# US taxes Capital Gains



## seanw (May 15, 2017)

US citizen living in the Uk for over 17 years paying tax and working in the UK with a US passport but indefinite right to stay.

Although I have no income from the US like many I fill US tax return each year which is zero'ed out due to double taxation rules/treaty but also fill in my HMRC tax return each year.

Last year I sold some US Shares on which I made £11,000 of profit in a US online Charles Schwab account with funds transferred to the UK in pounds sterling. They did send me a copy of form 1099.

I am planning to use my Capital Gains allowance of £11,200 this tax year just past in UK meaning no tax is due. 

The question is how to declare this in my US Tax returns without incurring tax in the US.

I usually fill out the normal forms 1040, 1116 and 2555 and send them to the IRS with no tax to pay. I understand that Capital Gains is covered on IRS form 8949 which I have never used before.

However, the double taxation rules/treaty between the UK and USA assume tax has been paid in the UK. In the case of capital gains, I am using my full allowance and not paying tax so is this treated differently?

I am concerned that the IRS will say I need to pay CGT tax on the £11,000 as I did not pay tax in the UK on this as it was an allowance. I have not worked or lived in the US for many years.

These were shares/assets held for over 365 days so classed as long term, and since I am a UK and US higher rate taxpayer I could be liable for 20% meaning £2,200!

Anyone got any ideas or advice for me?


----------



## Bevdeforges (Nov 16, 2007)

> However, the double taxation rules/treaty between the UK and USA assume tax has been paid in the UK. In the case of capital gains, I am using my full allowance and not paying tax so is this treated differently?


Unfortunately, no. This is where the US system of taxation comes back to bite those of us living overseas. The fact that you have a capital gains allowance in the UK is irrelevant to the IRS. It would be the same if you had "tax free" savings accounts that pay interest not subject to tax in the UK. The interest received is still reportable and potentially taxable. In this case, because you received a 1099 for the gain, you pretty much have to report it and see if there is any way you can offset UK tax paid on other passive income sources (or if you have an FTC carry forward from prior years that might cover it).
Cheers,
Bev


----------



## Moulard (Feb 3, 2017)

As Bev says, the IRS don't care about the tax treatment in the US . I think the first port of call would be to assess whether the combination of your deductions, exclusions and/or any carried over tax credits are enough to offset the tax liability on it.


----------



## Dunedin (Aug 12, 2013)

*UK US Double Tax Treaty*

The attached summary sets out the details of the UK US double tax treaty position on capital gains. The practical implications for a sale of US shares is that the UK has first taxing rights; the US then has secondary taxing rights and needs to give credit for any UK tax payable. As there is no UK tax, the US taxes the gains under its rules.


----------



## iota2014 (Jul 30, 2015)

Bevdeforges said:


> Unfortunately, no. This is where the US system of taxation comes back to bite those of us living overseas. The fact that you have a capital gains allowance in the UK is irrelevant to the IRS. It would be the same if you had "tax free" savings accounts that pay interest not subject to tax in the UK. The interest received is still reportable and potentially taxable. In this case, because you received a 1099 for the gain, you pretty much have to report it and see if there is any way you can offset UK tax paid on other passive income sources (or if you have an FTC carry forward from prior years that might cover it).


It appears the OP is actually being bitten by his US citizenship, not by his UK residence.

A US citizen would pay the same tax whether resident in the US or the UK. Whereas, if I'm reading the treaty correctly, a UK resident who was free of US citizenship would be able to make use of Article 10.2(b), capping the US tax to 15%.


----------



## Dunedin (Aug 12, 2013)

iota2014 said:


> It appears the OP is actually being bitten by his US citizenship, not by his UK residence.
> 
> A US citizen would pay the same tax whether resident in the US or the UK. Whereas, if I'm reading the treaty correctly, a UK resident who was free of US citizenship would be able to make use of Article 10.2(b), capping the US tax to 15%.


If Seanw had been a UK resident but not a US citizen, the tax on his gains would have been dealt with under Article 13(5) of the Double Tax Treaty. The assets which he sold were shares, and were not real property, PE related property nor a ship or aircraft. This would mean that the US would not be entitled to tax the gain on the shares, even if US domestic rules did tax such gains. 

Article 10(2)(b) relates to the taxation of dividends and not to capital gains tax.


----------



## iota2014 (Jul 30, 2015)

Dunedin said:


> If Seanw had been a UK resident but not a US citizen, the tax on his gains would have been dealt with under Article 13(5) of the Double Tax Treaty. The assets which he sold were shares, and were not real property, PE related property nor a ship or aircraft. This would mean that the US would not be entitled to tax the gain on the shares, even if US domestic rules did tax such gains.
> 
> Article 10(2)(b) relates to the taxation of dividends and not to capital gains tax.


Ouch. Painful.

Thanks for the correction.


----------

