# Offset UK and US LTCG in different tax years?



## pattiwhaley (Jul 7, 2017)

Hello, 

I am an American citizen living in the UK, and am uncertain about offsetting taxes between the two countries. 

Here’s my issue: generally my US and UK taxes are pretty low or non-existent because most of my income in recent years has been dividends / capital gains (on US investments). I now want to sell two rental properties in the UK and will probably have £25 - £30k gain on each one. I understand I need to report that on both my UK and US tax returns, and I understand that the US gain has to be based on cost less depreciation allowable in past years. So far, so good. It seems like the logical thing is to pay the UK tax (because that’s where the properties are) and then use the UK tax to reduce the US tax. But this only works if I have paid the UK tax first, right? 

If I sell the property in Jan-Apr, I can file the UK tax return in April and use that tax to reduce the US tax at the end of that year -- traditionally I have used the UK tax that I paid in one calendar year to offset US tax for that same calendar year, so that’s fine. If I sell the properties in May - Dec 2017, the earliest I can pay the UK tax is 6 or 7 April 2018; can I then use that to offset US tax even for 2017 even though it wasn’t actually paid within 2017? that seems like the logical and good faith thing to do but it would be very expensive to get it wrong -- it’s likely that I won’t have any other UK tax to set against US tax so I have to be able to offset this specific LTCG tax in order to avoid paying the full tax in both countries. 

It’s also possible that both properties will not sell at the same time, e.g. if one sold in December 2017 and one in Jan 2018, then they are in one UK tax year, but two different US tax years. But I would still want to offset all the UK tax against all of the US tax. What would I do in that case? 

If anyone has dealt with this before, I'd be grateful for your advice.


----------



## Bevdeforges (Nov 16, 2007)

Technically speaking, you are supposed to report US tax events on a cash basis. This means when your receive or disburse the money for the transaction. (So, if you are paid a bonus in January, it gets declared in the next tax year, not the year in which you "earned" the bonus.) 

The UK tax year has always posed problems for US taxpayers who have to file both. What you can do is to make a "good faith" estimate of the tax you will pay on a transaction that happens in the "other" tax year - and then if the difference winds up being material (i.e. enough to make a difference), amend that return when you have the actual amount of tax you paid.
Cheers,
Bev


----------



## pattiwhaley (Jul 7, 2017)

Thanks Bev. That makes sense, and is easily done, as long as the two flats are sold in the same US tax year. If one is sold in 2017 and one in 2018, am I allowed to split the tax paid to the UK across two different US tax years? Or should I make sure that both flats are sold in the same US tax year?


----------



## Dunedin (Aug 12, 2013)

You are a UK resident US citizen. The UK has primary taxing rights on most gains. The only major exception is on US real property, where the tax treaty gives primary taxing rights to the UK. So you are correct that you should calculate your UK tax and seek a credit in the US.

You should note that while general UK tax rates are 10%/20%, the rates on residential property are 18%/28%. If the rental properties were your main residence at any point there are reliefs that you can claim.


----------



## Moulard (Feb 3, 2017)

Bevdeforges said:


> Technically speaking, you are supposed to report US tax events on a cash basis. This means when your receive or disburse the money for the transaction. (So, if you are paid a bonus in January, it gets declared in the next tax year, not the year in which you "earned" the bonus.)


Unless you are using the foreign earned income exclusion when it is excluded in the year earned not the year in which you constructively receive payment. Unless it is simply a payroll period issue, you kind of have to reverse engineer whether it is exclude-able.


----------

