US UK Tax Returns Preparation: Article 24 and US Dividends

In US UK tax returns preparation for a UK-resident American, a US dividend is relieved in a fixed order: the US taxes it under the saving clause, the UK credits only the 15% treaty slice, then the US re-sources the remainder under Article 24(6), leaving roughly the higher country's rate.

Most published material stops at the phrase "the treaty prevents double tax". That sentence is true and of no use to someone signing two returns. At Jungle Tax we see the same error repeatedly: a UK-resident American with a substantial US portfolio has claimed a full credit on the UK return, or has no credit at all on the US return, because the two countries' reliefs were treated as independent of one another. They are not. This guide sets out the sequence, shows it on one dividend, and corrects a misconception about Form 1116 that even careful preparers repeat.

What the leading pages on this subject omit: none we reviewed follows one US dividend through all three steps, none cites Article 24(6) by sub-paragraph, and those that mention re-sourcing rarely mention that the IRS carves citizen-residents out of the separate Form 1116 rule.

Why is a US dividend the awkward case for an American in the UK?

The ordinary rule for avoiding double tax is simple. The country where income arises taxes first, and the country of residence gives a credit. An American living in the UK breaks that rule because the US occupies both positions: it is the source country and, through citizenship, also taxes as if it were the country of residence.

Three treaty provisions create the problem and then solve it. All references below are to the consolidated 2001 US-UK convention as amended by the 2002 protocol, published on GOV.UK.

• Article 1(4), the saving clause. Each country may tax its own residents, and the US may tax its citizens, as if the convention had not come into effect. This is why a citizen in London cannot rely on the Article 10 rate limit to cap their own US liability.
• Article 1(5), the exceptions. The saving clause does not switch off certain benefits, and Article 24 relief is among them. That is the route back into the treaty.
• Article 24(6), the tiebreak on who gives way. This paragraph applies where the US taxes, under Article 1(4), a citizen (or a former citizen or long-term resident) who is resident in the UK. Its four sub-paragraphs fix the order of relief.

The paragraph number matters, as secondary sources cite Article 24 loosely. Paragraph 1 is the general US credit. Paragraph 4 is the general UK credit. Paragraph 5 is a sourcing rule for that UK credit. Paragraph 6 is the provision that governs the American in the UK.

What Article 24(6) actually provides

The clause in 24(6)(c) is the piece people miss. The US gives up its excess, but it keeps its treaty-rate slice. That floor is what stops the two credits chasing each other in a circle.

The three-step computation on one dividend

The following figures are illustrative only. Our reader is a US citizen, long-term UK resident, taxed on the arising basis and already an additional rate taxpayer with the dividend allowance used elsewhere. They receive one US-source qualified dividend of $130,000, on a portfolio holding, converted at an assumed $1.30 to £1, so £100,000. We assume an average US rate of 20% applies to it, and use the 2026/27 UK additional rate for dividends of 39.35%.

1. Step 1: the US sets the citizen charge. Under the saving clause, the US computes its tax on the dividend as for any citizen: £20,000 ($26,000) before credits. Nothing is relieved yet.
2. Step 2: the UK taxes and credits the treaty slice only. UK tax before relief is £39,350. Article 10(2)(b) limits a non-citizen UK resident's US tax to 15% of gross, so 24(6)(b) allows a credit of £15,000, not £20,000. UK tax payable is £24,350.
3. Step 3: the US re-sources and credits the residual. The US may credit the UK tax paid, but its £15,000 treaty slice cannot be reduced. The further credit is limited to £20,000 less £15,000, which is £5,000. Final US tax is £15,000.

The combined figure equals the UK charge, as the UK is the higher-taxing country here. The treaty does not lower the overall burden below the higher rate. It simply decides who collects. Of £39,350, the US receives £15,000 and the UK £24,350. The £5,000 line is the money most often lost: it is overpaid to the IRS whenever a preparer stops at the ordinary Form 1116 limitation, because a US-source dividend adds nothing to that limitation.

