UK Yankee
Expat Americans in the UK
US Tax Guide for Americans Living in the UK
Published: 20 Mar, 2011 (Last updated: 20 Mar, 2011) Tags:
This article was published over 6 months ago & may contain inaccurate/out-of-date information,
please verify the latest status any quoted regulations.
please verify the latest status any quoted regulations.
UK and US tax years:
The first thing you will need to know is that the UK and US tax years are different. The US operates on a calendar year i.e. Jan 1st – Dec 31st, while the UK tax year runs from April 6th to April 5th each year. When preparing your US taxes you need to convert your earnings to USD and report according to the calendar year. You can use your monthly pay statements, bank interest statements, etc or you can use your year-end statements for the two years and reconcile the calendar year income that way. When converting your earnings to USD you can use a specific date method where you use the Foreign Exchange rate on the specific dates you get paid or you can use a monthly average or an annual average. You must use the method consistently, but if you receive large lump sum payments (say at bonus time) you can save quite a bit of money depending on the method you choose.Deadlines:
The next thing to know is the filing deadlines. If you are living abroad full-time then you receive an automatic 2 month extension from the IRS so your taxes are due June 15th rather than April 15th. As the UK tax year does not end until April 5th you may not have your annual statements by June. In this case you can file an extension, which would give you until October 15th to file your taxes. However, in any case, if you owe money, interest will accrue as of April 15th so it is worth trying to get your taxes completed as early as possible. Your Foreign Bank Account Report (discussed below) is still due on June 30th, even if you get an extension to file your taxes later. You should also know that your UK Self-Assessment (if you are required to file one) is due by January 31st. As none of these deadlines are similar, you may forget about your US taxes so please make a note in your calendar or contact Greenback Expat Tax Services and we will happily send you reminders about these important dates.Double Taxation Treaty between US and UK:
If you are living and working in the UK or considering moving over for work you are likely to be on the Pay As You Earn (PAYEPay As You Earn - UK Income Tax) system i.e. your employer will deduct your UK Taxes due directly from your salary. The PAYEPay As You Earn - UK Income Tax system is quite simple and you don’t need to do much to stay compliant with Her Majesties Revenue and Customs (HMRCHer Majesty's Revenue and Customs, now known as HMR). Your taxes and National Insurance (NINorthern Ireland or National Insurance) are automatically withdrawn from your salary. The US and UK have a double taxation treaty so you will not own tax on your income twice and you can use the Foreign Tax Credit and the Foreign Earned Income Exclusion to build up some credits in the US and/or avoid paying any tax in the US.Self Employed?
If you are self-employed, however, the situation becomes more complicated. The US / UK tax treaty says that you would need to opt out of US Social Security in the US, even if you are already paying NINorthern Ireland or National Insurance – this is not automatic. To opt out you would need to visit the Social Security website at www.ssa.gov and you can search for the UK tax treaty. If you fail to do this you could owe a significant amount of money to the IRS and this would not be offset by any of the credits or exclusions available i.e. you would need to write a check that would be about 15.3% of your 2010 earnings.Retirement Savings- Important Considerations:
Pensions in the UK are another area where US citizens can get in trouble with the IRS and the Treasury. You may have a company pension where you and your employer put money into a retirement plan (“defined contribution”) or your employer may provide a final salary pension scheme (“defined benefit”). As employer- sponsored plans these are fine and nothing to worry about. You may also have a SIPP – (“Simplified Individual Pension Plan”) these are a bit of a grey area with the IRS. Some people consider these accounts to be foreign trusts and you would need to report the earnings and capital gains each year on your US taxes and pay tax on these earnings and capital gains. Other people have argued that they are qualified retirement vehicles and as such are exempt from tax. To date the IRS has not made a ruling on these so it continues to be a grey area. You should consult with your tax preparer before opening one of these accounts. The bigger tax trap is the ISA (“Individual Savings Account”). These are considered a foreign trust by the IRS and you do need to report your income and capital gains in these accounts each year on your US tax return (even though it is tax-free in the UK). You will need to pay tax on the income and gains from these accounts. SIPP’s and ISA’s will also need to be reported on your FBAR (“Foreign Bank Account Form”) each year.FBAR:
Finally, the FBAR can cause real trouble for Americans in the UK. Here is an example of one common scenario: assume you own your own home and have an offset mortgage. The money you have offsetting your mortgage would need to be reported on your FBAR as would your SIPP’s, ISA’s, savings accounts, checking accounts etc. Failure to report these funds can result in very large penalties which start at $10,000 and go up from there. The rule is if you have over $10,000 or the foreign equivalent in overseas bank accounts you must report this money to the Treasury by June 30th. This is cumulative i.e. if you have $2,000 in 5 accounts you need to report all 5 accounts. At the moment the Treasury is not clear about how or who gets fined for not reporting these foreign bank accounts. One thing is clear, however: if you voluntarily report your accounts you are much less likely to be fined than if the Treasury catches you.Greenback Expat Tax Services
More information about these and other tax matters are available on our website. We are a team of CPAs and EAs with 30+ years in expat taxes. We offer reasonable, flat fee pricing ($329 for your federal tax return), a hassle-free process, and accurate and money-saving results. If you need assistance preparing your return, have any questions about your US expat tax obligations or just to see what our happy customers have to say about their experience with us, please visit us at www.greenbacktaxservices.comLogin
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Share your tips or comments below!
