IRS allows Remittance Basis Charge to be creditable

Until yesterday, it was never clear whether the Remittance Basis Charge (RBC) paid by non-domicilaries, who have been resident in the UK for more than 7 years, would be a creditable tax for US tax purposes. We had been waiting for the IRS to confirm their view since 2008.

Yesterday the IRS issued a Revenue Ruling which states that the RBC can be taken as a foreign tax credit by those US taxpayers who elect to be subject to tax on the remittance basis. In addition, for those taxpayers who have paid, or who will pay the RBC in the future, it is not necessary to nominate sufficient non-UK income and/or gains to produce a tax charge equivalent to the RBC of £30,000 (or £50,000 from 6 April 2012) for the RBC to be allowed as a foreign tax credit – meaning that such individuals can nominate – say, as little as a £1 of non-UK income and/or gains to secure the credit.

This Revenue Ruling is good news for our US clients as it may change their decision on whether to pay the RBC in the future, rather than subjecting their worldwide income and gains to UK tax.     

For those US taxpayers that have paid the RBC in 2009 and 2010 and who have already filed these US tax returns, we can help with considering whether amending their US tax return(s) will be appropriate.    

If you would like to discuss any of the issues mentioned in this email please get in touch with your usual Buzzacott contact or email expattax@buzzacott.co.uk