Guide To United Kingdom Expat Tax Advice
The Tax Samaritan country guide to United Kingdom Expat Tax advice is intended to provide a general review of the tax environment of United Kingdom and how that will impact your U.S. expatriate tax return as a U.S. Expat in the United Kingdom.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from the United Kingdom and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the United Kingdom, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in United Kingdom and this brief article will address a few of those considerations.
US Expat Living In United Kingdom
The United Kingdom has a lot to offer Americans living abroad from a rich culture and history, to the convenience of not having to learn a foreign language. The UK has a diverse economy, however that is tempered with generally a high cost of living, poor weather (lots of clouds and rain) and urban congestion in the major cities such as London.
Below is a list of our top 12 popular United Kingdom cities for foreigners to reside in (in no particular order):
United Kingdom Expat Income Taxes
Who Is Liable For Income Taxes In United Kingdom
The taxation of individuals in the United Kingdom (UK) is determined by residence and domicile status. Tax residents are liable to UK tax on their worldwide income. Nonresidents are subject to tax on their UK-source income, such as compensation attributable to UK workdays and certain UK-source investment income.
Who Is A United Kingdom Tax Resident
An individual coming to the UK is likely to be regarded as a UK tax resident if any of the following conditions are satisfied:
- He or she works full time (at least 35 hours per week on average) in the UK for a 365-day period, with at least 75% of his or her workdays being UK workdays.
- He or she has his or her only home or all his or her homes in the UK, for a period of at least 91 days, and at least 30 days of the 91-day period fall in the UK tax year concerned.
- He or she spends at least 183 days in the UK in the UK tax year.
- He or she meets the sufficient ties test.
United Kingdom Expat Tax Advice For Your US Expat Tax Return
When dealing with your US expat tax return in the United Kingdom, there a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it could reduce your U.S. taxes to zero.
Below is our United Kingdom expat tax advice for your US expat tax return:
- If you are a U.S. citizen or a resident alien of the United States and you live in the United Kingdom, your US expat tax return in the United Kingdom is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in the United Kingdom. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
- When it comes to your US expat tax return in the United Kingdom, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and the United Kingdom. A U.S. taxpayer working overseas in the United Kingdom may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a US tax return while living in the United Kingdom does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that these tax benefits, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability and tax return until they are claimed on a filed tax return. So, be sure to file your US expat tax return!!!
When it comes to United Kingdom expat tax advice there are many tax items to consider, but the above are by far the most common tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
U.S.- United Kingdom Tax Treaty And Tax Relief For US Expat Tax In United Kingdom
The U.S. does have a tax treaty with the United Kingdom.
Please click on the link to the U.S. – United Kingdom Tax Treaty.
United Kingdom Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in United Kingdom is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at HSBC, Barclays, Lloyds Banking Group, Royal Bank of Scotland, Santander, Royal Bank of Canada, Standard Chartered or at another bank in the United Kingdom or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
Qualified Dividends In United Kingdom For Your Foreign Corporation or Investment
Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States. United Kingdom foreign corporations are eligible for this lower “qualified” dividend rate and can be a significant benefit for reduced US expat tax in United Kingdom.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in United Kingdom. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in United Kingdom. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
U.S. – United Kingdom Social Security Totalization Agreement
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.
As of this time, the United Kingdom has entered into a Totalization Agreement with the United States thus there is opportunity to avoid double taxation of social security income for US expat tax in United Kingdom.
Click here to read more on the US – United Kingdom Totalization Agreement .
Testimonial Of Clients Residing In United Kingdom
We have many expat tax preparation clients that live and work in United Kingdom. Below are a few tax preparation testimonials of clients in the UK for your review, however we encourage you to view recommendations left for us on our LinkedIn page. These are independent tax preparation testimonials from real customers, with tax situations just like “yours”. If you are unable to view our testimonials, please “connect” with us on LinkedIn for access. Otherwise, please view our Tax Testimonial snapshot.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in United Kingdom and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in United Kingdom. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in United Kingdom. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in United Kingdom advice based on your individual needs.