Apportioning tax between the US and the UK

I'm interested in how a US citizen resident in the UK and taxed on an arising basis would apportion tax between the US and the UK on various types of income. IRS publication 901 gives a table of income tax rates for various types of income for all of the US tax treaties, including the UK. For the UK the tax rate on pensions and annuities is 0% and on general dividends its 15%.

So if a US mutual fund (its an HMRC reporting fund) pays a dividend the US would be paid 15% tax and that could be used as a FTC on UK tax. But if the same individual has US IRA income do they pay the UK the full rate of income tax and then use that as a FTC on the US tax and then also claim back any US withholding tax?

If you receive a dividend from a U.S. company,  that would be reported to HMRC and taxed at 20% in the UK."

Thi is not correct. The rate is wrong if nothing else. One would need to know the domicile of the recipient and whether or not the recipient is claiming the remittance basis.

UK rates are after claiming both notional tax and credit for up to the treaty 15% tax (if any).

Nun, I am not a tax advisor.   
Then, you would complete your US return as if you were in the U.S., declaring both of these items as income and working out your US tax bill.  Using form 1116, you will deduct the amount of UK tax you paid.

Since UK taxes are uniformly higher than US taxes, you will probably not owe anything in the US.  You will be able to carry the unused tax credit forward to subsequent years.

In fact one would resource income on the US return to avoid double taxation where possible and in many cases owe US taxes on US source income - which might be creditable in the UK.

Nun, I am not a tax advisor.   I have always filed my foreign tax return first, and then claimed the amount of foreign tax paid as a tax credit using form 1116.

To take the two issues you raised:

If you receive a dividend from a U.S. company,  that would be reported to HMRC and taxed at 20% in the UK.

Your IRA income would also be reported as such on your UK return.

Then, you would complete your US return as if you were in the U.S., declaring both of these items as income and working out your US tax bill.  Using form 1116, you will deduct the amount of UK tax you paid.

Since UK taxes are uniformly higher than US taxes, you will probably not owe anything in the US.  You will be able to carry the unused tax credit forward to subsequent years.

Hope this helps, and remember again, I'm not a tax advisor.

What I'm trying to get at is that the treaty specifies certain notional tax rates on US sourced income and gains. While the UK retains primary taxation authority over it's residents, in order to correctly apportion tax between the US and the UK the correct tax rate from the treaty has to be used to calculate the notional tax due to the US and the tax credit you can apply on your UK taxes.

In the case of dividends you'd start by setting 15% aside for US taxes, then calculate the UK tax due as if the dividends were derived from UK sources and apply a credit for the 15% US tax. If the UK tax is less than 15%, there is no UK tax to pay.....if the UK tax is more than 15% you pay the difference to HMRC. Then you go back to your US taxes and can use any UK tax paid as a credit for any US tax above the 15%. For pension income you'd go through the same process, but use 0% rather than 15%.

Article 24 is a mystery to many people. There are doubtless one or two clever folk that get the resourcing right. Most returns I have seen deal with this pragmatically and choose a method that makes sense based on the kinds and levels of incomes.