Non Resident Tax Query

Scr00ge

Thanks to both yourself, Jimmo, and Cook_County for the detailed responses.

I assume, when Cook talks about the IRS, he is referring to the UK Inland Revenue rather than the USA IRS? - so with the comment about the taxes based on legal ownership, I think he was referring to the UK... is this right, Cook?

I only assume that, because I am a non-resident for UK tax purposes, and so from what I see all my UK savings are not taxed in the UK, but instead taxed in the USA, but rental income is still taxed in the UK, with the tax credit claimable in the USA against my taxes there. What I don't know is if my UK rental income is also taxed to some degree in the USA - if it is, then I can imagine the IRS (US) are interested in the ownership of the house, but if not, then I would think only the Inland Revenue (UK) are interested.

In terms of the legal/beneficial ownership, I am very interested. For the last tax year, if it was treated as split ownership, it would have saved me £1100 tax. However, I have phoned up HMRC, and they seemed to only talk about the legal ownership side. But it seems it is not black and white by looking at the web-link you sent, Jimmo. The question then is really how I can resolve it for certain without paying for lawyers, etc. I have only just realised all this, and now we are over halfway through the current tax year, I am planning to transfer 100% of the property to my wife through the land registry (so that the taxation for the current tax year gets split nearly 50/50), and then in April 2009, I plan to change it to 50/50 with the land registry (which is what I should have done from the start in hindsight).

I have used the mistake relief in previous years so I know how to do that, but I am just wondering whether if I ever do that for previous years, will the taxman frown upon the transfers with the land registry that I am planning on doing to "balance it up". Any thoughts?

Thanks again... you guys are really helpful.

The_Tax_Man

Scr00ge, You were pretty much spot on in the way both jurisdictions would seek to tax you. The IRS will seek to tax you on your worldwide income but will make a distinction between foreign sourced and US sourced income. Your foreign sourced income will then be eligible for a tax credit where any foreign taxes have been paid.

WIth regards going back and amending prior year returns it might be worth checking your company's policy because it strikes me that if you do claim a refund of prior year UK taxes then your prior year US returns will also need to be amended to reflect this reduced credit which may generate liabilities, interest and penalties. Are your company likely to pick up the cost of these and the amended returns?

Scr00ge

jimmo wrote: »

With all due respect, I think your questioning of whether Cook_County’s reference to IRS was a mistaken reference to HMRC is a pretty awful gaffe on your behalf. Surely his post at #23 makes it perfectly clear to anyone that he is referring to the IRS.
People like me, who claim to be expert in certain aspects of UK taxation do get involved in controversy from time to time on this forum and that really comes with the territory. However, in the last 2 years I cannot recall any instance of anyone challenging any of Cook_County’s postings on US tax matters.

Sorry Cook_County if I offended you with my assumption on whether you were talking about the US taxman or the UK taxman. The only reason why I thought you were referring to the UK taxman, is this is the one with whom I am trying to resolve this situation regarding legal/beneficial ownership. I believe my US tax has been prepared with no consideration as to the tax I have paid in the UK on this rental income - so in effect I have probably been taxed twice on this rental income (but as my company pay the US tax, I am not concerned with this).

I am also considering whether I can use the HMRC Form 17 to resolve this. This form seems to allow me to claim the property to be owned in unequal shares when it is jointly owned. The property was not jointly owned for 07-08 tax year, so I cannot do anything about that; but for this current tax year, I was wondering whether I could put the property in joint ownership with the land registry, and use Form 17 to say that my wife owns 100% of it (for the rest of the current tax year). Then in April 09, I would have to cancel Form 17 such that we were considered as owning the property as 50% each. In effect, all I am trying to do is make up for the fact that the house should have been 50% split from the beginning, but I cannot backdate this in the current tax year. Any thoughts on whether this would be allowed?

Cook_County

You said previously that your company pays all your US tax. I took this as meaning you are tax equalized to the UK so just pay the hypothethical equivalent of your home country (UK) tax - including tax on personal income (eg ISAs/investments/rent etc).

Your actual US returns to date must have included UK rental income/investments etc. Is this correct?

Am I on the wrong path??

Scr00ge

Cook_County wrote: »

You said previously that your company pays all your US tax. I took this as meaning you are tax equalized to the UK so just pay the hypothethical equivalent of your home country (UK) tax - including tax on personal income (eg ISAs/investments/rent etc).

Your actual US returns to date must have included UK rental income/investments etc. Is this correct?

Am I on the wrong path??

I think my company are supposed to charge the tax back to me what I would pay back in my home country. It is supposed to be a tax neutral situation, so I don't gain or lose based on working as an expat over here, but so far they have not charged any additional tax back to me. However, I do have to pay any UK tax myself (which seems to be limited to rental income, as all savings income seem to be only included on my US tax return).

I cannot fully follow my US return as I am not used to it all, but it does list the UK rental house, and furthermore, it does make a reference to a foreign tax credit, that I assume can only be the tax I am having to pay in the UK. It is made more complex by the fact my company have assigned PWC to prepare my UK return, and a different company to prepare my US return, and their timings of getting all the information seem to be very different, and they don't appear to be sharing information with each other.

I think you are on the right path, but my bottom line here is that I have lived with my wife in our UK house for approx 7 years prior to coming to the USA. This house only has my name on the title deeds, but we have paid the mortgage off in equal portions, so I would argue we own it in equal shares and should be taxed on the rental income the same way. However, I think that as my name is the only one on the title deeds, I take the full tax liability. It is because of this that I am trying everything I can to balance this out... and this talk about beneficial interest seemed promising, but I cannot seem to get a black and white answer from the inland revenue. Furthermore, I don't really know the effect of changing the house title deeds between myself and wife whilst I am living in the USA.