filling tax return
i would like to know if i have to file a tax return even though im not working in the uk
It depends on your situation
The IRS requirements for filing are here:
http://www.irs.gov/publications/p54/ch01.html#en_US_2010_publink100047318
Need to file a return?
Angelwing2_1
Hi, this will depend on a couple of other things: Do you have any other income from outside the UK(dividends, interest income, rental property etc)? The US taxes your world wide income so if for example, you make money selling products online in another country other than the US or UK, but you live in the UK, you will still need to report that income to the IRS.
Also, if you had no income but you have foreign bank accounts with over $10,000 in total in them (for example. if you have 3 ISA's) then you would need to file the FBAR form, which is different from a tax return, but a key focus for the IRS at the moment. The $10,000 rule counts even if it was just for 1 day over the course of the year and even if it is spread out over multiple accounts.
If you have no income/capital gains and no large foreign bank accounts then you probably don't need to file a US return. However, the rules are a bit tricky so always best to speak with a tax preparer about your particular circumstances (we're of course happy to help).
If you have further questions please let us know at info(at)greenbacktaxservices.com or www.greenbacktaxservices.com.
Sincerely,
David
Professional, accurate, hassle-free US expat tax preparation at a fair price
www.greenbacktaxservices.com
what counts as income for US tax returns?
I work in the UK and have a salary as well as a car allowance and private insurance. Do I need to include the car allowance and private insurance as taxable income for my US tax returns or only my salary?
Thanks
Answer to - What counts as income for US tax returns?
Hi,
Generally speaking you would need to report your salary and your car allowance as income. Private health insurance would not need to be reported (for ex Bupa), but if you have other types of private insurance that your company pays for, these would need to be reported.
If you have further questions please let us know at info(at)greenbacktaxservices.com or www.greenbacktaxservices.com. Happy to help!
Sincerely,
David
Professional, accurate, hassle-free US expat tax preparation at a fair price
www.greenbacktaxservices.com
Capital gains - dual US -EU citizen
I hold dual citizenship in the EUEuropean Union and US and am thinking of making Switzerland my permanent home. If upon retirement I sell my company as a Swiss citizen will I have to pay capital gains in the US, even if I have relocated to EUEuropean Union permanently?
Capital Gains and Dual Citizenship
Hi,
As a citizen of the US, you are required to pay taxes on capital gains while living outside the US - even if your company is foreign. That being said, the taxation on the gain would be guided by Article 13 of the US - Switzerland Tax Treaty. So, you would report it to the US as income, but your taxes would be payed to Switzerland and not to the US.
If you have any other questions, please do not hesitate to contact us directly at info(at)greenbacktaxservices.com or visit us at www.greenbacktaxservices.com.
Kind Regards,
David
Professional, accurate, hassle-free US expat tax preparation at a fair price
Taxes
We are relocating from US to UK soon. However, we are not permanent residents of US- do we still have to file US returns along with the UK returns?
Non-residents leaving the US
Hi,
For non-residents working with a work visa in the US, you are required to file US taxes for the income you earned while working in the United States. You will not be taxed by the US government on income you earned outside of the US, once you are outside the US. You would need to file a US tax return using form 1040NR for the last year you worked in the USA.
