fangrir

A situation I'm sure many others here faced or are facing, and I just wanted to see if I've understood the obligations right...

I'm looking to start a job in the US, and will be renting a flat I own back here in the UK while I am. The only income I will be receiving in the UK while I'm away would be this rental income.

I understand that US taxes are applied on global income, but there are also double taxation agreements. If I filed a tax return for the UK-related income separately, using my UK personal allowance and at UK rates (potentially paying no tax in the UK as the annual rental income after deductions comes under my personal allowance), am I still liable to pay tax for this income to the IRS in the US?

I expect my salary from my employer will pretty much be my only income in the US, and am quite happy for them to pay the taxes related to this direct to the IRS in the course of the year.

What have the experiences of others been? Have you had to file an additional return at the end of the year declaring any rental income you have had, and then pay additional tax on that above your personal allowance?

Hotscot

'I'm looking to start a job in the US'

You're looking or actually starting? Just clarifying...

If starting, what date?

Michael

Double taxation agreements means that the US will allow you to use taxes paid in a foreign country to offset US taxes owed. If you don't pay any taxes, you won't have any foreign tax credits to offset US taxes owed.

If it was otherwise, people would invest in many different countries to avoid paying taxes and the rich are really good at using loopholes to avoid taxation.

JAJ

Yes. And your State tax authority, unless in a state without income tax.

You can normally take a credit against federal tax for foreign taxes. And you should be aware, that starting April 2015, the personal allowance for most non-residents in the U.K. is likely to be withdrawn.

If you sell the property in future, you may be liable to U.S. capital gains tax on the entire gain, depending on when you sell it. The U.K. is also planning to tax capital gains of non-residents on U.K. property.



You employer will not be paying your taxes. Employer will withhold taxes, and remit these to the IRS/State, but you are still responsible for filing an annual income tax return. Both Federal and State. And then you either pay the extra tax, or get a refund.

If U.S. resident, and in employment, you are going to be filing a U.S. federal tax return anyway, so if you have rental property it's just an additional schedule for the rental income. And, if you pay foreign tax, a form 1116 to claim credit. Same goes for a State tax return, except that most states don't allow for a foreign tax credit.

JAJ

The U.S. foreign tax credit does not depend on a double tax agreement.

From the perspective of a U.S. resident, a double tax agreement may mean that another country does not impose its own tax, which avoids the need to claim a foreign tax credit. Or at least the other country taxes at a reduced rate. It is unusual for a double tax agreement to exempt income from U.S. tax (for a resident) although there are a few exceptions.