Are you a US expat who is thinking about moving to the UK? Before you move, learn more about UK taxes for US expats and when to consult an international tax attorney.
Leaving the United States, crossing the Atlantic Ocean, and making the United Kingdom your new home might have been a lifelong dream of yours. But you likely never dreamed your tax situation would feel this complicated.
UK taxes for expats can be confusing. Nevertheless, it is important for US expats moving to the UK to understand their tax obligations. As a US expat, you are still subject to US income tax laws regardless of where you live.
Keep reading to learn more about UK taxes for US expats when to consult an experienced international tax attorney or CPA.
What an Expat Should Know About US Tax Compliance in the UK
As a US expat in the UK, you must remain compliant with two countries’ tax laws. Below, we break down the expat tax UK officials require, the US-UK tax treaty, and the US taxes you are still subject to.
Tax Legislation in the UK
As a US expat living in the UK, you answer to both the IRS and the Her Majesty Revenue & Customs (HMRC) office. Instead of filing by April 15 each year, the deadline for filing UK tax returns is January 31st. In addition, the UK requires expats to have a National Insurance number before they can work or pay taxes in the country.
All of those items may feel quite different from the US tax system, but the basics remain the same. The UK taxes people on their wages, investment gains, and business income. In addition, you have to pay fees if you file late; you have to pay £100 for failing to file within three months of the deadline, an additional fee for failing to pay your tax bill on time, and interest on all late payments.
Is There a US–UK Tax Treaty?
Tax treaties are agreements between two countries that allow citizens of one country living in another to pay a reduced amount of taxes or be exempt from US income taxes on certain items. Because of a clause in most tax treaties, known as a Savings Clause, the US can continue to tax its citizens at its discretion. As a result, tax treaties are designed to prevent expats from paying taxes twice—once in their home country and another time in the country they currently live in.
The US has tax treaties with many foreign countries, including the UK. This agreement can make UK taxes for expats easier in certain scenarios. For example, Article 17 of the US–UK tax treaty allows US expats to contribute to a UK pension fund without paying taxes on it. When you distribute money from the pension, you only have to pay taxes once. The primary purpose is to prevent expats in the UK from being taxed in full two times.
US Tax Obligations for Expats in the UK
If you live in the UK as an US expat, the IRS will continue to tax your income. That means you have to file a tax return every year. However, US expats are given an extended deadline of June 15th to file their taxes. This provides US expats with extra time to ensure their tax returns are filed correctly.
Another important factor to keep in mind is foreign assets. If you have a foreign bank account, you will also need to file FinCEN Form 114 (FBAR) when you file your income tax return.
The good news is that a few tax credits and exclusions could lower your tax burden as an expat:
The Foreign Earned Income Exclusion. This exclusion allows you to exclude a certain amount of your foreign income from US taxation (up to $108,700 for 2021).
Foreign Tax Credit. This tax credit allows you to deduct from your taxable income based on taxes you have already paid to a foreign government.
Foreign Housing Exclusion. If you meet certain qualifications, you may be able to reduce your taxable income based on the amount you have paid for housing in the UK
Consult with an Experienced Tax Law Professional
As a US citizen working in the UK, taxes can feel overwhelming. Each year, many expats don’t file their taxes because of the complexity or simply because they are unaware of their requirements.
If you file your taxes without understanding your tax obligations, you risk mistakes that could result in IRS audits, monetary penalties, and more.
That is why so many people turn to the services of Tax Law Expats. By consulting with Jason Kovan, Managing Partner at Tax Law Expats, you can receive guidance from an experienced international tax attorney with over 25 years of expat tax law experience.
It is also beneficial to consult with a tax law attorney first rather than a CPA or EA. By speaking to a tax law attorney first, you establish client privilege protection, which a CPA or EA cannot offer. Even if you don’t anticipate any potential tax issues, it is highly recommended that you contact a tax law attorney before a CPA or EA.
In addition to tax law guidance, Tax Law Expats can provide CPA and EA services all under one roof. Rather than consulting with several firms, you can receive professional expat tax guidance from Tax Law Expats.
Are you a US expat who plans to move to the UK?
Contact Jason Kovan, International Tax Attorney, Consultant and CPA. Jason is Managing Partner at Tax Law Expats, to schedule a consultation today. Call (305) 600-5924 or contact us online.