Tax Advice - Dual Citizen

People,

My wife and I are both retired and citizens of the UK and the US. We are resident in the UK but have incomes in both countries including government and private pensions,  interest and dividends and IRA distributions.

We file and pay taxes in both the UK and the US. My questions concern what incomes we report to which country.

We currently report ALL income (UK and US sourced) in the US. This includes UK interest and pensions (Government and  Private).

For the UK we report all US income but only 90% of US pensions (Government and Private) including IRA distributions, as well as all UK income.

We use our US taxes as tax credits in the UK and vice versa. We employ accountants in both countries.

Is this the correct  thing to do, or do the various double taxation treaties suggest an other way.

If you need further details to form a view, please ask.

Thanks,

David

David - it would be more efficient to engage one accountant in the UK to prepare both sets of tax returns.

Broadly speaking, the UK has primary taxing rights. Until April 2017, this will require payment of UK tax on 90% of US pension income.

The UK does not give credit for US tax. Article 24 of the US/UK treaty gives the US the opportunity to give credit for UK tax. US social security pension would be completely exempt from US tax. It sounds most likely you have paid too much to the IRS but too little to HMRC. You will probably want to use HMRCs disclosure procedures to correct the UK position.

Hopefully your investments are in US and UK tax friendly items - avoiding collective funds and other toxic products.

I would broadly agree with Guya, other than about using the same accountant for both US and UK taxes, as both are specialist areas. As a UK resident you're liable to pay UK tax on your worldwide income, while as a US citizen you're liable to file and declare your worldwide income, and you can claim exemptions such as the Foreign Tax Credit and/or the Foreign Earned Income Exclusion when you file that will likely take you out of US tax liability.

Edited to remove self-promotional link

I would broadly agree with Guya, other than about using the same accountant for both US and UK taxes, as both are specialist areas.

I disagree as cross border taxation is an even more specialized area that domestic tax experts seldom understand. Employing separate accountants in the US and UK means that "the left hand doesn't know what the right is doing". Domestic tax experts will apply the usual domestic rules without correct regard for the cross border issues leading to errors in how much you pay where. I'd love to see how the dividends have been taxed.........

Most UK based individuals who do not feel confident handling their own tax returns will want to check that any proposed tax adviser is qualified with at least one professional accounting or tax professional body in the UK as well as in the United States so that they know that the adviser is adequately regulated in the UK and handles every day many of the complexities of the foreign aspects of the United States tax system.  Indeed, more broadly, for most UK based individuals there are often considerable advantages in having a UK based adviser who can jointly advise on both US and UK tax issues and (possibly) handle both sets of tax returns in the UK.

These include:
1.   The client and the adviser being located in the same time zone.
2.   Client documents and workpapers being held outside of the United States; which many people perceive as providing additional protection in the event of IRS audits.
3.   Advisers outside of the UK are unable to offer the protections to clients provided by the UKs Proceeds of Crime Act, which requires all tax professionals offering services in the UK to be regulated and supervised for anti-money laundering protection purposes.  Here in the UK it is a criminal offence to offer tax advice unless the adviser is supervised. Quite unlike within the UK, there is no requirement for mandatory regulation of tax advisers in most of the United States. 
4.   The fact that although there are roughly one million paid tax professionals within the United States, that there are naturally only very few amongst these who understand enough about the US reporting of foreign based taxpayers.
5.   Most tax advisers outside of the UK are not bound by the UK ethical standards that govern UK qualified advisers; which set out fundamental principles of integrity, objectivity, competence and care, confidentiality and behaviour (http://www.tax.org.uk/professional-standards/professional-rules/professional-conduct-relation-taxation).
6.   The opportunity in the unlikely event that things ever go wrong to get issues addressed through a supervisory body that is closer to the client than an adviser located several thousand miles away.