No tax paid on passive income - FTC

I'm considering using FTC instead of FEIE this year, but I do have a small bit of passive income from interest/dividends that I do not pay UK tax on. Therefore I will have no tax credits to offset this. There's nothing to pay at the moment because I still have the child tax credit, but only another 3 years of these until my child is too old. After that, am I correct in assuming that whatever is in that passive category for FTC, with no tax to offset, will be taxable and I am like to owe something (albeit a small something since my passive income is hundreds, not thousands).

Am I correct in my thinking here? I guess this is a significant downside to using FTC vs FEIE if you have non-taxed income in the passive category and no credits to apply to offset it.

Thank you!

I believe that all FTC categories merge at the end of for 1116. Up to around 5 years ago all U.K. interest income was taxed at source, so I still have a good bank until around 2026, when the final partial carry forward year ages out.
I’d think that you can absorb employment FTC’s for passive income, but I’m sure someone else can confirm. I stick to FEIE for simplicity (and not breaching the threshold).

Why are you looking to switch from FEIE to FTC? From my understanding you can use FEIE and still use FTC against any foreign passive income but if you have not paid any foreign tax against passive income then I believe you are stuck with any US tax on that passive income.

Being a USC living abroad means paying the higher taxes of the 2 countries I think. Our ETFs and UK interest accounts are in my wife’s name and as her income is so low she pays no UK tax on the dividends and capital gains but we do pay US taxes on them. Once she starts drawing UK and US SS next year then she will pay UK taxes on that passive income and we can use FTCs to reduce the US taxes.

I believe that all FTC categories merge at the end of for 1116. Up to around 5 years ago all U.K. interest income was taxed at source

My understanding was that the categories were separate and I can’t apply FTC from the general category to the passive income. I’ve always used FEIE and so have no carry over.

Durhamlad - If I use FTC I can get the refundable element of CTC, which is 3k next year, so I thought 1.4K + 3k + 3k would be worth the extra bother until my son hits 18. I think you are right that tax on the passive income is unavoidable, but after 5 years I could revert to FEIE.

*Edit, actually 1.4K +1.4K - the credit is not fully refundable if you are not maintaining an abode in the US. Also age extended for just this tax year. So perhaps not worth the hassle, but I should hop back in my time machine to his birth and start using FTC for the refund 

My understanding was that the categories were separate and I can’t apply FTC from the general category to the passive income. I’ve always used FEIE and so have no carry over.

Durhamlad - If I use FTC I can get the refundable element of CTC, which is 3k next year, so I thought 1.4K + 3k + 3k would be worth the extra bother until my son hits 18. I think you are right that tax on the passive income is unavoidable, but after 5 years I could revert to FEIE.

*Edit, actually 1.4K +1.4K - the credit is not fully refundable if you are not maintaining an abode in the US. Also age extended for just this tax year. So perhaps not worth the hassle, but I should hop back in my time machine to his birth and start using FTC for the refund 

Gotcha. Thanks for explaining.