I have lived in the United Kingdom for over 8 years, most of this time working in the tax and accountancy field. I have helped many US tax filers living and working in the UK not only navigate the US tax system, but also familiarize themselves with the UK tax system. Here’s a look at what you should plan for as you prepare for the big move.

Preparation is KEY!

During my time in practice, I have noticed that many US tax filers who are coming to live in the UK don’t prepare themselves for the UK tax system prior to arrival and the affect that it can have on their US taxes can be costly. One of the first things an individual must consider is their method of filing.

Taking advantage of remittance basis could be useful

If you plan to relocate to the UK on a temporary assignment, and you are not a UK domicile, you may wish to take advantage of the remittance basis. This method of reporting allows a taxpayer to be subject to tax in the UK only on their UK sourced income and gains.

For example, if you have an investment portfolio in the US and choose to file under the remittance basis you do not have to report any income generated in the portfolio to the UK taxing authorities if the funds are never remitted into the UK.

This would be beneficial for those individuals with US funds that pay out high amounts of dividends as the UK only allows for a 15% credit for US taxes paid, with the UK highest rate of tax on dividends being 38.1%, an individual may be subject to an additional 23.1% tax on this income.

Consider your capital gains tax position

Individuals considering whether to utilize the remittance basis should also consider their capital gains tax position. Many US portfolios hold investments in UK non-reporting funds, and as a result when these funds are sold an individual would be taxed at their UK marginal income tax rate (up to 45%) instead of the normal capital gains rate (max 20%). These are just a few examples of potential tax savings when filing under this method.

Too good to be true?

Depending on your assignment length or how long you plan on being a UK resident, you may be subject to the remittance basis tax charge as follows:

UK Resident For:

• At Least 7 of 9 Years= £30,000
• 12 of 14 Years= £60,000
• 15 Years= Deemed Domicile for Tax Purposes, Tax on the Arising Basis

(Please note that the charges are an annual charge and are not an allowable tax for foreign tax credit purposes)

If you are a returning UK domicile or choose to forgo the remittance basis, i.e., you want to move your US income/funds into the UK, you will be subject to tax on the arising basis. This is just as it sounds, you are subject to tax on all worldwide income and gains received in the year. Filing under this method you will want to take advantage of the double tax treaty between the US and UK, which you would not be able to do if you claimed the remittance basis. The double tax treaty reduces an individual’s exposure to double taxation and if used effectively can exclude income from being taxed completely in one jurisdiction.

Take Away

Whether you are planning on relocating to the UK on a temporary or permanent basis you will want to ensure you have an outbound consultation with us to ensure that you understand your filing responsibilities.

Moving can be stressful in itself but having a consultation with our International Tax Services group can ensure once you have taken up residency in the UK or anywhere else in the world you fully understand your ongoing US tax filings obligations.