Author Topic: UK Tax on US Social Security  (Read 790 times)

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Offline guya

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Re: UK Tax on US Social Security
« Reply #15 on: December 23, 2017, 08:07:06 AM »
So, how did you handle the taxes for the first year you were here? I'm looking at 8 months of UK residence in 2017.  I'm going to be taxed by the USA on my private pension for those 8 months.  And I'll also get dinged by HMRC for those same 8 months, only later.   

I hate to make the leap, but do you happen to know if  HMRC will allow me credit for the 8 months of 2017 USA taxes I paid when I file with HMRC?  I'm running across language that says that as of recently they will NOT give credit for USA taxes that are the result of the "savings" clause.
There is nothing new about the saving clause. It saves the right of the United States to tax its citizens as if the treaty does not exist; subject to a very few specific exceptions. The UK has the primary right to charge tax on most income (except for US dividends and real property) and will not allow a credit for foreign tax where the UK has the primary right to charge tax.  UK domestic law expects you to claim relief in the United States.
« Last Edit: December 23, 2017, 11:53:53 AM by guya »

Offline durhamlad

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Re: UK Tax on US Social Security
« Reply #16 on: December 23, 2017, 09:40:24 AM »
So, how did you handle the taxes for the first year you were here? I'm looking at 8 months of UK residence in 2017.  I'm going to be taxed by the USA on my private pension for those 8 months.  And I'll also get dinged by HMRC for those same 8 months, only later.   

I hate to make the leap, but do you happen to know if  HMRC will allow me credit for the 8 months of 2017 USA taxes I paid when I file with HMRC?  I'm running across language that says that as of recently they will NOT give credit for USA taxes that are the result of the "savings" clause.

I bottled it and had a us/uk certified tax accountant do our taxes. Still done online but with an authorised agent.

She did a split year treatment which is allowed on the first year you come back. There was no HMRC allowed tax credit for US taxes paid but there were more FTCs on my US return. I could have filed an amended US return to claim those extra credits but decided to carry them forward to claim next year.
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Offline Nan D.

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Re: UK Tax on US Social Security
« Reply #17 on: December 23, 2017, 12:45:40 PM »
Hmm, ok, given that, how would I make a tax payment before the end of the year? I now have a USER ID, etc., on the HMRC website.  I would make an educated guess and make a payment for what I think the tax would be for May-December, which would then allow me to use that as a credit for foreign tax paid on my IRS return for 2017?

Alternately, the IRS website talks about carrybacks, a term with which I'm not familiar:

Carryback and Carryover of Unused Credit

If you can't claim a credit for the full amount of qualified foreign income taxes you paid or accrued in the year, you're allowed a carryback and/or carryover of the unused foreign income tax. You can carry back for one year and then carry forward for 10 years the unused foreign tax. For more information on this topic (including taxes paid or accrued in years before 2007), see Publication 514, Foreign Tax Credit for Individuals.


and, in https://www.irs.gov/publications/p514  (bold is mine)

Credit for Taxes Paid or Accrued

You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. "Tax year" refers to the tax year for which your U.S. return is filed, not the tax year for which your foreign return is filed.

Accrual method of accounting.

If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them.

In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Generally, this occurs on the last day of the tax year for which your foreign return is filed.


This seems to say that I'll have to pay the IRS for 2017, and then pay HMRC at the end of 2018 for 2017/18 tax on income while in residence in the UK. At that point I can claim the tax paid to the UK on the US IRS tax forms for 2018. Correct?
« Last Edit: December 23, 2017, 12:56:35 PM by Nan D. »

Offline durhamlad

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Re: UK Tax on US Social Security
« Reply #18 on: December 23, 2017, 04:37:57 PM »
When our accountant did our US taxes in June this year for the year 2016 she completed FTC forms 1116 for Passive and General and marked them as “accrued”. Once she completed our UK return and saw that she had underestimated the credits she said we could submit an amended return to get the extra credits now or carry the excess forward.
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Offline guya

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Re: UK Tax on US Social Security
« Reply #19 on: December 23, 2017, 06:14:53 PM »
The UK tax year ends on 5 April. Under US law, the only permissible accrual for 2017 will be the UK tax due for the UK tax year ended 5 April 2017 (the foreign tax year that ends during 2017). As Nan D owed zero UK tax for the UK tax year ended 5 April 2017; changing (irrevocably) to claim foreign tax credits on the accrued method would be a disaster based on these facts.

I concur that should someone on the accrual method claim an accrual that turns out to be wrong; one can file a "foreign tax redetermination" statement. This is discussed extensively in the IRS publication, but of little relevance to Nan D as the foreign tax credited accrual in Nan D.s circumstances for 2017 is - without a shadow of doubt - zero.

Offline Nan D.

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Re: UK Tax on US Social Security
« Reply #20 on: December 23, 2017, 07:05:29 PM »
Ok, I got it, I think.

I am going to be taxed by the USA for 2017. I had sufficient withholding to cover that, with a refund due me from that withholding without any consideration of HMRC. I file my IRS forms just as I always have in early 2018 for the 2017 IRS tax year.

I am going to be taxed by HMRC for 2017/18.  I will throw the 2017 IRS refund towards  HMRC and have to come up with the difference to pay off HMRC for 2017/18 by Dec 31 2018.

I am going to try to cancel any witholding from my pension for calendar year 2018, as I did a mock-up on taxes for the USA for 2018 and HMRC for 2017/18 and HMRC pretty much would need the amount I have been having withheld from my USA pension. I will place that amount in my UK savings account or otherwise earmark it for payment of future tax to HMRC.

By not having the IRS have hold of it, I'll have it available to pay HMRC by Dec 31 2018, to be able to claim the HMRC taxes as a credit off my 2018 year IRS filing done in 2019. The credit for tax paid to HMRC should leave me with no USA tax due and so no need of the withholdings by the IRS in the first place. 

Beginning with my IRS filing for 2018  taxes (done in 2019), I elect the accrual method, so that I can count the HMRC tax paid covering April 2017-April 2018 against my 2018 IRS taxes.

If you read this and find anything amiss, please let me know?

Next question:  When I left employment, I had the option to either take my accrued vacation as a lump sum or stay "on the books" and have a month of terminal vacation. I did the latter so that I would be eligible to continue my health insurance into retirement (a requirement for EU CSI) and also to be able to participate in a COLA for retirees that would apply only if I remained employed for that one extra month.

SO, does HMRC count this sort of terminal leave while in the UK as income? I am assuming that since I was physically in the UK when it was paid out, they do.  But since it was actually for hours-off earned/accrued over the prior three years in the USA, perhaps there's a loophole?
« Last Edit: December 24, 2017, 03:06:14 PM by Nan D. »

Offline Nan D.

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Re: UK Tax on US Social Security
« Reply #21 on: December 24, 2017, 03:28:51 PM »
Vadio makes an excellent point on registering now for self assessment as it takes time to do so and get issued the UTR number you need to file. In past years I have listened to callers to BBC Moneybox complain that they missed the Jan 31st deadline because they had not received their UTR number in time, (because they had left it too late to register for self assessment)

Yeah, I tried a couple of times and could not get it to work online. I assume it's because  I don't have a credit history here?  Have to phone them, but not on Christmas Eve!