Welcome news – UK £30,000 Remittance Basis Charge is a creditable tax for US taxpayers

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The IRS has announced in Revenue Ruling 2011-19 that the £30,000 Remittance Basis Charge may be credited against US income tax.  The UK Remittance Basis Charge is imposed on US taxpayers who are resident (but not domiciled) in the UK in at least seven of the previous nine UK tax years and who elect to be taxed on the remittance basis.  From 6 April 2012, the charge is to be raised to £50,000 for those resident 12 tax years or more.

Since it was first introduced in 2008, there has been significant controversy surrounding whether the Remittance Basis Charge is a fully creditable income tax for US tax purposes.  For the past three years, an unsatisfactory state of affairs has existed whereby US taxpayers in the UK have had to decide upon whether to pay the £30,000 charge and file for taxes in the US and UK without knowing whether the charge would be creditable.

After three years of uncertainty, Revenue Ruling 2011-19 now provides US taxpayers with the assurance that if they choose to pay this charge it will be included in their foreign tax credit calculation.  The move has come as a pleasant surprise since it was less than clear whether the Remittance Basis Charge would be regarded as a creditable tax under s901 of the Internal Revenue code.

For many US citizens resident in the UK and claiming the remittance basis of taxation, it may alter their decision whether or not to pay the £30,000 charge.  For those who will have to pay the £50,000 charge from next April it would be expected that the IRS ruling will also apply to provide a credit.

With the IRS confirmation that the UK Remittance Basis Charge is a creditable tax for US purposes, the UK has become a slightly more attractive jurisdiction for long term UK resident US taxpayers.

For further information or to discuss any of the issues raised, please contact Andrew Aldridge or Louise Mooney on +44 (0) 20 7357 8220.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the United States Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.