Introduction to Expat TAX
Filing a tax as an American expatriate living in the UK is a complex one. If you will not file your taxes correctly in US & UK, it will result in big fines & penalties. If you want your taxes to be filed correctly, you have to take professional advice. Getting a professional advice will save you from losing thousands of dollars and helps you too in understanding the concept of US Expat tax return in detail.
All US citizens & green holders who earn minimum $10,000 from any part of the world are required to file US federal tax return to IRS. If you are already paying income tax in UK, various exclusions & exemptions are available to save you from paying tax again on same income to IRS (US Tax collection agency).
Also Read: HMRC Income Tax Return Calculator
Overview of TAX & The Deadline
The tax rules for American Expats in UK are very similar to the Americans living in America. One major difference seen in both of them is the deadline.
In the case of American’s living in the US, the deadline for filing & paying the tax return is 15th April in any tax year whereas in case of American’s living abroad get an automatic two months extension to file & pay their tax for which the deadline is 15th June. In this case, tax payers do not have to apply for this extension. Taxes due must be paid by 15th of April unless you will face interest on late payment as penalty from 15th April onwards.
UK Tax Requirement of American Expats
The UK tax year runs from 6th April of the current year to 5th April of the next year. Anybody earning an income in UK is liable for paying UK income tax. If the tax is not paid through PAYE Scheme or if you are a director and your income is over £100,000, you need to file self-assessment tax return. Self-assessment tax returns needs to be filed & paid by 31st January of the following year to avoid fines, penalties etc.
- If you are an American living in UK, you need to declare your tax residency status to HMRC with the help of statutory residence test to know whether you are tax resident of UK or not.
- Statutory residence tax contains a series of questions which finally determines your UK tax residence status.
- If you are considered a tax resident of UK, you will be liable to pay tax on your worldwide earning to the UK government whereas if you are not considered a tax resident of UK, you will only be liable to pay tax on the income arising from work or investments done in UK.
US/UK Double Tax Treaty
When multiple countries involved, tax can get complicated. US has a tax treaty with United Kingdom and it states that if you already paid a tax on your income in UK, US govt. may allow you a foreign tax relief by which you can easily reduce your tax liability. These double tax treaties helps US individuals by saving them from paying double taxes as there is no need to pay tax on your income in US, if tax is already paid by you on the same income in UK.
If it is not carefully managed, you can be taxed twice on the same income. Fully understanding the double tax agreement b/w US & UK is quite difficult. Therefore, it would be an ideal decision if you take a guidance of a qualified tax adviser who understands properly how to apply to rules to maximize any tax credits.
Also Read: Double Taxation Treaty Passport Scheme
Foreign Bank & Financial Accounts Report (Fbar)
It is a legal requirement for all American expats to file a foreign bank & financial accounts report by 15th April. It must be filed online.
FBAR report includes all foreign accounts held by American expats. It includes bank accounts, insurances, pension, trusts in which you are either a beneficiary or a signatory for the account and the total balance in the account is more than $10000 at any given time in the tax year.
Filing of correct FBAR report is very necessary unless you will be charged a penalty of $10000 per account. Therefore, it is necessary to understand your full responsibilities i.e what your account status is & what is owed.
What If I Don’t Earn Any Income
If you don’t earn any income from any part of the world, you don’t have to pay tax anywhere in the world including USA. However, depending on your circumstances a tax return still needed to be filed. It helps in avoiding the complication if IRS investigates any dispute over your tax status & liabilities.
Giving up US Citizenship to Avoid UK Tax
You can give up your US citizenship but it is not easy to do so. However, giving up US citizenship doesn’t have a main motive to avoid paying UK tax. Before giving up US citizenship, a professional advice from an expert is strongly recommended.
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