FATCA, NISA....losing touch with reality

My step-daughter is just in her 3rd year of nursing. She just took a new job in Leeds(Jimmy's) and says they are a LOT more helpful to each other and the patients in Leeds than at Harrogate.

Jimmy's is excellent.  Bit of a factory in appearance though.

What about a US registered pension?

The UK has primary taxing authority over UK residents and if you are taxed on an arising basis as a US/UK dual citizen then the UK is not obligated to give you credit for any US tax paid.

On the UK self assessment form,
"If your overseas income has had foreign tax deducted it may be possible to obtain relief from double taxation. Foreign tax credit relief is normally the best way to obtain such relief, but if you do not want to or cannot claim it, you can deduct the foreign tax when calculating the amount of income and gains chargeable to UK tax. You cannot do both"

Certain rules apply.

There are also procedures for "Dividends from foreign companies."

Whilst unfamiliar with this process, one wonders about an eventual 'daisy chain' evolving of credits, tax, UK, tax, credits, US, credits, tax, UK, tax, credits, US, .....

I give up.......

I'm sorry, but under numerous sections of the Internal Revenue Code and the rules of Her Majesty's Revenue and Customs, you are implicitly forbidden to give up.    

On the UK self assessment form,
"If your overseas income has had foreign tax deducted it may be possible to obtain relief from double taxation. Foreign tax credit relief is normally the best way to obtain such relief, but if you do not want to or cannot claim it, you can deduct the foreign tax when calculating the amount of income and gains chargeable to UK tax. You cannot do both"

Certain rules apply.

There are also procedures for "Dividends from foreign companies."


Whilst unfamiliar with this process, one wonders about an eventual 'daisy chain' evolving of credits, tax, UK, tax, credits, US, credits, tax, UK, tax, credits, US, .....

Agreed, there may be no need to resource. Of course HMRC also says you "may" be able to claim relief. Under the terms of the treaty you do the resourcing and pay the UK first, but if the UK is ok with giving you a tax credit for US tax you pay on the pensions, and thus giving up its primary taxation authority, then there is no need for the resourcing (Article 24) because there is no chance of double taxation. If we did deeper I wonder if HMRC will give credit when a treaty is in place? This looks like a situation where electing the treaty complicates matters. You'll end up paying the same tax, but in different proportions to the US and the UK. A call to HMRC for clarification might be good. This section from the HMRC FTC manual is interesting, will HMRC impose the terms of the DTA even if you don't elect it? Thus leading to double taxation.

If you have paid foreign tax on an item of income, that tax cannot be
refunded by HMRC. If you are resident in the United Kingdom (UK), Isle of
Man or the Channel Islands and that item of income is also chargeable to
UK tax, you can claim a credit (Foreign Tax Credit Relief) for all or part of
the foreign tax to be set against the UK tax due. Please note that if you are
dual resident and a Double Taxation Agreement (DTA) resolves that dual
residence in favour of the other territory, you cannot claim Foreign Tax
Credit Relief in the UK as it will be for the other territory to provide relief.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323640/hs263.pdf

This section from the HMRC FTC manual is interesting, will HMRC impose the terms of the DTA even if you don't elect it? Thus leading to double taxation.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323640/hs263.pdf

In your quote, and especially the words in red, be aware of the term 'territories'. HMRC may have specific territories and DTA's in mind. (I believe they do.) Those 'territories', as I understand, may not include the US.

This seems to say that HMRC won't give a US citizen resident in the UK credit for tax they pay to the US. HMRC will give credit for the 15% US tax on dividends imposed in the treaty, but wouldn't give credit for any tax you pay on US source income that is brought about by negating the terms of the treaty with the savings clause.

http://www.hmrc.gov.uk/manuals/dtmanual/DT19886.htm

DT19886 - Double Taxation Relief Manual: Guidance by country: United States of America: Relief from double taxation from 2003: US Citizens and Other income
The new UK/USA Agreement applies from 1st and 6th April 2003 respectively for the purposes of UK CT and IT

US Citizens resident in the UK

A major change from the old agreement in Article 24(6)(b) provides that the UK will not provide relief for the US tax imposed on its citizens resident in the UK, if that tax is solely charged in accordance with the “saving clause” in Article 1(4). As a consequence, Article 24(6)(c) eliminates the potential for double taxation that can arise by providing that the US will credit the income tax paid or accrued to the United Kingdom, after the application of Article 24(6)(b). It further provides that in allowing the credit, the US will not reduce its tax below the amount that is taken into account in the U K in applying Article 24(6)(b). This will mean, for instance:

that the UK will no longer give relief for US tax paid in respect of US work days by US citizens, working for UK employers. Rather, the US will give relief for UK tax;

that US citizens will be able to claim a exemption under Article 1 4(2) in the same way as a UK resident who is not a US citizen can providing that all the requirements set out in the paragraph are fulfilled.

Any case of doubt or difficulty should be submitted to Employment Income Technical.

No credit to be given for third country income

Article 24(6)(a) provides that the United Kingdom is not required to give credit for United States tax charged on a United States national who is resident in the United Kingdom in respect of income which he derives from sources outside the United States as determined under United Kingdom laws.

This seems to say that HMRC won't give a US citizen resident in the UK credit for tax they pay to the US. HMRC will give credit for the 15% US tax on dividends imposed in the treaty, but wouldn't give credit for any tax you pay on US source income that is brought about by negating the terms of the treaty with the savings clause.

http://www.hmrc.gov.uk/manuals/dtmanual/DT19886.htm

In response to this latest quote, all I can say is I'm very glad I don't have YOUR problem.

