Thanks!
Indeed SS is excluded from US right to tax US citizens altogether, and it seems private pensions (like 401K) should be resourced.
As for dividends, it is a bit creasy.. Reading article 24 (Relief from double taxation):
2. For the purposes of applying paragraph 1 of this Article,
(a) subject to sub-paragraph (b) of this paragraph, an item of gross income, as determined under the laws of the United States, derived by a resident of the United States that, under this Convention, may be taxed in the United Kingdom shall be deemed to be income from sources in the United Kingdom
This seems to indicate that ANY income I have, including income from US sources, can be re-sourced by treaty - no?
I remember reading somewhere a discussion that US citizen UK resident who is sent on a short business trip to US can use treaty to deem salary they get during that trip as arising from UK sources...
However, there is also:
part 6b,c,d:
(b) in the case of profits, income or chargeable gains from sources within the United States, the United Kingdom shall take into account for the purposes of computing the credit to be allowed under paragraph 4 of this Article only the amount of tax, if any, that the United States may impose under the provisions of this Convention on a resident of the United Kingdom who is not a United States citizen;
(c) for the purposes of computing United States tax on the profits, income or chargeable gains referred to in sub-paragraph (b) of this paragraph, the United States shall allow as a credit against United States tax the income tax and capital gains tax paid to the United Kingdom after the credit referred to in sub-paragraph (b) of this paragraph; the credit so allowed shall not reduce the portion of the United States tax that is creditable against the United Kingdom tax in accordance with sub-paragraph b) of this paragraph; and
(d) for the exclusive purpose of relieving double taxation in the United States under sub-paragraph (c) of this paragraph, profits, income and chargeable gains referred to in sub-paragraph (b) of this paragraph shall be deemed to arise in the United Kingdom to the extent necessary to avoid double taxation of such profits, income or chargeable gains under sub-paragraph (c) of this paragraph.
This seems to say that HMRC would only allow 15% credit on US tax (which might be enough for me this year, since they only tax part which is above £2000)
But assuming there is some residual UK tax I have to pay after this credit is given - can I use it on 1116 as credit against part of US tax which is over 15%?
I.e. probably the way to do it is
- HMRC: report all amount X of dividend to UK, and ask for 15% of the total X to be applied towards UK tax which is levied on X-2000
- IRS: calculate US tax on all amount X, and use form 1116 to claim credit for UK taxes I paid, against any US tax above the 15% rate
Sounds a bit too much though..