If you have any other questions, please do not hesitate to contact us directly at info(at)greenbacktaxservices.com or visit us at www.greenbacktaxservices.com.
Kind Regards,
David
Professional, accurate, hassle-free US expat tax preparation at a fair price
foreign trusts
Do ISA's and personal pension plans require forms 3520 and 3520A if they're deemed private grantor trusts by IRS? If yes, how much are typical charges to complete these obscure forms? It seems onerous to have to pay large fees especially when only a couple thousand pounds is being paid into the personal pension.
ISA's and SIPPs
Hello,
If the trust has been deemed a private grantor trust by the IRS via a determination letter or recognized as a 501(c)(3) entity, it meets the criteria and will not need to file. From a practical perspective, as long as a trust has market visibility, there is not a filing requirement. Generally speaking ISA's are not recognized by the IRS as qualified retirement vehicles - meaning you need to pay US tax on the income and capital gains each year. SIPP's are less clear and an argument can be made either way, but there is no IRS ruling on this.
Also you need to report both ISAs and SIPP's on your FBAR form.
If you have any further questions, please do not hesitate to contact us directly at info(at)greenbacktaxservices.com or visit us at www.greenbacktaxservices.com.
Kind Regards,
David
Professional, accurate, hassle-free US expat tax preparation at a fair price
That sounds encouraging...the
That sounds encouraging...the problem is that it's going to become more or less compulsory for employees working in the UK to have a personal pension through their employer which would probably not be techically a qualified pension under US rules...there are concerns that these personal pensions could be considered pfic's or personal grantor trusts and thus require forms 8621, 3520 and 3520A, and have noted that accountants in UK are charging very high prices to file these...1500 quid for the two latter forms which is more than I'd even be contributing into the pension per annum. It's scary to think US citizens working over in UK could be affected by such onerous requirements.
SIPPs and Stakeholder Pension
I have a similar (yet different) situation as Mona Lisa. I have a SIPP and a standard life stakeholder pension and I want to close one of them to avoid 3520 related filings now and in the future. The question is, which one would have the lesser likelihood of 3520 (and -A) filings, especially with FATCA coming? If I keep the stakeholder pension is there a need to file 3520 and 3520-A, even if I invoke the treaty?
My accountant is arguing that
My accountant is arguing that he can invoke the treaty (think it's article 18) thus getting me off the hook for having to file the 3520 and 3520A forms, at least for now. He seems to think that Stakeholders and Sipps are treated similarly though also undrstand that the IRS would be more likely to question what the latter contained, though you could buy US compliant funds within the SIPP.
I don't know if the upcoming 8938 fatca form will change all this though...I'm still quite concerned but as I can't cancel the pension now I'll have to go with her argument, which seems reasonable to me. I'd like to think that the IRS would realize that Stakeholders are not exactly an ideal way to launder miney, *lol*
Someone on the IRS helpline in Philly seems to think that stakeholders are reasonably OK since they have so many restrictions on getting at the money (before 55), though understand I'll have to wait till 59 and a half under US rules or suffer around a 10% penalty on the income, plus the 25% lump sum (tax free in UK) will still be subject to US taxation...which means I probably will just convert it all to a standard level annuity at 67, etc.
I thus would think that if you're fully reporting the pensions on both the fbar and 8938 that as you will have fully disclosed the value of these funds that they should be reasonably ok with that...after all, they could get back to you if they wanted the trust forms...plus, I believe you could plead a waiver of penalty through the Taxpayer's Advocate if they get aggressive...
Thanks
Thanks Mona Lisa. This sounds like a reasonable and logical stance and its comforting to know that I am not alone. I agree that the stakeholder pension (compared to SIPP) is the less "evil" pension in the eyes of the IRS. Hope I'm right.
By the way, do you have a UK employer pension currently active where you could transfer your SIPP & Stakeholder plans to? I would think that an employer sponsored plan is even less evil than a stakeholder plan...
I wanted to switch my
I wanted to switch my stakeholder into my employer's pension but they don't want the hassle of having a US citizen due to all upcoming fatca bureacracy. This seems to amount to blatent diacrimination (especially as I also have British citizenship and have lived here in UK for over 20 years)... but don't know that there is really that much I can do about it....but, if anything, I would hope that this would give me a stronger defence if the IRS were to accuse me of setting up a foreign grantor trust.
