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taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
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I have UK and USA citizenship and will be resident for tax

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I have UK and USA citizenship and will be resident for tax purposes in the UK soon. In the United States I have an "individual retirement account" (IRA) which is an account that one can put money into on a voluntary basis with certain dollar amount limits per year. It can be withdrawn at age 59-1/2 and taxed as ordinary income. My question is: the USA will obviously tax me - but will I be able to claim the tax paid as a foreign tax credit on my UK tax return? I ask because I think it depends on the treaty agreement between the two countries for that type of account/ transaction. Do you know? Apparently there are treaty agreements for each type of account/transaction and in some cases the country that would normally tax the withdrawal would be bound not to tax the funds because of the treaty agreement, and in this scenario the UK would tax it instead. I am not suggesting this is the case because I don't know. Do you?

Hello, if you have any questions or need further clarification after reading my answer please let me know.

 

Thank you for your question ....

 

Once you are UK resident for UK tax purposes, your worldwide income would be chargeable to UK income tax.

 

You will be able to claim foreign tax credit relief aginst Foreign tax suffered on income arising in the USA.

 

If you need more information please let me know before you rate my service.

 

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page. If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

Customer: replied 4 years ago.

Thanks for the response. Are you absolutely sure about that? I don't think it can be broad-brushed because it depends what TYPE of income the credit is being claimed against and this is what is agreed in the treaty for that type of income comes into play. Apparently some forms of income it is OK to claim the tax credit against, but in other forms of income the source country must not tax the income and the second country must tax it instead - it all depends on the treaty agreement for each specific type of income. Please clarify. Thank you.

Thank you for your reply.

There is some useful information on double taxation relief and I would like to refer you to Sec 9 Double Taxation Relief and Double Taxation Agreements on Page 50 onwards of HMRC guide HMRC6 here.

http://www.hmrc.gov.uk/cnr/hmrc6.pdf

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page. If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

Customer: replied 4 years ago.

Can I take it that you don't know the answer to my specific question? Please advise either way. Thank you. If you do know the answer please be specific. You are better educated on taxes than I am so perhaps you could interpret the specific information on the link you sent me?

Thank you for your reply.

I am sure about my answer..

If your income is taxed in the USA then you will be able to claim credit against foreign tax paid. The purpose of double taxation relief is that the same income does not get taxed twice. More information on Page 64 ... how income from pensions is taxed in the UK

As UK resident, you income arising in the UK and arising outside the UK is subject to UK income tax.

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page. If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

Customer: replied 4 years ago.

I don't think the IRA account I mentioned is a "pension" per se? The government program (like the UK state pension) is called Social Security Benefit and is different. Also: according to page 64 I would be liable in the UK for taxes on overseas pensions. It doesn't mention a credit against it - but I may have been only focusing on that particular page. Please advise. Thanks.

Thank you for your reply.

Please look at sec 9.2 UK residents on top of page 53..

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Customer: replied 4 years ago.

It says "may be" entitled. It say's "may be" because each type of income is treated in different ways depending on the treaty rules for that type of income. I'm assuming at this point you can't be more specific and can only talk in generalities. Correct?

Thank you for your reply..

 

If your income from abroad has suffered foreign tax, you can claim foreign tax credit relief against it. The income is certainly taxable in the UK and you will be able to claim foreign tax credit relief.

 

You will have to check with IRS in USA to ascertain if that income would be exempt from USA tax under DTA with the UK.

 

 

If you need more information please let me know before you rate my service. If you are not happy, please don't rate it and I will opt out and let another advisor help you.

 

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page. If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

Customer: replied 4 years ago.

Sorry but your answer is confusing. On the one hand you said it may be exempt from USA tax due to the DTA. And on the other hand you said it would be taxable in the UK but can be credited against with a foreign tax credit. If you know it is taxable in the UK and be credited against for sure why would I ask the USA to exempt me from taxing the withdrawal?

Thank you for your reply..

Your income would certainly be taxed in the UK under UK tax rules.


The reason I say you should ask IRS about the taxation of that income in the USA is that you can get income from USA and it is not taxed at source if you have completed Form W-8BEN (in the case of interest on savings) or its equivalent to certify your NRA status.


I am not familiar with all USA Tax forms.

If you need more information please let me know before you rate my service. If you are not happy, please don't rate it and I will opt out and let another advisor help you.

 

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page. If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

 

Customer: replied 4 years ago.

Thank you. Last question: you said it would definitely be taxed in the UK. Are you sure that I could claim the foreign tax credit for it because I seriously doubt I could get the USA to waive the tax. It would be disastrous if I got this wrong - the USA taxed me and the UK wouldn't allow a credit against it!

Thank you for your reply...

 

When you complete your UK Tax Return, please also complete supplementary pages SA106 - Foreign ( takes care of foreign tax credit) and

SA109 - Residence, Remittance basis etc (to establish your UK residency status).

 

More information on this forms can be found here

http://search2.hmrc.gov.uk/kb5/hmrc/forms/selfassessmentforms.page

 

You should be able to claim credit for foreign tax paid.

 

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page. If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

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