If you are an American expatriate living in London, what issues might you face in 2023?
You may struggle to find Reese’s Pieces in the shops, and you may not be able to understand the Scottish or Liverpool accents. Hopefully, these are just minor inconveniences.
When do I file my tax return?
This is an area where we must spread the word to expats in the UK. The UK tax returns system is quite different. For example, US filing date as we know is 15 April. The UK returns filing deadline is in fact nowhere near the US one, as follows:
The UK tax year ends 5 April each year which is three months later than the US.
The UK tax return filing deadline is 31 January in the following year. That is TEN MONTHS after the UK tax year end, such that it is a very different system to the US.
This is worth keeping in mind when planning workflows and tax returns. The US tax return work takes place normally in the spring of each year, whereas UK tax return work is carried out in the summer or autumn of the year ( in time for the following January).
Regular flights home to the US?
If you are flying home regularly at your own expense, you may be “missing a trick” in terms of UK tax reliefs. If your employer in the UK agrees ( and documents) that part of your pay is to be spent on home travel, there is UK tax relief available.
In a nutshell, an American expat who flies home 4 – 5 times per year is likely to be entitled to £4,000 of tax-free income. Please investigate and/or email me if you need my input.
We have had several cases recently where American nationals built up their pensions in the US (e.g., 401K) but have retired and settled permanently in the UK. Which country has the right to tax, we might ask ? It surprised us to find that the UK ( as the country of residence) is the only country that applies tax. These rules derive from the UK/US tax treaty and of course, if a Brit retires to the US, the reverse scenario applies : tax payable in the US only.
How am I taxed on US income and gains?
It is common mistake to assume that an American (normally classed as UK non-domiciled) will elect not to report foreign income on a UK tax return. Let’s not assume please that is always how it works.
If a non-domicile (e.g. American) chooses to exclude foreign income here, he or she can be charged for doing so by HMRC. For example, the expat can lose her tax-free personal allowance at a cost of £4000-£5000 in tax. We must realise that the benefits do not warrant the cost in many instances. It is simply not worth it for a US national to “opt to exclude US income/gains” from the UK system ( aka the remittance basis of taxation).
How are my stock options taxed?
This is a very common query. A US national in the UK holds US stock options or US restricted stock awards, and he exercises his rights when he is abroad in the UK. He will ask, how do I pay the tax and to which country ? The answer to these questions is too long and complex to respond here, but there are certain main features that apply in most cases.
We must bear in mind the following. UK employers are under a legal obligation to apply withholding taxes to stock plan events. This removes some stress from the US employee. In addition, all good tax advisors in the UK should understand the UK and US treatment. The UK/US tax treaty is also designed to stop double taxation of stock income.
The area of stock options is so complicated that a tax advisor can make her whole career on this single area! However, if an expat can use the tips in the above paragraph, it is a great starting point.