# US taxes and UK personal savings allowance



## the_mighty_tim (Jan 10, 2014)

Hi all

For the past few years, I've managed to fulfill my US tax obligations with little issue, until now.

My issue is that for the past couple of years, the UK has introduced this personal savings allowance, meaning that the first £1000 worth of interest on savings is not taxed over here, which is great. Trouble is, that since I've not paid any UK taxes on my savings interest, the US want their share instead. 

In previous years, I've dealt with this by using up my Foreign Tax Credits on a Form 1116, but as interest is classified as "passive" income and it's my only source of passive income, I've used up all my tax credits. Furthermore, I can't exclude it via Foreign Earned Income Exclusion on a Form 2555, since according to the documentation, interest can't be excluded since it's classified as "unearned" (https://www.irs.gov/instructions/i2555#idm140541710312064). The other potential issue I have is that if in future years, UK HMRC do decide I need to pay some tax, they might adjust my tax code, meaning that it would come out of my salary, in which case such payments would get absorbed by my general category credits, still potentially leaving me with a US tax bill too.

So, I'm just wondering if there's another option I can try or do I have to pay up to the IRS? It's not a large sum (in fact, my tax bill is less that what I could pay for a professional to prepare my forms for me), but it's the principle I don't agree with.

Anyway, if I am unable to come up with a workaround and do indeed have to pay them, since I don't have a US bank account, how exactly do I pay them?

I should clarify that my situation and assumptions are based on my current understanding of US and UK tax rules and hence there's a good chance I could be approaching this completely wrongly, based on incorrect assumptions. If that's the case, please feel free to clear up misunderstandings.

Thanks in advance!


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## Bevdeforges (Nov 16, 2007)

No, your understanding of things is pretty much correct.

Interest payments are considered "passive income" and as such can only be offset with taxes paid on passive income. This has always left the various "tax-free" savings accounts (available in many countries) subject to US income taxes for us US overseas taxpayers.

One kind of long-shot possibility is to check the biilateral agreement on FATCA to see if there are any specific tax-free accounts that are excluded from reporting by the banks in the UK. If the banks aren't reporting those accounts to the IRS, there's not a lot of reason for you to report them on your returns. 

There's a page on the IRS website dedicated to how overseas taxpayers can pay their tax bills. https://www.irs.gov/payments
For us overseas types, if you don't have a US based account you can write a check on, you're basically limited to either a credit card (which draws a processing charge) or a wire transfer (also with a significant bank fee).


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## Nononymous (Jul 12, 2011)

Welcome to the stupidity of double-taxation. Your understanding is correct. Your options are to pay the bill, stop filing altogether, or file incorrect US returns (i.e. tax evasion) if you think the interest income isn't being reported under FATCA.


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## the_mighty_tim (Jan 10, 2014)

Thanks for the help. I think I was a little optimistic in thinking there might be some loophole that I hadn't considered. 

Oh well, looks like I'll have to pay the bill.


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