After all, it's completely unreasonable to have to pay thousands in annual fees to an accountant for these obscure forms, especially when I will only be adding at most a couple thousand pounds a year into the pension. It's onerous enough that I will have to budget for expensive accounting fees for my US returns, probably for the rest of my life. :(
The whole fatca situation stinks but don't know that there is much we can do as individuals unless there was a mass protest, and it ain't gonna happen. But as we're not the IRS's main target and are merely caught up in the net, I'd like to think they'll be satisfied with good faith disclosures and complete reporting on the fbars and 8938.
I know what you mean about
I know what you mean about all these forms and fees. I'll end up having no pension left! And with all these grey areas it is difficult to assess which is the right way forward. That is also really disppointing about your employer pension not helping you. I hope mine goes through...
As we are facing similar difficulties I will come back to this post with any info that may be useful. As you have probably experienced, it is nearly impossible to get any answers on the 3520 from the IRS, let alone a consistent one.
We cannot be the only two out there with this issue. I hope others will participate to this discussion.
As it's a grey area at the
As it's a grey area at the moment, I'd go with an accountant who will interpret things in your favour, such as mine invoking Article 18 of the UK/US tax treaty which gets me off the hook for the 3520 & 3520A for now...but if the 8938 does go through, as it will require complete reporting of assets directly attached to the 1040, it might make doing this more difficult. However, if even the IRS themselves don't know how to give any basic guidance on how the fill in these forms, I would guess they'd have to accept my accountant's more liberal interpretation, at least for now.
It's an onerous, onerous situation.
At least the Canadians have Jim Flarity to back them up about all this FATCA nonsense whereas it seems the British don't want to stick their necks out for us expats, as they consider it out of their domain. But in saying this, I'd like to think the Inland Revenue would at least not aggressively enforce the IRS's draconian fines for failure to file obscure reporting forms. They've agreed to collect US taxes via the treaty but fines from failure to file these forms is probably not covered, so while they wouldn't defend us against the USA, I also don't think they'd enforce these fines either. The IRS would thus have to pursue collection for fines in a UK court where it would probably be laughed out of court by the Judge, especially if you've been completely tax compliant in both countries. This would even be more so if you've reported all your assets and income on the FBARs and 8938 (and 1040)...so why the Hell should they be so fussed.
I'd guess we should be reasonably OK; these forms are intended for people deliberately trying to evade taxes by setting up foreign trusts whereas these are innocent pension schemes. I suspect they'd accept a waiver of penalties and reserve clobbering for the actual tax evaders, especially if we've been correctly filing FBARs and the upcoming 8938 (and honestly paying all our taxes in both countries).
Moving to the UK but working for US company
I will be moving to the UK in a couple of months but will be working for a US company. I am going over on a "Sole representative of an overseas company" visa. These visas usually begin at 1-2 years with the option to extend later on. So I will be there for a chunk of time. I am completely new to this and am largely clueless. I obviously want to avoid double taxation. How exactly would my taxes work? I am assuming that my set up will be that I will continue to have my company deposit my paychecks via direct deposit. Then I will transfer any necessary funds to a UK bank account or just use my credit cards as others have advised to do. Would this mean I would continue to pay US taxes or will I need to be paying UK taxes instead? I know I will be paying a council tax on my housing. I have read where you file these taxes with the US for your income tax return. Sorry for so many questions! Can you help or point me in the right direction?
Just thought I'd mention that
Just thought I'd mention that they've relented and have let me join my employer group pension scheme. :)
Foriegn Spouse
Hello,
I am a US citizen living here in the UK because I married an Englishman last year. Will I have to get a TRN for him before filing and am I supposed to file 'separately?'
Thank you!
Taxes on property in the UK
Hello,
I"m permanently residing in the UK (London) and have as of 2011 a dual citizenship (US & UK). I also own an apartment in the UK since 2008 and with a growing family I'm planning to either sell it or rent it to buy or rent a larger house in the same area. Is there any risk of me being "double taxed" for any profit I make on selling my apartment or renting it out? With double taxed I mean if I have to pay taxes on any profits both in the UK and in the US?
Thank you!
