Allocating US tax paid on UK tax form
 

Can anyone give any advice on how to allocate the US tax paid (Line 63 on Form 1040) among different types of income when you filling the UK tax forms?

For a pension, it tells you on the 1099-R how much tax was withheld, but how do you know if that was the correct amount?

How do you figure out how much of the US tax you paid was because of your interest and dividends?

Any help much appreciated.

Re: Allocating US tax paid on UK tax form
 

Hello Janelle,

Your circumstances would need to be looked at in more detail to ascertain this.

Re: Allocating US tax paid on UK tax form
 

Perhaps you could explain in a little more detail what you're looking for?

On the 2014 U.S. tax filing form 1040, there are really 2 related tax lines. How much tax you owe for the year (line 63 as you said), and tax already paid or withheld such as from 1099-R (line 64). Lines 75 and 78 are the difference, indicating if you overpaid (you are due a refund) or underpaid (you still owe), respectively.

Form 1099-R is just your pension reporting statement that indicates how much tax was witheld on your pension. If they withheld too little or too much, it'll be corrected later in the tax calculation for your total income.

Interest and dividends should have already been included earlier in calculating your total taxable income from lines 8 and 9.

But I think what you need to know for UK tax purposes in order not to be double taxed (per tax treaty) is that you already paid U.S. taxes on your U.S. income and do not need to pay UK taxes on this income again. You may just need to report your total U.S. income (adjusted gross income from line 37) and U.S. tax paid (including withheld) on that income (line 63).

Re: Allocating US tax paid on UK tax form
 

If you are UK resident, then the UK usually gets the 'first crack' on the taxation side. Typically you file a UK return and then claim tax relief from the US under the treaty, either using the FEIE or tax credits, as applicable. Unless you actually owe US tax after all that (which is not usually the case since UK tax rates are higher) then you get a full refund. Some income (such as SS) is ONLY taxable in the UK if you are UK resident.

But as other have said, to give any (non-professional) advice based on personal experience, more info on your specific situation is needed.

Re: Allocating US tax paid on UK tax form
 

Sorry to sidetrack from the OP's concerns, but with US SS, as a UK resident and paying UK tax on the SS, do you then not even enter the SS on the 1040?

Re: Allocating US tax paid on UK tax form
 

Thanks for your responses. I was looking at UK tax form SA106 Foreign income. On page 2 it asks you to list income from foreign sources, interest, dividend, etc. Column C asks for the foreign tax taken off or paid on that income. That's why I was trying to apportion our Total Tax from Line 63 of the US Form 1040.

However, it dawned on me that a better place to put the total US tax (converted to £) we paid is on page 6 of the SA106, Foreign Tax Paid on Employment, Self-Employment and Other Income. Then HMRC can work out the Foreign Tax Credit Relief themselves.

I have already filed our US return for 2014. Sounds like I should have paid the taxes due on April 15, then got an extension to file US taxes until HMCR works out the UK taxes.

Re: Allocating US tax paid on UK tax form
 

But, are your a resident of US or UK? That will make a difference in the tax due to each..

Re: Allocating US tax paid on UK tax form
 

If you are UK resident, you enter the amount in US$ (from your 1099) on line 20a, then "0" (the taxable amount) on line 20b.

Re: Allocating US tax paid on UK tax form
 

OK, thanks.

Re: Allocating US tax paid on UK tax form
 

It's not common for a UK resident to have to claim a US tax credit, in fact there is a procedure where you resource US income so that it looks like UK income to the IRS and you get a tax credit in the US for the UK tax you have to pay on what is in actual fact US income.

Please describe the types of income you have, your citizenship and residence status and then there is a chance someone can tell you how your taxes should be divided between the US and the UK and where to claim credits.

Re: Allocating US tax paid on UK tax form
 

This is a few years old, but the basic explanation of how it works is still applicable: https://americansabroad.org/files/39...reditadams.pdf

Re: Allocating US tax paid on UK tax form
 

Background info: we are UK residents, US citizens, we file MFJ, we have pension, interest, dividend, rental (although it makes a loss) and CG (less than the UK allowance) income all from the US.

In the UK, my husband has a small casual job.

Thanks for the link Vadio - I need to study that closely when I have more time.

Re: Allocating US tax paid on UK tax form
 

Do you pay UK tax on a remittance or arising basis? Are you UK non-domiciled, but tax resident? As claiming the remittance basis is expensive and only for those that have substantial assets let's assume you are non-doms that pay UK tax on an arising basis. You only have to report foreign income and gains over 2000 GBPs so in addition well assume you have more than that.

