David Treitel
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American Tax Returns Ltd is a leading firm of dually US and UK qualified tax advisers which prepares both US and UK tax returns and provides sensible practical “joined-up” American and British tax advice; all for a simple fee agreed before starting. The firm is led by David Treitel, one of the best known dually US and UK qualified tax advisers in the UK who serves at committee level with both the ICAEW and the CIOT, the UKs leading professional accounting and tax bodies.
Clients include people from all walks of life where there is an American connection. The kind of people we take care of is truly diverse ranging from academics, entrepreneurs and expatriate employees to those of independent wealth as well as many who are now retired but find that tax has never quite gone away! While most of our clients are up to date, we can and do frequently handle any worries that come from being behind with tax returns.
We specialise in helping make US and UK tax easily understandable for those in the UK. Tax returns can be complicated, confusing, time-intensive and even a tiny bit scary. With over thirty years of practical experience there are simply no forms that we won’t help you to complete, no questions that we can’t answer and no tax that we can’t help you save. No wonder we are often called “the tax expert’s expert”!
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Managing Director, American Tax Returns Ltd American Tax Returns Ltd
My answers
There are several issues here:
1. An IRS custodian may choose to withhold out of an abundance of caution
2. An IRA custodian may be missing data such as an ITIN
3. Withholding - if any - would not be the final liability
4. Inherited Roth IRAs would need to be transferred to a beneficiary IRA. In practice it can be tough to find an IRA custodian who will open an account for a UK resident
5. UK tax issues will need to be considered
Professional advice would be prudent.
One would investigate reporting/ tax issues in the US such as Form 3520, FBAR, CFC, SubPart F, GILTI, PFIC and FATCA. The existing accountant is the best place to start the research.
What was the type of investment? How was it owned? Was there a US entity - eg LLC, partnership, LP or C-Corp? Why was it necessary to file US tax returns?
What was the type of investment? How was it owned? Was there a US entity - eg LLC, partnership, LP or C-Corp? Why was it necessary to file US tax returns?
It may assist to clarify that the UK/US tax treaty defines real property at Article 3 (m): in the following way:
“the term “real property” means any interest (other than an interest solely as a creditor) in land, crops or timber growing on land, mines, wells and other places of extraction of natural resources, as well as any fixture built on land (buildings, structures, etc.) and other property considered real or immovable property under the law of the Contracting State in which the property in question is situated. The term shall in any case include livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of real property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits and other natural resources; ships, boats and aircraft shall not be regarded as real property.”
Consequently, royalty income that relates to mineral royalties is treated under Article 3 for UK tax purposes as income from “real property”. These kind of Royalties are not within Article 12. This is identical to how the activity is reported in the United States.
Credit can only be claimed for the actual US tax due. Because the income is US source derived from US land, the client has a US filing requirement. Assuming the client makes a timely net election, which will allow the client to claim expenses in the US including depletion, the actual US tax due - and therefore the amount creditable in the UK - will be significantly below 30%.
You'll need to see the US tax returns filed to calculate the allowable credit.
Incidentally, my interpretation as to where to report US mineral royalties on a UK tax return would not be as "interest". You may wish to review the words in the US-UK tax treaty.
The United Kingdom has the primary right to charge tax on income attributable to days worked in the UK. The UK will therefore charge tax on employment income for September and October 2022. As a UK based US tax professional, I would have expected the client to have reported the income as UK source in the 2022 Federal & State tax returns. If this did not happen, I'd be happy to assist the client amending the 2022 US tax returns.
In calculating UK taxable income - including reporting any US pension contributions to HMRC- you may wish to be aware that amounts reported on US paystubs can sometimes be net of some pre-US deductions including items such as deferred compensation and employee contributions to any US pension plan, and would not include employer contributions to any US pension plan.
Windy -it may help to clarify that I am a London based US tax professional. I asked this of HMRC in 2021. HMRC agreed that US stimulus refunds are not taxed by the UK. US social security pension paid to a UK resident filing on the arising basis is solely taxed by the UK. It is not taxed by the US.
The client is a US citizen. Consequently, the client reports worldwide income and gains in the US and files any required information returns such as FBARs. The rental activity is reported in the US on Schedule E, plus Forms 1116 and 8858.
To avoid accidentally acting for a non compliant individual, you'll naturally want to check that the client is compliant in the US as well as the UK.
I think we'll all find this HMRC comment interesting in relation to capital gains. Not sure if we can reply on it though: “You need to work out the purchase costs in pounds sterling, using the official exchange rate that was in place at the time of purchase, as well as the time of disposal. To convert from a foreign currency to pounds sterling, please use the official rate of exchange at the time of the exchange. You are free to use the yearly rate, the monthly rate or the spot rate.”
Acquisition value of foreign shares purchased prior to becoming tax resident - https://community.hmrc.gov.uk/customerforums/cgt/4a4fe24c-80c1-ed11-9ac4... Community Forum - GOV.UK (hmrc.gov.uk)