UK/UK FTC - is my general understanding correct?

USC resident and domiciled in uk (UKC spouse). Retired, only income is US SS and investment dividends/CG

- I pay US taxes on my US based  investment income
- HMRC tax only on my US SS
- HMRC tax on all investment income less the tax paid to US.


Here is what I do in more detail. I files CY US taxes using Turbotax, I take a foreign tax credit on the previous year's HMRC tax (Form 1116). This FTC is reduced by the percentage of income that is non-US based. E.g. My US tax bill is $1800 and I paid HMRC $2000 and 70% on that income was US based and 30% non-US based, I can only deduct 30% of the HMRC tax or $600  so the US tax bill is $1200. So essentially I am US taxed on US sourced income only.

On my HMRC return I can deduct the $1200 from the tax due.

Going through this myself for the first time as well. My understanding is that the IRS will treat your taxable capital gains in a US brokerage as foreign sourced as you are resident in the UK. I'm less sure about dividends - they may be able to be treaty sourced, but I'm having a difficult time understanding the provision in the treaty.

The other part that may or may not apply to you is that the FTC works by dividing your income into baskets, and each credit can only be applied to the taxes paid within each basket. The relevant baskets would be general, passive, and treaty-sourced.

General sourcing rules:
newcomer link: https://www.irs.gov/pub/int_practice_units/ftc_c_10_02_05.pdf [nonactive] (pg 15 for capital gains)

Thanks for that response. I only have passive income and US SS.
Using the FTC method (which is what I ws advised by an accountant) I am paying the tax first to the IRS then deducting it from HMRC tax. Since I'm resident in the UK I thought that HMRC should have first dibs on the tax (or is that only Treaty)?
I need to find an accountant who doesn't charge an arm and a leg -  was quoted £1000 for US and £650 for HMRC tax return! Found a company in London that did it for about half that but not too happy with them.

Thanks for that response. I only have passive income and US SS.
Using the FTC method (which is what I ws advised by an accountant) I am paying the tax first to the IRS then deducting it from HMRC tax. Since I'm resident in the UK I thought that HMRC should have first dibs on the tax (or is that only Treaty)?
I need to find an accountant who doesn't charge an arm and a leg -  was quoted £1000 for US and £650 for HMRC tax return! Found a company in London that did it for about half that but not too happy with them.

HMRC have primary taxing authority as you're a U.K resident. The tax you pay HMRC will then be credited via the relevant 1116. Any excess over (the limit of tax liability) can be carried forward for 10 years/carried back one.

HMRC have primary taxing authority as you're a U.K resident. The tax you pay HMRC will then be credited via the relevant 1116. Any excess over (the limit of tax liability) can be carried forward for 10 years/carried back one.

+1

My US cap gains along with my 2 US private pensions are taxed by HMRC and I claim IRS FTCs using form 1116 as “resourced by treaty”.  I claim IRS FTCs using form 1116 in the General category for my UK private pensions. I started receiving my UK OAP this year and won't even mention it on my IRS return next year.

+1

My US cap gains along with my 2 US private pensions are taxed by HMRC and I claim IRS FTCs using form 1116 as “resourced by treaty”.  I claim IRS FTCs using form 1116 in the General category for my UK private pensions. I started receiving my UK OAP this year and won't even mention it on my IRS return next year.

It's Interesting you use the General Category for your U.K private pension Durhamlad.

It's Interesting you use the General Category for your U.K private pension Durhamlad.

It is what my tax account uses and it is clearly marked as UK pensions. Don’t why it isn’t passive and don’t know if it makes any difference. We don’t have enough interest to be taxed by HMRC.

It is what my tax account uses and it is clearly marked as UK pensions. Don’t why it isn’t passive and don’t know if it makes any difference. We don’t have enough interest to be taxed by HMRC.

Agreed, what difference can it ultimately make... I get it for re-sourced by treaty and Section 901(j) Income though

Brilliant responses ,thank you all. I think I am slowly starting to get my head around it.

So my US passive investment income would be re-sourced on 1116 so that it is treated as though it were non-US income. This means that I can apply the HMRC tax to it.

What abouthe different tax years? My accountant said to report the US CY 2020 onto HMRC 2020/21 and so on. But my income is very variable and my HMRC accountant is taking ages so the HMRC 20/21 might not be filed until 2022. I have made one payment on account in 2021 and the next is due January 2022 - should I pay this one now to have it count in CY 2021?

Oh and any suggestions on a better accountant who doesn't cost the earth? I see flat fee places like greenback for IRS but nothing reasonable for HMRC

Thanks!

My accountant also uses the calendar year for my US income, that way the 1099-Rs are all that is needed. She states this in the comments section of my HMRC return.  For capital gains she does the 20/21 calendar  which is easy since the sales have to be listed individually by date. However, I make sure and only sell shares from funds between April 6th and December 31st in any given year.

She is expensive so I don’t have any recommendations for a cheaper one.
 Here are some you can try

https://talk.uk-yankee.com/index.php?topic=97064.0