My UK accountant just filed my return today and I have a multi-thousand pound tax bill due to the rental income received in the US. To explain a bit more, a couple of years ago we moved back from the US to the UK. I'm dual national and we still own a house so we have to file US taxes. In the 2016 US taxes our rental income minus exemptions meant we went negative and had a $0 tax bill (yay). Our assessed tax rate was still 32% but it was wiped out by the deductions. That was the good part.
In the UK, our accountant said that since we physically PAID no tax in the US, the full amount of income (after deductions allowed by the UK) was taxable at UK rates of 40%.
I understand that since we physically paid no tax in the US there's an argument to say we ought to pay tax somewhere, i.e. the UK. But another side of me says we were assessed the tax, but our deductions outweighed the income. So shouldn't the tax in the UK be simply the difference between the US assessed rate of 32% and our UK rate (40%)?
I realize this is somewhat of a fine line distinction, and perhaps i'm being greedy. But the result means the difference between a tax bill of a few hundred pounds or thousands, so I thought it worth asking for second opinions.
Thanks.
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