Tax Tips for Americans living in the UK
As an American living in the UK you are more than likely already aware that you are still obliged to file a US tax return as well as your UK one. There are more in depth things to cover however including how living in the UK impacts on your US taxes and how to avoid pitfalls. Below we’re taking a closer look at some common pitfalls.
Tax Year Differences
The UK and US tax years fall differently. The American system sensibly works along the calendar year – from January to December whilst the UK system runs from April 6th until April 5th each year. Your US taxes need to be prepared in USD so all earnings need to be converted and reported according to the calendar year. When making the conversion you can specify a date on which you used the Foreign Exchange rate or you can use a monthly or annual average – either way you must use your method consistently.
Deadlines
You need to be 100% sure of the deadlines which apply to your returns. If you live in the UK full time then you’ll automatically be provided with a 2-month extension by the IRS so your taxes will be due by June 15th rather than April 15th. You can file for a further extension if needed which would allow you until October 15th to file your US taxes. Interest will accrue from April 15th however so the sooner the better definitely applies. Your Foreign Bank Account Report remains due on June 30th regardless of extensions. UK Self-Assessment returns are due by January 31st each year.
Double Taxation Treaty
If you live and work in the UK then you will be on the Pay as you Earn payment system. This system means your tax and National Insurance are automatically taken from your salary. There is a Double Taxation Treaty in place between the US and UK which means you shouldn’t be taxed on your income twice, and Foreign Tax Credit can be used to build up credits in the US or avoid paying tax altogether.
Where it gets complicated
It gets more difficult and complex if you’re self-employed as the Double Taxation Treaty states you would need to manually opt out of US Social Security. This process can be carried out quickly by using the Social Security website and looking for information about the UK tax treaty.
Pension Complications
When it comes to pensions it really is time to get a specialist involved. Companies who provide US Tax and Financial Services in the UK should be able to provide you with all the information you need regarding your retirement savings. There are several grey areas with the IRS relating to different types of pension plans, particularly with SIPPs and ISAs. To understand the complexities of such products and US tax law, it really is time to work with an expert in the field.
Living in the UK as a US citizen can be a fantastic experience and the perfect way to enjoy a different culture. Don’t forget your tax commitments though or you could be in trouble.
