Re: US/UK dual Citizen capital gains tax

OK you talk about the capital gains originating in the US. Does this mean that normally the IRS gets the first 'hit' ? How does one 'resource' them out of the US to make them look like non-US Gain ? If I keep my investments in my Schwab International account (London) how are they considered ? I would like to pay more tax to where I live and not to the US where I have not lived since 1978.
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Old Oct 2nd 2017, 12:55 pm   #8
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Default Re: US/UK dual Citizen capital gains tax

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OK you talk about the capital gains originating in the US. Does this mean that normally the IRS gets the first 'hit' ? How does one 'resource' them out of the US to make them look like non-US Gain ? If I keep my investments in my Schwab International account (London) how are they considered ? I would like to pay more tax to where I live and not to the US where I have not lived since 1978.
Here is how I think it works. (This is the first year for me)

This past UK tax year (2016/17) I made some capital gains selling some shares from an ETF in January 2017. I will report and pay taxes to HMRC when I do my self assessment later this year. Next year when I do my 2017 US tax return I will pay US capital gain taxes on that same sale. I will also file IRS form 1116 which will show a foreign tax credit for the taxes I paid to HMRC. The form 1116 will have box D checked - "Certain income re-sourced by treaty " to ensure that HMRC has first bite at the taxes.
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Old Oct 15th 2017, 4:56 pm   #9
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Default Re: US/UK dual Citizen capital gains tax

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The form 1116 will have box D checked - "Certain income re-sourced by treaty " to ensure that HMRC has first bite at the taxes.
Actually the UK get's first bite of the cherry because of the Treaty. The resourcing of the US capital gains to the UK is so that you can claim what are US gains as UK gains on your US taxes and so use the FTC.
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Old Oct 15th 2017, 5:12 pm   #10
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Default Re: US/UK dual Citizen capital gains tax

That is as it should be - the first bite goes to the country of residence ...
I'm still about confused about the credits ... whether they are transaction specific or in total on the entire tax bill.
EG If I sell A and owe 100 tax in the UK and 80 in the US
and then B with 80 tax in the UK and 100 in the US ...
Do I owe nothing to the US or do I owe them 20
Thanks
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Old Oct 15th 2017, 6:24 pm   #11
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Default Re: US/UK dual Citizen capital gains tax

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Originally Posted by nun View Post
Actually the UK get's first bite of the cherry because of the Treaty. The resourcing of the US capital gains to the UK is so that you can claim what are US gains as UK gains on your US taxes and so use the FTC.
That is exactly what form 1116 is, claiming the FTC for taxes paid to HMRC. Sorry if my wording was confusing.

Last edited by durham_lad; Oct 15th 2017 at 6:29 pm.
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Old Oct 15th 2017, 6:29 pm   #12
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Default Re: US/UK dual Citizen capital gains tax

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Originally Posted by broucks View Post
That is as it should be - the first bite goes to the country of residence ...
I'm still about confused about the credits ... whether they are transaction specific or in total on the entire tax bill.
EG If I sell A and owe 100 tax in the UK and 80 in the US
and then B with 80 tax in the UK and 100 in the US ...
Do I owe nothing to the US or do I owe them 20
Thanks
I would think that the CG’s are combined together, I don’t think you file a 1116 FTC form for every single CG. Your example above would, I think, mean you pay 180 tax to the UK and claim it all back against your US taxes leaving zero US tax paid.
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Old Oct 17th 2017, 9:54 pm   #13
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Default Re: US/UK dual Citizen capital gains tax

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Originally Posted by durham_lad View Post
I would think that the CG’s are combined together, I don’t think you file a 1116 FTC form for every single CG. Your example above would, I think, mean you pay 180 tax to the UK and claim it all back against your US taxes leaving zero US tax paid.
Maybe, maybe not. Your actual credit is limited to the smaller of the foreign tax you paid and what U.S. income tax would effectively be imposed on the foreign income. So if your UK rate is higher, for example, you may not get a credit for the whole amount of UK taxes paid. You can, however, carry any unused credit forward (for 10(?) years). Additionally, many states don't allow a foreign tax credit, so you may end up paying state tax as well.
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