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US citizen UK resident with US tax credits availab

US citizen been UK resident for many years and has US tax credits carried forward in US

Client is a US citizen but has lived in UK for many years and done UK tax returns as well as his US tax returns.

Because he has paid a lot more tax in the UK than he would have in the US on his income he has advised he has a large credit on his US tax account.

Not sure how this operates or what it means as I have not handled this type of situation before. He will continue to live in UK for forseeable future but wants to buy a property in US to rent out to use up his US tax credits to set against this rental income. He doesn't believe he will have any tax to pay in the US because of these brought forward credits in the US but I don't know how this would interface with the UK tax system which taxes worldwide income in the UK.

Could someone give a bit of guidance about how this might work between the 2 countries and whether he is likely to be taxed in UK even though he may not have tax to pay in US? I am sure there are rules within the DTT but not sure of basic principles involved.

May be one I have to pass on.


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22nd Oct 2017 08:46

Not sure your client knows what he's talking about. Or perhaps I mean I am sure you don't know what your client is talking about.

Since you ask for the position on basic principles ignoring the DTA, this is that your client has to consider his worldwide income in determining his UK tax position. If he already pays the RBC and does not remit amounts that would be matched with the income from the new source, you could say that the new source of income would not be taxed in the UK. There's nothing in your OP to suggest that is the case, though.

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22nd Oct 2017 10:17

Your client is a long-term UK resident. UK tax rates are (typically) higher than US tax rates. He claims credit in the US for UK tax on foreign (i.e. UK) income. Because UK rates are higher, he has "excess foreign tax credits" (in US tax jargon); which US law lets him carry forward for up to 10 years. US law only allows him to use that excess against foreign income; so US rental profits will not cut the mustard.

I'd be glad to discuss with you or the client directly if I can help in any way.


David Treitel | American Tax Returns Ltd
The Old Exchange, 12 Compton Road, London, SW19 7QD

Tel: 020 3542 6330

Email: [email protected]

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22nd Oct 2017 11:10

Many thanks David. Although I probably didn't articulate the question very well I believe you have picked up the key elements accurately.

It would appear from your observations that he would not be able to use those US excess foreign tax credits against US property income so from a purely tax point of view his idea to buy a property to rent out in the US to use up those credits isn't going to work.

He is a reasonably long standing client of mine but all his income in my time has been UK source. I will have a more detailed conversation with him and thank you for your kind offer to assist if required.

I was hoping you might see the post because I know you have been very helpful and constructive with other US/UK issues in the past

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13th Jan 2018 19:21

Just in case anyone is interested; US law has 2 new baskets for segregating foreign tax credits from 2018. Very limited details are available yet.

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