can I re-source savings account interest and inherited IRA distributions?

I would be really grateful for some tips from any of the highly knowledegable people here on whether I can re-source savings interest and inherited annuity distributions (one IRA, one non-IRA, both inherited from dad in US last year). AFAIK those two income types come under Section 11 and Section 17(4) of the US tax treaty (so the saving clause means the US can tax them). I am a dual UK-US citizen living in the UK, trying to complete my self assessment form and the HMRC does not seem to allow a foreign tax credit for US tax paid on either of these income types - both my paper calculations and the online SA application yield zero foreign tax credit. So, should I pay the tax to the UK, and then use 8833 to re-source this income, in order to take a 1116 FTC on my US tax? But as far as I can see, the US-UK Tax Treaty saving clause means the US *does* have the right to tax both these types of income, so how could I argue to re-source it to the UK? I rang up the HMRC help line and the agent wasn't any help, couldn't tell me whether I could get a credit for tax paid in the US, just said claim it on my SA and see what happens. Been tearing my hair out for days over this :-(

You can resource US gains etc to the UK precisely because both the UK and the US can tax you; one because of residence the other because of citizenship. Often, the UK will get first bite of the cherry as your primary tax authority and you pay them first. But now you need a FTC in the US on US source income, but the IRS will let you resource to take the FTC. So you will claim the treaty to resource and get a credit for the tax you paid to HMRC.

If you paying UK tax on the arising basis then the UK has the primary right to charge tax on the savings interest. If you paid UK tax on this to HMRC by 31 December 2015 then Article 24 will indeed help you reduce any US liability if you complete a treaty resourced Form 1116 as a part of the 2015 US tax return that you are currently completing.

The same applies to any annuities; but only to the extent that both countries are doubly taxing the same income. 

Many thanks to both nun and guya - it's a relief to have it confirmed that I'm more or less on the right track now. You wouldn't believe the hours I've spent lately trying to understand the cursed interaction between US and UK tax. Can I ask a follow up question? I think I get how to fill in the 1116, I'll need to fill in one for the re-sourced US income, and another for my  tiny amount of non-ISA UK current account interest which I paid US tax on (again wrongly thinking I'd be able to take it as a credit on my UK SA). But do I need to fill in form 8833 for the US re-sourcing, and if so, what article of the US-UK tax treaty do I say I'm relying on, Article 23 'double taxation'? As I said before, as far as I can tell, my US income (bank interest and inherited IRA + inherited non-IRA annuity) don't seem to fall into any exceptions to the saving clause ... thanks again for your help with this!

If you are a US citizen taxable in the UK on the arising basis, the only items excepted from the saving clause are Alimony & US Social Security. Consequently, you'd need to have paid HMRC by 31 December 2015 any UK tax that was payable on any doubly taxed income to be able to claim a foreign tax credit on an original US return for 2015.

Hi Guya, thanks, I'm really confused now. Say I have $10,000 US inherited IRA income paid in December 2015 in the US, for the sake of argument. I have to report and pay tax on that in the US in my 2015 taxes, and in the UK in my 2016 taxes. So, when do I actually get to claim it back as a foreign tax credit on my US taxes, if not in the year that I paid US tax on it? I thought I could file an amended tax return now, given I'm paying the UK the money now. Do I claim it back in next year's US taxes? I really appreciate your continuing help on this, I don't understand why they make this so complicated :-(

If (and naturally only if) the same income from the inherited IRA is taxable by both the US and the UK you would have wanted to have paid tax to HMRC by 31 December 2015.

If you consider that you owe UK tax on the same income, but have not paid any UK tax that might be due on that same income until 2016, you may find yourself with excess foreign tax credits in 2016; leading to a refund in 2017 when if you wish you could file an amended 2015 US return carrying back excess foreign tax credits.

thanks for that guya, sadly I don't understand the issues with excess tax credits, or carrying them back, this is way above my intelligence level. I don't think I could have paid HMRC in 2015, because the UK tax year is April to April, so I'm not allowed to file a UK return until after 6 April 2016 for income I earned the previous 12 months. Thanks for your input though :-)