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2018 US Tax Year End Planning: UK Tax Payments timed before or after 31 December 2018.

It is important that individuals who pay UK tax on their worldwide income (and who are on the ‘paid’ basis of accounting for foreign tax credits) consider paying their UK tax liability by 31 December 2018, even if the tax on the income is not due until 31st January 2019, or possibly even 31st January 2020. These steps will ensure that a corresponding foreign tax credit may be taken against any Federal tax due on foreign income realised in 2018, and reported on their 2018 US tax return. This is especially true for self-employed individuals with rising profits or if a capital gain has been realised in 2018.

Experience tells us that making payments before the Christmas holiday season avoids last-minute problems and ensures you have the available tax credit.

Conversely, if you have plenty of excess foreign tax credits carried forward from the previous 10 years, you may want to consider utilising these by deferring a UK tax payment to next year (as after 10 years unused foreign tax credits are wasted). You will still be compliant with the 31 January 2019 UK tax payment deadline . Unused foreign tax credits are utilised in a year with a shortfall of foreign tax credits on a first in first out basis, so intentionally creating a shortfall in 2018 would allow you to utilise credits going back to 2008.

What should I do?

If you have realised any capital gains in 2018, or your income not taxed at source has increased, consider making a prepayment of UK tax before 31 December 2018. If you have large carried forward unused credits, consider paying in January 2019.

 

We recommend that individuals seek professional advice where appropriate before taking any action, so please fill out the form below if you have any questions. 

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