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US Year End Planning: Pay your UK taxes before 31 December

As you plan for year-end, one of the important things for US persons living overseas to pay attention to is matching their foreign taxes paid to when the income will be recognised as taxable in the US. This is especially important for those living in the UK as the tax years differ which can result in a timing difference in when taxes are paid. As many already know, the US tax year is based on the calendar year and the UK tax year runs from 6 April to 5 April with taxes due by 31 January of the following year.

If you have a liability in the UK that is related to taxable income that will be reflected on your current year US tax return then it can be especially important to pay your UK taxes related to that income before the end of the calendar year. So, even though you do not necessarily have to file your UK tax returns until 31 January, it can often be beneficial to pay tax before 31 December. This will ensure that when the income is taxed in the US you will have the corresponding foreign tax credit to offset the US tax liability. The bottom line – you will avoid potentially being subject to double tax or having to amend your already filed tax return in the future.

Pre-paying your UK taxes becomes slightly less important if you have built up excess foreign tax credits over the years and the level and source of income remains similar each year. Since excess foreign tax credits will carry forward for 10 years, some of these excess credits may be able to be used each year to make up any timing differences in the payment of taxes. However, if in a given year there is a large difference in taxable income from the prior year, or the taxable income arises from a different source, it can be important to reassess whether pre-payments of UK tax is necessary. Your US-UK tax adviser can help you determine whether this would be beneficial for your individual situation.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.


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