Foreign Tax Credit Limitation

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Mar 19th 2015, 9:02 pm

#31

Steve_

Grumpy Know-it-all

Joined: Jul 2010

Location: Calgary, Alberta

Posts: 8,928

Re: Foreign Tax Credit Limitation

Quote:

Originally Posted by Leigh_A

In regards to my residency, according to HRMC's online tool, I should be classed as non-resident for 2014/15 - I was in the UK for only 9 days during the tax year, which seems to grant automatic non-residency status. It appears that they would only start looking at other ties had I spent more than 16 days in the UK. Using the tool, as soon as I tell them that I only spent 9 days physically in the UK, the questions stop and I'm told that I am a non-resident.

I think people are getting too carried away with residency in this thread. You're resident in the U.S., simple as that. You're resident where you ordinarily reside, it's not brain surgery. HMRC and the IRS have all these complex equations but it's not a complex thing really, it boils down to Article 4 of the relevant tax treaty (these equations they usually don't take that into account).

And the most important bit is section 4a of the UK-US treaty in your case:

Quote:

he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests)

It's pretty much that simple. You can make it more complicated if you want...

Mar 19th 2015, 9:06 pm

#32

Steve_

Grumpy Know-it-all

Joined: Jul 2010

Location: Calgary, Alberta

Posts: 8,928

Re: Foreign Tax Credit Limitation

Quote:

Originally Posted by Rimbaud

Obviously this can't continue, so we were going to move to a contractor relationship, where they paid me a retainer and commission directly, and I paid US taxes as self employed. BUT... there is an extraordinary rate of self employed tax here in the US, plus federal plus state and city, which equates to 51% or so... and I'd be better off paying full taxes in the UK and taking the 10% hit on NY state and city as well - as ludicrous as that seems.

What are my alternatives?

You've only got one alternative, because your principal home and your spouse are in the U.S. so you reside in the U.S., you pay taxes in the U.S. End of story pretty much. It's not just about where you live, it's about where you physically do the work - you're doing the work in the U.S., so you pay taxes in the U.S. You don't have a choice.

The only thing you do have a choice about is whether you become self-employed or use an S-corporation or whatever but effectively the tax rate will be the same either way.