If my USA IRA makes an investment in the UK, and the UK withholds income taxes on that investment, can those UK taxes be used on my 1040 form 1116 to offset my USA income taxes? I believe that there is a tax treaty between USA and UK, so non-IRA UK taxes can be used on form 1116. Does it matter if the USA IRA is regular or Roth?
UK taxes and USA IRA
Nov 02, 2023
Last reply: 2 years ago
3 Replies
According to Fred J. Tydeman snipped-for-privacy@tybor.com:
Yes, there is a tax treaty:
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If you look at the technical explanation, it appears that Article 18 says that income of pension schemes (such as IRAs) is generally not taxable so the UK should not withhold tax.
I know that there is a similar rule in the US-Canada tax treaty and indeed, the dividends from Canadian stocks in my taxable accounts have tax withheld but the ones in my IRA do not. Good luck sorting it out.
There are US qualified tax professionals in many parts of the world, including more than 500 in the UK. They can be found on the IRS Preparer Directory, here:
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Income inside a tax deferred account is not subject to United States income tax. As such, you can not deduct any foreign taxes paid nor can you take a tax credit for any foreign taxes paid. This is true for traditional IRAs and Roth IRAs. This is one reason why you may not want to keep foreign investments in a tax deferred account. Naturally, there are other reasons to keep foreign investments in a tax deferred account.
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