Paying your tax early to avoid potential double taxation

As an American living in the UK, you are subject to two tax systems with differing deadlines and tax periods. To avoid a mismatch in tax credits most people should look at making early UK tax payments.

Why is a pre-payment required?

US taxpayers may need to claim Foreign Tax Credits to reduce a US tax liability on income and capital gains.

The amount of foreign tax credits available in a US Tax Year are usually the amount of foreign taxes actually paid to tax authorities in the same year.

As a general guideline, you should aim to settle the balance for your 23/24 UK tax return by 31st December 2024. However, in certain cases, an additional payment may be required as an advance on UK taxes for income earned and gains realised in 2024.

Example

• The HM Revenue & Customs (HMRC) tax payment deadline for the current 2024-25 UK tax year is not until 31st January 2026.
• If you have made a large gain in October 2024 (pre budget), this will not be subject to UK tax until 31st January 2026, but the US require you to have paid the taxes in the calendar year to get the credit – before 31st December 2024.
• If the taxes are not paid by 31st December 2024, no credit will be allowable for these taxes and there is a risk of double taxation.

What do I need to do?

Given that many people have realised capital gains ahead of 30th October 2024 to plan for the increase to UK capital gains tax rates, this becomes even more important.

Therefore, we recommend speaking to your tax advisors as soon as possible to calculate if any early payments are required.

Please note there are exceptions, but if you have made significant gains in the year, we urge you to speak to your tax advisor before the end of the calendar year.

How to calculate and organise payments

To calculate whether a payment is needed, you should share details of all income and capital gains from 1st January 2024 – to date with your US tax accountant.

To organise the payment with HMRC, you should liaise with your UK accountant to make sure this accounted for properly. The timing and reference attached to this can be important to ensure you are not refunded the early payment.

You may use one accountancy firm to handle both US/UK tax filings and so they should be able to assist with estimating and paying the tax.

How we can help

If you are a client of London & Capital, we will be able to help with the following:

1. We can share with you or your accountant directly all year-to-date US/UK reporting information including all 2024 income and gains.
2. Once the UK tax payment amount is known, we can also assist with how best to make this payment should you need to make this from your portfolio.

If you do require additional information, please reach out to us before 6th December 2024 so the team here can help and allows sufficient time for your tax advisors to calculate any tax due and to ensure you can make any required payments in good time.