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2019 US tax year end planning: UK tax payments timed before or after 31 December 2019.

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 2019.

This is applicable even if the tax on the income is not due until 31 January 2020, or possibly even 31 January 2021. 

These steps will ensure that a corresponding foreign tax credit may be taken against any federal tax due on foreign income realised in 2019, and reported on the 2019 US tax return. This is especially true for self-employed individuals with rising profits or if a capital gain has been realised in 2019.

For clients with UK Limited Companies that are subject to the new GILTI rules, the company may consider paying its corporate tax liability relating to 2019 profits to allow full utilisation of the tax as a foreign tax credit. There are other conditions required to be able to claim a foreign tax credit, so speak to an adviser if you have not had the appropriate advice for your structure.

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, to still be compliant with the 31 January 2020 UK tax return filing deadline as after 10 years, unused foreign tax credits are wasted. 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 2019 would allow you to utilise credits going back to 2009.

What should you do?

If you have realised any capital gains in 2019, or your income not taxed at source has increased, consider making a prepayment of UK personal or corporation tax before 31 December 2019. If you have large carried forward unused credits, consider paying in January 2020.

Click here to go back to 2019 US Tax Year End Planning. 

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