- Individual Tax
- US Tax Overview
- UK Tax Overview
US / UK Tax Treaties and Double Taxation
Many countries allow for a credit against their domestic tax for foreign taxes paid on foreign-sourced income. The domestic law foreign tax credit systems will often reduce the impact of potential double taxation. In order to supplement the terms of their domestic laws, countries often enter into tax treaties with other jurisdictions to clarify the use of foreign tax credits. The United States has an extensive tax treaty network with other countries – not just with the UK.
Complicated and subject to change
Proper use of these double tax treaties can materially reduce a taxpayer’s overall tax exposure. However, because the various tax systems are not mirror images of each other, with different rules on what constitutes income as well as when the income is to be recognized, double taxation is still possible.
Both the US and UK rules allow credit for taxes paid to other countries and there is also a treaty between the US and the UK designed to reduce double taxation.
However, there are limitations imposed by both countries and because of differences in the two systems, it is possible to suffer double taxation. Proper planning can reduce this exposure. Whilst the UK and US have a Tax Treaty designed to reduce any double taxation and the US does give credit for UK taxes, you may require advice on how to best use those credits.
Planning ahead for the future
Pensions, for example, may be treated more favorably in one jurisdiction than in another. The United States has also entered into a few Estate Tax treaties that may limit or reduce the combined death taxes imposed on estates with assets in more than one jurisdiction.
What about international business interests or investments?
Business entities and investments can also be treated very differently from country to country, and this is where international tax can become exponentially more complex.
We can help you understand the use of these tax treaties to maximize the use of your foreign tax credits and other treaty options. For a more in-depth overview of our international tax services, we recommend visiting our full Tax Planning & Consultancy Services page.
Did you Know?
Fact SevenThanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
Fact SixThe IRS is actively looking for non compliant US persons.
Fact FiveIt takes an average of 16 hours to do IRS Form 1040.
Fact FourThere are over 500 IRS tax forms.
Fact ThreeSince 1916, illegal income has been taxable.
Fact TwoUS persons must file tax returns no matter where they live and work.
Text One7 million Americans abroad
only 500,000 compliant