How that maps to the IRS worksheet

The computation is not a theoretical construct. IRS Publication 514 names the UK among treaties with limited re-sourcing rules and provides a worksheet, "Additional Foreign Tax Credit on U.S. Income". On our figures:

• Line 12, estimated US tax on US-source income: £20,000. In practice this line uses your average rate (line 11, tax divided by adjusted gross income), which can differ from the assumed 20%. A return with substantial ordinary income will not produce the neat number shown here.
• Line 16, tax at source allowable under the treaty: £15,000.
• Line 17, UK tax before credit: £39,350. Line 18, UK credit for US tax: £15,000.
• Line 19, maximum credit: £20,000 less the greater of lines 16 and 18, so £5,000.
• Line 20c: £39,350 less £15,000, so £24,350.
• Line 21, additional credit: the smaller of lines 19 and 20c, so £5,000. This is added to line 12 of Part III and line 32 of Part IV of Form 1116.

Publication 514 directs that the worksheet is filed as an attachment to Form 1116, with a separate worksheet for each separate limit category. It also states that it applies for tax years beginning on or before 10 August 2010 and tax years after 2017.

Do you need a separate Form 1116 for re-sourced income?

This is where received wisdom departs from the primary text. The general rule is well known: income re-sourced by treaty needs its own limitation and its own Form 1116. Plenty of pages stop there. But the Form 1116 instructions continue, and Publication 514 says the same, that the rule does not apply to income re-sourced under the relief from double taxation rules in a treaty that are solely applicable to US citizens resident in the treaty country.

In our reading, that makes the expected treatment for the Article 24(6) credit the worksheet route, not a stand-alone "re-sourced by treaty" form. A separate form remains the correct route for a different kind of treaty re-sourcing claim, where the sourcing rule is a general one rather than a citizen-resident relief. Sections 865(h), 904(d)(6) and 904(h)(10) of the Internal Revenue Code, and Regulations section 1.904-4(k), govern grouping and exceptions, and unusual facts, such as a former citizen within 24(6), deserve a line-by-line reading.

And Form 8833?

The same logic applies to disclosure, with a clear IRS statement. Publication 514's tip says Form 8833 need not be filed when claiming the additional credit allowed by the limited re-sourcing rules, pointing to Regulations section 301.6114-1(c). That does not end the enquiry. Other positions on the same return may need it, and the instructions to Form 1116 warn that re-sourced income can require it. Publication 514 notes a $1,000 penalty for omitted reporting.

How do the US and UK returns each present this?

HMRC's International Manual makes the same general point the treaty does: foreign tax creditable in the UK may be restricted to the treaty's maximum rate. On the SA106, enter the gross dividend and the creditable US tax, not whatever appears on the Form 1040. A credit entered at the actual 20% will look reasonable and be wrong, so returns claiming above 15% are exposed if HMRC opens an enquiry.

Which outcome applies at your UK tax band?

The balance shifts with the UK rate and the type of income. This table uses the same 20% assumed US rate for dividends, and 37% for interest, on a £100,000 amount, before Net Investment Income Tax. It is illustrative and uses 2026/27 UK rates.

The basic rate row, unusual for our clients on a dividend of this size, is there to show the UK credit also has an upper limit: UK tax on the same income. The interest row shows the opposite end. Article 11(1) generally gives interest to the country of residence, so the amount the US could charge a non-citizen is nil. HMRC gives no credit, and the US surrenders its tax. Note that the Budget of November 2025 announced that savings income rates rise by two points from 6 April 2027, which will alter the interest row for later years.

Six points that change the answer

1. Form W-9 versus Form W-8BEN

Generalist guides tell UK investors to sign a W-8BEN to obtain the 15% rate. A US citizen cannot give that certificate, because it declares foreign status. A citizen gives Form W-9, and dividends are ordinarily paid gross. So the 15% in Step 2 is not a deduction on a broker statement. It is the treaty measure of US tax actually charged on Form 1040, and the UK computation needs a calculation supporting it rather than a withholding voucher. Where a UK platform holds a W-8BEN for an American, correct it, then reconcile any Form 1042-S amounts on both returns.

