Ex Pat Capital Gains query

[seanw]

US citizen living in the Uk for over 15 years paying tax and working in the UK

Although I have no income from theUS I fill US tax return each year which is zero'ed out due to double taxation rules but also fill in HMRC tax return each year.

Last year I sold some US Shares on which I made £11,000 of profit in a Charles Schwab account with funds transferred to the UK in pounds sterling.

I am planning to use my Capital Gains allowance of £11,200 this financial year in UK meaning no tax is due.

The question is how to declare this in my US Tax returns without incurring tax.

I usually fill out forms 1040, 1116 and 2555 to IRS with no tax to pay. I understand that Capital Gains is covered on IRS form 8949

However, the double taxation rules between UK and USA assume tax has been paid in the UK. In the case of capital gains, I am using my full allowance and not paying tax.

I am concerned that the IRS will say I need to pay CGT tax on the £11,000 as I did not pay tax in the UK on this.

These were assets held for over 365 days and since I am a higher rate taxpayer I could be liable for 20%

[DavidTreitel]

You have not said if these gains are taxed by the UK as capital gains or offshore income gains; but the general rule is that the US gives credit for foreign tax paid during the calendar year. If you did not pay any UK on the gains by 31 December 2016 you would have no foreign tax credit to claim on your 2016 US return. If there is no UK tax at all (as you suggest, because you have calculated the gains correctly and these are not offshore income gains) there would be no double taxation and no foreign tax credit in the US.

Additionally, because of the collapse in Sterling after June 2016, it is likely that the gain in pounds is far greater than the gain in US dollars.

From a US perspective, electing to claim the foreign earned income exclusion may not produce the optimum result. You'll want to check that you have reported UK employer pension contributions or elected into the treaty Article on pensions, filed your FBAR & (if required) form 8938.