Anne Elliot

Fascinating! I wonder if I'll be getting one of those forms?

Luckily, I have all the records of my flights going back for some years, and the year in question is something of a one-off.

Thanks again!

durham_lad

Filling in the HMRC form is not a problem if it does happen and you have good records. It was just that 1 year that it happened to me, we rented a house for 7 months, arrived early March a month before the tax year started and spent 6 weeks in Ireland plus a week in Spain so we were well below the resident requirements in place at the time.

Anne Elliot

Right, yes, they changed the rules in about 2013 so you had more time to spend in the UK back in '11. I have to admit that these changes passed right over my head. I remember news articles at the time talking about rich 'non-doms' scathingly, but didn't twig that these rules might affect me.

Now that my mum is relying on me more and more for help (niece, aunt and my brother helping... but it's never enough) I am going to have to be very aware. I make trips on my own to see mum. Our family summers have mostly been a few weeks on the continent, one year we decided to try the UK... that's not a good idea without calculating the number of UK days. DH is way under, but for me I'm bumping up at the top of what's allowed.

Anne Elliot

Thank you for these links. I've looked through them and feel a little overwhelmed, it has made me think that the confirmed "turbo-taxer" that I am might have to invest in some professional help for the first year that we ever have to file both to UK and US. What with the non-alignment of the tax years and making payments in time to be able to claim them, I seems complicated but actually being in the situation with make it easier to understand, I'm sure.

The UK Yankee site looks interesting. I can see a lot of noodling on that site in my future!

As far as prepping for keeping our options open, I am going to do the following:

- keep up the piecemeal Roth conversions, especially for DH as he's older and has the higher IRA balance.

- divest us of the Vanguard fund that can't be converted to ETF by donating it to our donor advised fund (DAF), gifting it to the kids, or not exactly tax-loss harvesting (lower tax-gain harvesting, I hope) when the stock market next takes a dive into a more suitable HMRC-reporting Vanguard ETF.

- apply to the UK govt for our State Pension statements. Pay the 6 years' back contributions and pay the ones going forward.

- pay more attention to all legislation regarding UK tax residency.

Thank you to all who have imparted their experience.

theOAP

That is the approach many take. Use a pro the first year, study what they are doing and why, and attempt it themselves the second year. Just don't fire the pro until you're sure you are able to do it on your own.

If you are an experienced TurboTax user, and understand how to manipulate TurboTax, you may be fine. I have a situation where, with the exception of US SS, all my income is from the UK and Europe, and treaties between several different countries apply as to where the income is taxed prior to US reporting. TurboTax roles over in a fit of laughter (you want me to what?), so I've never used it or any other software. Instead, I've had to create my own spreadsheets to calculate US tax for my unique situation. From what I gather, I'm not alone.

Some other areas for the returning USC/UKC to watch out for, although I understand they may not apply to your situation.

Be sure to understand how any US pension provider will handle the distributions to someone abroad and how they will handle taxation. The same applies for mutual funds. Be sure, in both cases, it's not just hot air to get you on board. The UK pension 25% tax free lump sum remains a mystery. Understand that because the tax treaty says one thing, the US has the saving clause (most of the treaty doesn't apply to USCs) and the UK can decide whether or not it wishes to give a credit. Trusts, whether in the US or the UK, can be a real pain. Ownership of a business (a 10% share of a UK business causes the IRS to get involved) can create complications.

We're seeing more and more complicated scenarios due to the way the global business environment has expanded by use of communications technology, and the disappearance of the final salary pension being replaced by various types of self investment schemes, including defined contribution, has created a lot of head scratching. That's when we mere mortals on these forums back away and leave it to the pros to respond. Based on some of the questions that have been asked on both this site and the UK Yankee site, unfortunately, some individuals will be in for a shock if some of the proposals in the US tax reform go ahead. And that raises the final problem; tax legislation, whether in the US or UK, is always changing.

Good luck in your research (and good luck if it is ever utilised).

Anne Elliot

Thank you for replying again and expanding the explanations with your personal knowledge and situation. My experience with turbo tax has been preparing our personal returns and guiding our young adult kids with theirs, and that only over the past five years or so. It's really not clear if I would feel confident enough to prepare our returns in a US/UK scenario. It seems our income is diametrically opposed to yours in that most is from the US, and very little coming from the UK (1 money purchase pension and 2 State Pensions in time) I see more complication with the US side of things.

