2024 year-end tax planning

With the US tax year drawing to a close, we explore key tax planning opportunities for Americans living in the UK.

Now is an ideal time to consider your options and take action before year-end.

Our first 2024 year-end planning ‘Tax Bite’ discusses who should consider year-end foreign tax credit planning and why it is important.

If you claim foreign tax credits on a paid basis, you may be required to accelerate your UK (or other foreign country) tax payment into the current calendar year.

Concentrating on the UK, the tax due here on untaxed 2024 income and gains will most likely be payable after the end of the 2024 calendar year. Therefore, by making your tax payment by 31 December 2024 you can ensure that this tax credit is available to offset any 2024 US tax that would otherwise be due and mitigate any double tax exposure.

Individuals will need to pay particular attention to this where ‘pre-Budget’ planning opportunities have been taken, such as realising gains prior to the increase in Capital Gains Tax rates following the Budget on 30 October 2024.

The remittance basis regime will be replaced with effect from 6 April 2025. Those moving to the UK, or those who have been in the UK for less than four tax years, will be able to claim a new special status which will mean that they are exempt from UK tax on all foreign income and gains for the first four years of UK tax residency. Overseas funds can be brought into the UK without any further Income Tax or Capital Gains Tax.

2024/25 will be the last year non-domiciled individuals can claim the Remittance Basis so careful planning needs to be considered (e.g. would there be a tax advantage in claiming the Remittance Basis for 2024/25 if it hasn’t been claimed previously to benefit from the rebasing relief available).

With clients paying the Remittance Basis Charge (RBC) it is worth considering paying this prior to 31 December to allow the credit to be recognised on your US 2024 taxes.

One of the key considerations is, if you are looking at remitting income and gains soon, you may wish to consider waiting until 6 April to take advantage of the ‘Temporary Repatriation Facility’ rules, if applicable.

In terms of trusts it may also be advisable to review trust deeds in advance of the upcoming non dom changes in April to ensure transparency on the upcoming UK tax treatment.

In this section we discuss the potential remedies should you have a foreign tax credit shortfall on your US 2024 filings.

There is the option to carry back excess foreign tax credits (if any) in the following year of the shortfall (e.g. 2025) and carry back one year only. Therefore, although there may be a cash flow disadvantage, there is potential tax planning options available to help recoup any lost tax.

Capital gains are a key area of year end planning consideration as UK tax payable on any gains realised from 6 April 2024 – 31 December 2024 will only be payable to HMRC by 31 January 2026. However, it is crucial to consider advancing any UK tax payment for these gains to align with the US calendar year and perhaps make an advanced payment to HMRC.

Understanding which ‘baskets’ your foreign tax credits will fall under with regards to your US tax filings is key to ensuring you do have any double tax exposure. For example, tax paid on capital gains will generally fall under the ‘passive basket’ as opposed to your ‘general limitation’ basket which credits typically from earnings will fall under.

If you file on the Accrued Basis of taxation, there will be less flexibility in terms of year-end planning but there are still options available. The election is also irrevocable.

Gifting prior to 31 December should be considered from both a US/UK tax perspective. For example, utilising the US Gift Tax annual exemptions and how that interacts with the Lifetime Gift/Estate tax exemption of currently $13.61 million is prudent succession planning.

Gifting to a Non-Resident Alien Spouse (NRA) is exempt from any Gift Tax Reporting for 2024 provided the gift does not exceed $185,000.

For UK tax purposes, gifts out of surplus income should be considered for Inheritance Tax (IHT) purposes as well as the annual exemptions and interaction with Potentially Exempt Transfers (PETs) where the gift will remain in your estate for up to Seven years for IHT purposes (although the rate of IHT begins to taper after three years from the date of gift).

The various advantages of charitable donations should also be considered (cash and non-cash), particularly with a focus on ‘dual qualifying’ donations for US/UK tax purposes.

Eight top tips

With the end of the US tax year approaching, we look at some of the tax planning opportunities available to Americans based in the UK, together with some key dates for your diaries.

In 2024, the U.S. economy exhibited resilience despite elevated inflation, rising interest rates, cooling housing demand and geopolitical tensions.  With that in mind, it’s a good time to think about the planning opportunities that may be available to you before the end of the year.

Here are eight of our top tips for your consideration.

Many entrepreneurs find the US tax rules to be an impenetrable web of acronyms, jargon, and technical detail.

Our US UK Private Client team specialise in helping people navigate the US and UK tax rules, cutting through the confusion, translating some of the key terms, and helping you understand how these rules affect your business.

We aim to provide practical advice and prepare your US tax return filings to ensure that you comply with the increased reporting required by the IRS for US entrepreneurs.

In the following short videos and accompanying articles we look at how these rules apply to a US citizen in the UK who owns a UK company.