As I understand it, you'll
As I understand it, you'll face US capital gains taxes on any gain over $250,000. However, if you own it jointly, you could divide the total gain in half, as that would be your share. So if you paid, say, £150,000 for the flat (about $230,000) and sold it for £500,000 (about $800,000), the gross gain would be $570,000. Your capital gain if jointly owned would be about $285,000. You'd thus capital gains taxes on $35,000 in this situation which I imagine are around 15%? Annoying but not the end of the world.
UK Resident, US Citizen, No Taxes filed for 5 years
Hi,
I'm a US citizen living in the UK these past 5 years (6 years as of October 2012). I've not filed a US tax return since moving over!
I earn £33k per year, and have no income from any other sources. My wife adds income to our household through her own salary but she is a UK citizen, and holds no US citizenship.
I've only just discovered this is all an issue for me - it makes no sense to file a US Income Tax form when you have no US income.
However...I've looked around a bit to see what I can find out and have come across the Foreign Earned Income Exclusion for up to $95k.
As I don't earn that much (only £33k / $53k) do I still need to file? This is all so confusing.
More concerning is the fact that an old retirement account which I'd started in the US closed and payed out. The fund had only approx $200 (not $200k, mind you...two hundred dollars) as I'd only just started it and then abruptly left the company to which was affiliated.
Anyway long story short, I opted to do what I thought was 'the right thing' and filed this "income" this past week with the IRS.
Now very concerned that they're about to discover my lack of filing for the past 5 previous years and haul me in. I'm due a visit to family in October and really don't know what to expect!
US taxes
My daughter is living and working in the UK for 16 years married to an UK citizen. She inherited a substantial amount of money from my mother in 2007 but kept it in the US in US accounts and withdraws as needed by transferring it to her UK checking acct. She has NOT filed taxes; does she need to pay taxes on the gains from her investments? Also, is she liable for taxes in the UK on the money from the inheritance she transfers?
DUAL US/UK Citizen returning to live in UK after 26 years
If I return to live in the UK, where I was born, will I have to pay any taxes to the UK government?
I am over 65 and living on a fixed income from the U.S. Military, as a widow. I am a naturalized US. citizen and have kept my UK passport up to date for the past 24 years.
I have no income in England, except for a modest bank account. I do have some US investments which would probably have to be transferred to the UK. Would those be taxed by both governments.?
Retired, dual citizenship
I have dual US UK citizen status.
I lived in the US since 1977. Since my divorce
I have spent 24 months out of the last 3 years living in the UK.
I live off investments in both countries and pay taxes in the US on all these investments
Do I have to pay UK tax on my investments as well..
US citizen working for US company, living in UK
I used to live in California, work for a Seattle based company. My consultancy fees reported thru Form1099. I got married, moved to UK, continue to get paid in US$. I keep 1/2 earnings for taxes and mortgages for my California house on rent, and transfer 1/2 money GBPGreat British Pound (Sterling) for living expenses in UK.
I plan to take up some part-time work in the UK as well. Please advise how to prepare for 2012 tax in the US, and Apr2013 in UK ?
Which taxes do we pay?
My husband has a job offer to transfer to a company in London (we are US citizens). He will be paid by the UK company in pounds. We will no longer have any US income. I'm not sure if I'll qualify for a work visa yet, but hopefully I will.
My question is, will we have to pay US taxes or UK taxes? Or both? If we will be paying UK taxes, then how much percentage does the gov't take (in the US we pay 30%)? We are trying to figure out if we can afford the high cost of living on the salary this company has offered.
wife and husband imigrating to the us needs advice
Hi I have dual nationality and I have been living with may partner for 17 years. We only got married 5 years ago.
I left the states when I was a student only earning a part time salary and did not have to make a tax return at that time 25 years ago.
Now that we would like to immigrate back to the USA, I realized, I need to do my tax return of the past 3 years.
I have worked part time for 5 years and I don't get paid much. I receive Child Support from my previous marriage which isn't very much but it tips up my income.
We have a house that is not in my name but we jointly own an apartment that we only make a small profit on.
We have a son together but it is my husbands wages that support us.
Also, my husband has assets but they are not in my name. Do I have to declare any of this to the
IRA?
ALso, do I have to show my bank statments for the past three year?
Alot of questions however, it would be great to prepare the paper work and higher someone to do it for me.
Any ideas would be wonderful.
Thanks
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