"No credit to be given for third country income."
I'm very aware of this due to the other EU sourced income. It's not a problem in the UK or the other county; they're both civilised and practice RBT. My fun comes in trying to resolve that income source (and tax paid) on the US return. 

In response to this latest quote, all I can say is I'm very glad I don't have YOUR problem.

"No credit to be given for third country income."
I'm very aware of this due to the other EU sourced income. It's not a problem in the UK or the other county; they're both civilised and practice RBT. My fun comes in trying to resolve that income source (and tax paid) on the US return.  

Some comments I've read from Guya lead me to believe that this might not be the whole story. As usual with these cross border tax situations there's "more than one way to skin a cat". Of course the whole problem arises from the IRS practice of taxing on citizenship which treads on the toes of the country of residence having primary taxation authority. Still it's not too much trouble, it just means that you have to resource US income using basket (d) and file a 1116 rather than an HMRC claim for foreign tax credit. There's no difference in the tax you pay.....as long as the UK will give you the credit....if it doesn't you'll be taxed twice.

Some comments I've read from Guya lead me to believe that this might not be the whole story. As usual with these cross border tax situations there's "more than one way to skin a cat". Of course the whole problem arises from the IRS practice of taxing on citizenship which treads on the toes of the country of residence having primary taxation authority. Still it's not too much trouble, it just means that you have to resource US income using basket (d) and file a 1116 rather than an HMRC claim for foreign tax credit. There's no difference in the tax you pay.

There's also the JAJ approach. If all income is declared, and there is a reasonable argument that the taxpayer should rightfully be given the credits, the exact 'by the book down to the last period' is good, but not always necessary if another reasonable way is taken which gives the same NET result. I know of at least 3 different ways to resolve my situation, but all 3 end in the same NET result without influencing tax due in other areas.
 

There's also the JAJ approach. If all income is declared, and there is a reasonable argument that the taxpayer should rightfully be given the credits, the exact 'by the book down to the last period' is good, but not always necessary if another reasonable way is taken which gives the same NET result. I know of at least 3 different ways to resolve my situation, but all 3 end in the same NET result without influencing tax due in other areas.
 

I tend to seek comfort in the rules and regulations....maybe I'm a bit literal and lacking in imagination, but I'm just an amateur so it's always best to double check with a professional.

I tend to seek comfort in the rules and regulations....maybe I'm a bit literal and lacking in imagination, but I'm just an amateur so it's always best to double check with a professional.

So, not referring to any situation precisely but in general, are you thinking a taxpayer, resident in the UK with both US and UK source income, might end up with 3 form 1116's? General, Passive, and Resourced by Treaty.

So, not referring to any situation precisely but in general, are you thinking a taxpayer, resident in the UK with both US and UK source income, might end up with 3 form 1116's? General, Passive, and Resourced by Treaty.

If that tax payer is a US citizen, then yes. In fact it might be more if you have different types of US income is dividends and pensions.
In my case I the only UK taxable income I'd have would be interest on any money in a UK bank account and UK benefits like fuel allowance, that's if we ignore the issue about the US being able to tax my UK SS even if I'm in the UK.

My US income and gains will be US SS, ROTH ( neither a problem for US taxation), pensions, retirement account withdrawals (IRA etc), dividends, interest and capital gains.

If that tax payer is a US citizen, then yes. In fact it might be more if you have different types of US income is dividends and pensions.

I must say, I'm really surprised at the lack of information on this from the usual sources. Another of those 'unique' situations. I suppose the number effected is small, but still.....

I'll repeat the info from the IRS Email Help Site for Expats I received 12 to 18 months ago on a query about 'baskets'. We've discussed this elsewhere:
"Re-sourcing by treaty generally affects U.S. sources of income that need to be treated as foreign sourced income to get the required tax credit [on a 1116]."

And of course there's this which I'm sure you've seen:
"If a sourcing rule in an applicable income tax treaty treats U.S. source income as foreign source, and you elect to apply the treaty, you can include that income under the category Certain Income Re-sourced By Treaty. Treat the income as foreign source to the extent required in the treaty. You must compute a separate foreign tax credit limitation for any such income for which you claim benefits under a treaty, using a separate Form 1116, Foreign Tax Credit, for each amount of resourced income from a treaty country. See Internal Revenue Code (IRC) sections 865(h), 904(d)(6), and 904(h)(10) and the regulations under those sections (including Regulation section 1.904-5(m)(7)) for any grouping rules and exceptions."

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit---Special-Issues

It should only be a consideration for you and durhamlad; F4m escapes the situation at this time, but must figure out how to handle his situation differently. According to other pages, an 8833 is no longer required for each source. Not sure of the accuracy even though it was from the IRS. There also needs to be confirmation that if the income receives special attention normally on a 1040 et al, the same would apply as normal even if it's re-sourced.

If it were me, I'm sure I would seek reassurance from more knowledgeable sources.

Thanks OAP and nun, this is all good info and while I expect I will use a dual qualified tax accountant for the first year or 2, I like to know enough to ask sensible questions and understand what is going on.

Got off my butt this afternoon and slapped a table together of a plan. It's a plan.....it makes sense to me but that means nothing. Ifffffff it works.....then I don't see how I could make things any simpler. But.......

 Any idea how to add a table to this message? Or even an attachment?