I am sorry to trick you in the title because there is no typical American expatriate. We cannot write one blog that covers every scenario for Americans moving to the UK. However, there are many common traits, and let’s focus on these.
Firstly, what does an American taxpayer think about UK taxation ?
“ So, now I have to file in two countries every year ? And the UK tax year ends in April !”
Let’s focus on the positives instead and how to manage your taxes. Let’s not use the word limey either !
A tax “to-do” list for an American arriving in the UK
- Find a solid affordable UK expatriate tax advisor
You may not need this person indefinitely, but you must consider it as an option in year one. It is nearly always the case that the UK tax savings (found by your good accountant) will exceed their fees. In our firm, I will guarantee this.
- Find out the key UK tax dates
Some examples are the UK tax year end on 5 April, and tax return filing day 31 January ( no extensions).
- Identify all of the extra UK tax reliefs for expatriates
This is a long list but it includes tax-free housing in the first 24 months if certain conditions are met, tax relief on flights and travel costs home, major tax relief on income related to overseas workdays (subject to certain laws). The list goes on and on, I assure you of that. This is where you should challenge your tax advisor, me, to earn his fee.
- The UK tax return process
You can ask an advisor or carry out some basic research yourself. The UK expatriate tax return can be complicated and it is worth asking someone to talk you through it.
- Double taxation
“I’m paying US taxes already, do I have to pay tax in the UK again, so that’s twice ?”
No, you should not suffer double taxation. This is where cross-border and expat taxes can become more complex. In summary, typically the UK has the right to tax your UK workdays instead of the US. There is an agreement ( both ways) between the UK and US that the US will give credit for UK taxes paid ( or even “step back” and agree not to tax certain items).
If you are happy to tackle the above “to do” list, you will be in very good shape for managing your first UK tax year. I do hold a master list of action points which runs to 30+ items, but there is no need to consider the micro-detail at this point.
What are the US tax issues of living in the UK ?
- Carry on filing
US citizens and Green Card holders are still required to file in the US.
- Your US tax advisor must be “expat savvy”
You may not have used a US/UK tax advisor before, but now is the time. We recommend this because there are tax breaks and perks which apply to Americans overseas, and which only the experts are familiar with.
- UK and US tax systems may “feel” similar but they are not
As tax advisors we often make the same mistake of assuming they are “similar” but our systems are quite different. For example, the UK does not recognise AMT as a concept, but this still appears on the US return. Short and long-term capital gains tax does not exist in the UK. The UK in 2021 permits the taxpayer to earn £2,000 of dividends tax-free but that is the limit. Quite different to the US.
- US and overseas investments
We are oversimplifying a little, but, you won’t always be taxed on these in the UK in the early years ( the UK non-domicile rules). However, if you are receiving rents in the US for example, or US dividends, you are not permitted to bring these freely to the UK without triggering UK tax.
This is one to watch because tax relief is available, but with conditions.
- US filing dates
These dates can be extended beyond 15 April for Americans living overseas.
We might ask, what has been learned from this blog ? Plenty, I would suggest. Both the UK and US have myriad of tax reliefs for mobile citizens who relocate for work or other reasons. The key here is to familiarise yourself and learn the expat systems. This should stop you from paying unnecessary tax, and in addition you can “tax plan” to find extra savings.
….It’s just a blog ….
When blogging, we do not bombard you with every part of every UK tax law. That would be a long technical guide, which does not belong here. Please remember that, you can ask me, Oliver for a specific tax review. Every expatriate’s tax circumstances are different.