2. The 15% floor needs real US tax behind it

The UK credit is for US tax payable, up to the treaty amount. If the actual US liability on the dividend is below 15%, for example because of low income in the year or unrelated credits absorbing it, the UK credit should not be assumed at the full 15%. Line 18 of the worksheet must then reflect the actual UK credit, which can alter the additional credit.

3. Mismatched years and exchange rates

A dividend paid in February 2027 falls in the US 2027 year and the UK 2026/27 year. Credits only line up when returns are built from a dividend-by-dividend schedule, with both tax years and exchange rates recorded. Consider also whether foreign taxes are claimed on a cash or accrual basis on Form 1116, since an accrual election binds later years and often eases the timing gap.

4. US funds and special dividends

Article 10 contains special limits for certain US property-holding vehicles, so 15% cannot be assumed for every distribution. Separately, a US-domiciled fund may lack UK reporting fund status, which can turn a gain into UK offshore income. That point sits outside Article 24 re-sourcing, but it often appears on the same schedule.

5. The four-year foreign income and gains regime

The remittance basis ended on 6 April 2025. A new arrival who qualifies for the four-year foreign income and gains regime and claims it may pay no UK tax on the US dividend in that year. Line 17 falls to nil, no additional credit arises, and the US keeps its full charge. The claim costs the Personal Allowance and has other consequences, so compare both returns before making it.

6. Residence is a precondition

Article 24(6) needs a UK resident for treaty purposes. HMRC's Double Taxation Relief Manual at DT19853 explains that Article 4(2) treats a citizen or green card holder as a US treaty resident only where set conditions are met, including a substantial presence, permanent home or habitual abode in the US. Someone who splits their year, or has homes in both countries, should document the Article 4 position before relying on the computation.

What should be in the file for each return?

1. Schedule of every US dividend and interest receipt: payer type, date, gross amount, qualified status, sterling and dollar values.
2. Confirmation of treaty residence, Statutory Residence Test result, and any regime claim for the year.
3. Form W-9 or other certification held by each custodian, plus Forms 1099 and 1042-S.
4. Draft US computation showing US tax attributable to US-source income.
5. UK computation applying the lower of the 15% limit and the UK tax on the same income, source by source.
6. Publication 514 worksheet, finalised after the UK figure is known, and attached to Form 1116.
7. Decision notes on Form 8833 and Net Investment Income Tax, with reasons.

Sequencing is practical as well as legal. Because the US worksheet relies on the UK computation, and the UK credit relies on the US charge, the US filing often benefits from an extension so that both can be finalised against the same numbers. Our US-UK tax accountants and UK tax return team prepare both returns on one file, which avoids the mismatch that occurs when two unconnected preparers each assume the other is giving the relief.

What if earlier returns missed this or were never filed?

There are two very different positions. If returns were filed but the additional credit was omitted, an amended Form 1040-X may recover overpaid US tax. Publication 514 describes a 10-year period for foreign tax credit refund claims, running from the original due date of the return for the year the foreign tax was paid or accrued. On a large portfolio, the recoverable sum across several years may be substantial. The UK side should be reviewed at the same time: credits claimed above 15% in earlier years may be an underpayment to disclose to HMRC, and UK time limits differ from the US ones.

If US returns were never filed at all, the issue is compliance rather than a refund. Our IRS streamlined filing team prepares the catch-up returns, with the credit built in, where the non-wilful conditions are met; the Foreign Offshore Procedure generally involves three years of returns and six years of FBARs. For readers with larger or more complex holdings, our high-net-worth service handles this alongside Forms 8938 and 5471 where they apply.

Preparation you can defend in both countries

Article 24(6) gives a clear answer, but it only works when the two returns are prepared as one calculation. If your US portfolio income has been reported on separate files, or you are not sure either country has given the right credit, contact our cross-border team for a confidential consultation. We will review your recent returns, compute the three steps on your actual holdings and prepare both filings for you.