UK Tax Questions? Ask a UK Tax Advisor for answers ASAP
Hello Iqbal, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.
You are an US citizen resident in the States. However, any income and capital gain you derive from UK property is liable to UK taxation. It is also subject to US taxation. Under the Double Taxation Treaty between the UK and the USA income and gains can only be taxed in one jurisdiction and in your case any tax payable to HMRC would be allowed as a tax credit against any US liability on the same cash flow.
As you have no liability under the UK taxation regime or the rentals you still have to declare the income and expenses thereof under the IRS System also as due to differences in taxation structure an US liability may be created. The same principle applies to Capital Gains Tax as does to your rental income.
As in both cases you have no UK liability you cannot take advantage of the Treaty. Had you income or taxable gain charged in the UK then you would, of course, have tax credits to offset US exposure.
I do hope that I have been able to resolve your problem.
The fact that you had declared to HMRC would not, in any case, absolve you as an US citizen resident in the States from making a similar declaration to IRS as part of your income or capital gains.
As you had no tax to pay in the UK you do not benefit from the Double Taxation Treaty in force as there was no taxation to provide relief. If you did have an UK liability then, as I explained, any tax paid would be allowed as a tax credit on a similar USA liability.
Here is the IRS guidance on reporting foreign income:
'If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents. See Publication 525, Taxable and Nontaxable Income, for more information.'
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