Pension.
Where it is taxable depends on the type of pension. Is it Government or private? is any of it US tax free like a ROTH? Do you get US SS payments?
Your pension might be UK tax free, or it might be fully taxable in the UK and you will have to pay the UK first and then resource the income by treaty so you can take a US tax credit for the UK tax paid and also claim back any US withholding when you file your 1040. This scheme is how things generally work; pay the UK first, taking not of any special cases in the treaty and then claim foreign tax and withholding tax credits on your US taxes.


Interest. This will be UK taxable and would be entered on SA106 in the section for interest.

Dividends.
These are a bit more complicated as by treaty you must pay the US 15% dividend tax, so you will get a credit for that on your UK tax.

Rental
This income will be taxable in the UK and you will have to claim a tax credit in the US.

Capital Gains.
The UK has quite generous capital gains allowance so I'd arrange things to stay below that....then you just have to deal with US capital gains.

Re: Allocating US tax paid on UK tax form
 

Thank you Nun, your assumptions are correct. My husband is retired from USMC, so only his military pension from the US, no SS yet for either of us.

I am going to file a UK SA and let HMRC work out the tax. Then I will file an amended 1040 and claim the tax credit.

Next year I will know to hold off on filing the US return until I know what the tax will be in UK.

What do you mean by the phrase "resources your income"?

Re: Allocating US tax paid on UK tax form
 

Here's the full IRS explanation:

Foreign Tax Credit - Special Issues

Re: Allocating US tax paid on UK tax form
 

As you husband's pension comes from the US Government (and I assume he is not a UK citizen), it is only taxable in the US. If you enter it on your SA the taxable amount should be entered as zero and you can quote Article 19.2 of the US/UK tax treaty as the reason. Once you get SS that will only be taxable in the UK.

"resource your income" is a term used by the IRS for a procedure to allow a US tax payer to take a foreign tax credit on US income or gains. For example, if you are a US citizen and a UK resident and taxed on an arising basis you will be taxed by both the US and the UK on your worldwide income. If you have income or gains in the US the UK will tax those and you will have to pay HMRC. But as a US citizen the IRS will also want to tax you. The IRS allows you to take a credit for tax you pay on foreign income and gains.....but your income and gains are in the US. So there is a treaty procedure called "resourcing" that allows you to virtually move the money to the UK and treat is as foreign so you can get the credit on your US tax. Look at form 1116 and you'll see a series of "baskets" as you have to categorize your income and gains.

Re: Allocating US tax paid on UK tax form
 

Thank you again, everyone who contributed. I am starting to feel a lot better about understanding what I need to do - the mist is clearing - still lots of reading to do.

I can't tell you all how much I have appreciated having someone to ask. I hear horror stories about how much accountants charge to do UK/US taxes.

Re: Allocating US tax paid on UK tax form
 

Hi Nun, care to elaborate on your statement about foreign dividends being more complicated and needing special treatment on UK tax return. We have Ordinary Dividend and Qualifying Dividends on our 1040.

An HMCR agent told me that LT and STCGs from mutual funds are taxed as interest in UK. After reading some of the incorrect things members have been told by HMCR agents, does anyone concur?

I must say after years of using TurboTax to do US taxes, I really don't know very much about the background technical workings of the US tax code.

Re: Allocating US tax paid on UK tax form
 

For all this we are talking about US investment funds (ETFs, mutual funds etc) outside of retirement accounts

Your agent is correct if the US funds are non-reporting. In that case you lose your UK capital gains allowances and capital gains are taxed as income. So you pay HMRC tax and then do the usual resourcing and taking of tax credits to offset the US tax due. If the funds are on HMRC's reporting funds list (it's a good thing to make sure they are before you become liable to UK tax) then the capital gains and dividends are taxed as if they were UK funds. The UK has quite generous CGT allowances and if you are a basic rate tax payer you pay 0% on dividends.

Now under the treaty the US imposes a 15% withholding tax on all US sourced dividends so you have to include that when working out how to divide the tax between the US and the UK. There is a fully worked example on page 104 of the treaty technical explanation

http://www.treasury.gov/resource-cen...ts/teus-uk.pdf

However, if you are careful and can keep your income below the 15% US tax bracket and are a basic rate UK tax payer you don't really have to bother with the treaty as there will be 0% tax due on dividends in both the US and the UK.