Conflicting advice on US/UK Capital Gains

[boeing100]

Hi

To give a brief overview of my situation, I am a US Citizen who has been a full time resident of the UK for nearly 10 years. I was part-owner of a property in Florida which was sold this year at a profit. I have spoken to a few tax advsisors/CPAs who are giving me conflicting advice on how to declare my capital gains / income in this situation.

I understand that the US and the UK have a taxation treaty which means that any taxes paid in one place can be used as credit in the other. My understanding is that as the property was located in the US I will need to pay US Source Income and then use that as credit towards my UK taxes (which I will need to self declare)? Does this sound right?

I was previously told the other way around, i.e pay my taxes in the UK and use that as credit in the US which in this case would probably mean nullify them as rates are higher in the UK than the US.

Any advice would be greatly appreciated

Thanks

[darthblingbling]

In order to avoid double taxation with the US, it is sometimes required to resource US sourced income to the UK. So it is taxed as if it came from the UK and then you can use the UK tax as a credit in the US.

However this only applies to income that would normally be exempt from tax or have a reduced rate of tax in the US of the taxpayer was a non US citizen. This basically allows the UK to effectively not lose out on any tax revenue.

For example: interest is only taxable in the country of residence. So if a UK resident receives US sourced interest and they are not a US citizen, the UK gets to tax in full and no credit is given. If the taxpayer is a US citizen, the US will ignore the provisions of article 11 and tax as normal, the UK will also tax as normal and not be bound to give a credit as they are losing out on revenue by virtue of the taxpayer's citizenship. So to avoid double taxation, the US will allow the UK tax paid as a credit instead.

So in the case of immovable property, the US may tax if it is situated within the US, therefore it is not exempt from taxation or at a reduced rate in the US, and the UK would be bound to give tax credit.

In short: your first guess was right.

[DavidTreitel]

As the property is sited in the United States, the United States has the primary right to charge tax on any gain. Consequently, you will need to pay tax primarily to the US at US tax rates.

Assuming you are taxable on the arising basis, you will owe UK tax at UK rates on the gain. (The gain is likely to be somewhat larger in Sterling than in dollars because of the sharp fall in Sterling after the June 2016 Brexit vote). The UK will give credit under UK domestic law for US tax payable on any doubly taxed gain. The tax treaty makes no alteration to the position under the domestic law of both countries.

This is all fairly common - I am not sure how it could have been interpreted differently?

[darthblingbling]

As the property is sited in the United States, the United States has the primary right to charge tax on any gain. Consequently, you will need to pay tax primarily to the US at US tax rates.

Assuming you are taxable on the arising basis, you will owe UK tax at UK rates on the gain. (The gain is likely to be somewhat larger in Sterling than in dollars because of the sharp fall in Sterling after the June 2016 Brexit vote). The UK will give credit under UK domestic law for US tax payable on any doubly taxed gain. The tax treaty makes no alteration to the position under the domestic law of both countries.

This is all fairly common - I am not sure how it could have been interpreted differently?

I think you come from a position of knowledge and experience higher than most CPAs!

[Arjun]

Agree with David. Also consider the remittance basis too if you do not need to bring the gain to UK. However you will loose the personal allowance and since you being long resident, you may need to pay remittance charge of £30 and goes up to £60k if you leave for another couple of year.