How to reclaim UK taxes paid on US dividends

My apologies if this has been done to death. I have searched old threads but couldn’t quite find the answer I am after.

I hold Vanguard ETFs (HMRC reporting) that distribute dividends and capital gains which I report on my UK self assessment. In the last two years, I’ve had to pay UK tax on my US dividends because they have been over the £2k dividend allowance, and last year also had to pay capital gains tax as capital gains distributions were over the capital gains allowance.

I earn below the foreign earned income inclusion threshold so for simplicity I just use that to exclude all of my UK income on my US taxes. I never plan to return to the US so am not worried about building up foreign tax credit carry forward.  Can I use the foreign tax credit for my passive income to help offset some of my US tax owed on my US dividends and capital gains distributions? I know I can’t use the foreign tax credit For my earned income because I have excluded all of my earned income but I know exactly how much of the UK tax I paid last year was in relation to the US dividends and capital gains so can I claim a foreign tax credit for that amount to lower my US tax bill?

Thanks in advance.

I think what you suggest is quite possible. Good explanation at the site below.

https://www.remotefinancialplanner.com/foreign-earned-income-exclusion-versus-foreign-tax-credit/

Thanks, I came across that article when I was searching online.

So just to confirm, it is possible to claim a foreign tax credit for taxes that were paid on passive income arising in the US (as these dividends were paid in the US but taxed in the UK)?

Thanks, I came across that article when I was searching online.

So just to confirm, it is possible to claim a foreign tax credit for taxes that were paid on passive income arising in the US (as these dividends were paid in the US but taxed in the UK)?

Yes.  When you come to complete form 1116 you will see a box that you should tick called “Resourced By Treaty” which lets the IRS know that this income is being treated as foreign income and taxed by a foreign country due to a tax treaty.

Thanks very much. And I would then need to complete form 8833 as well to explain the treaty position I am taking?

Thanks very much. And I would then need to complete form 8833 as well to explain the treaty position I am taking?

No need to file that fortunately. The fact you have an address overseas and are filing as an overseas resident is sufficient for the IRS to know why the Resourced By Treaty box is checked on form 1116.

Ah amazing, thanks.

One more question if I may. Is it a problem if there is a mismatch in the year in which the UK tax was paid with the year in which the US dividend was received? I claim US calendar year as coterminous with UK tax year ended in April so paid the UK tax in 2020 for 2019 US dividends. Hopefully that makes sense.

One more question if I may. Is it a problem if there is a mismatch in the year in which the UK tax was paid with the year in which the US dividend was received? I claim US calendar year as coterminous with UK tax year ended in April so paid the UK tax in 2020 for 2019 US dividends. Hopefully that makes sense.

You can always check the accrued box for UK tax paid on form 1116. I also claim US tax year as coterminous with the UK and I also make sure I file and pay the UK taxes before Dec 31st even though they are not due before January 31st.