IRS rules on credit for remittance basis charge for US tax
The remittance basis charge (RBC) is set to rise from £30,000 to £50,000 from April next year for individuals who are long-term resident in the UK. Senior tax manager Barry Luscombe gives advice on how this will affect US citizens and green card holders.
US citizens and green card holders must pay US tax on their worldwide income, even if they are resident in the UK and pay tax here. So for them it is important that tax paid in one country can be offset against tax due in another.
The RBC is imposed by the UK tax authorities on any individual who elects to be taxed in the UK on the remittance basis and has been resident but not domiciled in the UK in at least seven of the previous nine UK tax years.
The tax is collected as part of the self assessment process and is payable on top of tax due on foreign income and gains remitted to the UK, and UK source income and gains. The increase from £30,000 to £50,000 from April 2012 will apply to those who have been UK resident for at least 12 years. This is a significant tax charge for US citizens if it cannot be relieved against US tax.
The RBC and double taxation treaties
Introduced in 2008, the RBC was designed in a complex way in an attempt to make it relievable under certain double taxation treaties, particularly the US/UK Treaty.
Those who pay it must nominate unremitted foreign income or gains to be subject to the charge. They will then be taxed on the arising basis on sufficient unremitted foreign income or gains to give rise to tax of £30,000. Those who do not nominate, or do not have sufficient income or gains, are taxed on an additional deemed amount sufficient to give rise to a tax charge of £30,000.
Since its introduction there has been uncertainty whether other governments will give relief for the RBC under the terms of double taxation treaties. Many may have shunned the remittance basis because of this uncertainty. The good news for US citizens and green card holders is that the US Internal Revenue Service (IRS) has recently ruled that the RBC is eligible for credit against US tax.
What to do next
US citizens and green card holders resident in the UK should now review both their US and UK tax affairs from 2008. They should first consider whether claiming the remittance basis in the UK is beneficial and, second, whether they may be able to obtain further credit in the US for the RBC. A claim for the remittance basis to apply for a tax year must be made within four years of the end of the tax year.
For advice on your US/UK tax position and how the remittance basis charge may benefit you, contact Barry Luscombe on 020 7516 2204 or email bluscombe@littlejohnllp.com
