TaxRookie

I hope I'm in the correct forum. I've been going backwards on forwards on this for a while and I'd appreciate any advice.

I'm resident in the US and have a full time job here. I also have UK property, interest and dividends and have been paying tax in the UK and in the US. I may have double paid . I think I'm entitled to relief on the UK tax that I've been paying. Is that right? And does the tax relief apply to all types of income including rental income?

If I am entitled to relief on UK tax can I just claim it as a credit against US tax or fill out the forms for HMRC not to tax me in the first place. To me there doesn't seem to be much difference but I'd appreciate any advice.

Cheers

ChrisK

We're in a similar position... .


Rightly or wrongly we've paid UK tax on the interest and dividends, paid US tax on these as 'income', but then got a (US) tax credit for the UK tax paid. However, I believe that now the first 3k (?) of UK interest is tax-free - which means it would be fully taxed in the US.

TaxRookie

Yes I think from what I'm reading that there's no UK tax on dividends below £5,000 and interest on savings may be tax free under the right circumstances. So I think I wouldn't be paying UK taxes on those items. But my rental income is a different matter and I wonder if I need to pay UK tax on that or is it covered by a Dual Taxation Agreement since I have to pay US tax on it.

Mercury39

If you are an EEA citizen then you are entitled to the personal allowance (currently 11,500/yr) see details here https://www.gov.uk/tax-uk-income-liv...onal-allowance. If your income in the UK is less then 11,500 then you should pay no tax in the UK. You will still likely need to complete a tax return in the UK in order to claim back an tax you paid.

Cook_County

If you are a US resident, you are subject to US tax on worldwide income & gains. You would file an FBAR, Form 8938 & any required PFIC reporting for UK unit trusts, investment trusts, ETFs and OEICs. The US would give a credit for foreign tax on foreign source income. The foreign tax claimable may be current year tax paid or any excess foreign tax credits carried over from up to the last 10 years.


The rental income requires that you claim depreciation. Have you filed your US returns correctly?

TaxRookie

Yes My US tax is correctly paid, my question is regarding the UK tax I paid, and it looks like I can get a us credit for uk tax paid over the past 10 years. I like the sound of that

Cook_County

This reply is confusing. You would always have filed at least 2 Forms 1116 each year (general basket and passive basket). If you did not, the statute of limitations would give you 10 years to claim foreign tax credits. Have you filed Form 1116? If so, what additional refund are you expecting from the IRS?

TaxRookie

No I have never filed a form 1116. I'd never even heard of it before today.

Cook_County

It sounds unlikely your US returns are correct. You may wish to use the Domestic Streamlined procedures to limit IRS penalties.

durham_lad

I'm not an expert but here are my thoughts....

As a non UK resident you do not pay taxes on your rental house or any UK income, it is all taxed in the US only. I had a rental house in the UK for 6 years after moving to the US and as mentioned above did the profit and loss calculations each year including depreciation and paid US taxes only. I filed HMRC form R85 with the bank to get interest paid gross, although as mentioned that is now paid gross by default since the first £1,000 per person is paid tax free anyway. When I started to receive a UK private pension 10 years ago I filed the appropriate forms (HMRC 2002) to have no tax paid and receive it gross as no HMRC taxes are due.

I'm not sure IRS form 1116 will work to recover the UK taxes paid since they were only payable to the US not the UK. Why would the IRS give taxes back that were owing to them anyway, I would think that HMRC would be the ones to claim the refund from, but others will need to comment on that.

TaxRookie

Thanks again for the reply

I understand from reading a bit that this form is for me to claim a tax credit from the IRS of tax paid on foreign income. Since I am in compliance with US taxes I doubt there is a penalty for not claiming tax credits

TaxRookie

Thanks for the reply, but my point is that I did pay taxes on rental income and dividends and interest. I thought I was required to. The Dual Taxation Agreement, I believe allows me to claim a US tax credit on on taxes paid to HMRC.

Am I wrong?

Cook_County

This is incorrect. The treaty will have no effect on whether or not you can claim a foreign tax credit.


Have you filed FBARs & 8938s? What depreciation method did you use?

durham_lad

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newadventure

Can someone confirm this? I thought UK tax was due on UK rental income IF net profit is greater than personal allowance. And when calculating (UK) net profit, i don't believe you can claim depreciation - this is only relevant for the US tax return.