I agree it is all a moving target... in the way that we are all looking at the US House and Senate tax plans and trying to feel our way through to see what it means for us, double or quadruple those effects when adding UK tax legislature into the mix!

I have to ask - what did you mean when you say that some of the UK Yankee members will be in for a shock at current US tax reform proposals? Is there anything in particular you're referring to? Aside from the moving parts which may have consequences, is there anything specifically which addresses USC residents abroad?

Nice chatting to you OAP....

durham_lad

We also have the vast majority of our income coming from the USA plus all our investments in the USA. I did successfully file using TurboTax for 2016 and it was accepted electronically with efile. We have retained a US bank account for such things as transfer of funds between Vanguard, receipt of US private pensions, estimate IRS tax payments etc. The most difficult thing you will face in TurboTax that is new to you is getting the foreign tax credits forms 1116 completed.

I use Taxcalc (costs £20) for doing our UK taxes and it is pretty easy really once you get used to it. For example when I enter my US pensions it automatically calculates 90% as being the taxable sum (that may change in future tax law). I keep a spreadsheet for the interest, dividends, qualified dividends, capital gains and the monthly pension payments and convert to £s using exchange rates on the day. (XE.com has historical rates so this is easy to do after the fact).

As for the proposed new tax laws I haven’t waded through the competing bills from the House and Senate and it will be what it will be. I continue to make IRA to Roth lump sum conversions each year while I can as Roth withdrawals are tax free in the UK and once I am drawing US SS and OAP in a few years I will be in the UK 40% bracket. (Roth conversions are only taxed in the USA but IRA withdrawals are taxed first in the UK).

theOAP

Some of the proposals would have a definite impact for a limited number of those on this and the UK Yankee site, but it's far to early to worry about them. They may go away (1 may have already gone), and final tax reform has not been passed, and may never be passed.

Bear in mind UK domestic tax policy rarely effects the UK expat. With over 35% of my pension income, taxed at 40%, from outside the UK the repeal of the 10% tax free portion of foreign pension income will have an impact. BUT, I am resident in the UK, so it makes sense.

It's quite the contrary for US domestic tax policy thanks to Citizenship Based Taxation. Think of FATCA (closure of resident USC owned normal banking accounts in Switzerland), PFICs (and S&S ISAs or UK based mutual funds), or Section 988 transactions (for the USC resident owner of a property in London or the Southeast with an interest only mortgage - a real double dip for the IRS).

One item of less impact from the above, the change to Section 121 exclusions ($250,000/$500,000 on home cap gains- 2 years/5 years changing to 5 years/8 years, in both the House and Senate proposals) and the considerations when buying a property as an expat, either USC in the UK or UKC in the US. One now must be certain they're staying.

You and durham_lad also have one additional significant difference to me beyond the sources of income. I'm married to a UKC NRA who wants nothing to do with the US tax system (aside from my 8938 and FBAR), so tax thresholds (MFS) for the US are much lower.

Maybe.

Initially, significant progress was made by the Republicans Overseas organisation and the American Citizens Abroad organisations. There were front page articles in the FT with comments by Chairman Brady indicating reform to CBT was in the discussions. We then had a number of negative articles, started on accountancy sites (now isn't that a surprise), which portrayed US expats as rich, tax evading, yacht and private aircraft owning, gin drinking, non-patriotic Americans who refused to pay their fair share. The Paradise Papers and the Manafort/Gates actions (7 of the 12 indictments were related to FBAR or Schedule B) didn't help.

But, as of last night, there is an amendment to the Senate Bill for Territorial Taxation For [USC] Individuals (TTFI). Again, It's only two amendments among many, and probably has no chance of surviving. There are variations to TTFI. Given one type of proposal, I may be over the moon given minimal US sourced income; you and durham_lad, with heavily US sources of income, may not share my enthusiasm (it alters all double tax treaties). On the other hand, another variation may be better for you if resident in the UK. But, again, it's unlikely to progress (although I could be pleasantly surprised).

For all the above - they're the ramblings of a USC abroad and none should be taken seriously until, or IF...and I repeat, IF the legislation were to pass.

durham_lad

Thanks for the summary of the possibilities. So far this year no major legislation has been passed by Congress but I expect tax reform in one form or another will be the first. Like the attempts to repeal and/or replace the ACA I think there will be much more negotiation and many changes before a final bill comes to fruition. Or not.