EricTheViking

I moved to the US in January of 2010 as a legal permanent resident and asked my wife's CPA to file taxes for me. All of my income in 2010 arose in the UK and I paid full UK taxes on it. I get a teacher's pension, a small annuity and interest on various bank accounts. It totals around GBP40k.

After a long delay (during which he told me that he was researching my case), the CPA has told me that all the UK taxes I have paid are refundable, and I therefore cannot claim any foreign tax credits. He proposes to file in such a way that I pay full taxes in the US and then try to claim back my UK taxes from the Inland Revenue.

I believe that my Teacher's Pension is, as a government pension, subject to UK taxes no matter where I live. I am also sceptical of my chances of getting tax refunds from UK banks and building societies.

Has anyone else been in this position?

I live in Massachusetts, can anyone recommend a CPA who is used to dealing with recent migrants with UK based income?

Duncan Roberts

If you moved in Jan 2011, why would you be filing taxes in the US for 2010? Am I missing something?

EricTheViking

Sorry, I've made a mistake there, I moved to the US in January 2010, thanks for pointing it out.

I'll see if I can change the original post.

Rete

I understand it to be you must be taxes on the monies earned in one of the two places. If you paid in the UK, then the money is noted on the 1040 but then removed before taxes are calculated. This is how we approach my husband's taxes which are paid in Canada.

Michael

I don't believe that is 100% true. Normally taxes that are paid or withheld in any one year can be used for credits or deductions. As an example, if you over withhold state taxes, the total taxes withheld can be used as a deduction against federal income. However, any refunds from previous years are then considered as income for the year that the refund is received.

That probably doesn't help you since it would only delay your tax burden until you receive the refund.

EricTheViking

Thanks Rete and Michael, that's helpful. Having paid full UK taxes, it does seem unfair that I have to pay US taxes on income that arose entirely in the UK

dunroving

I have never, ever been able to see the logic in that.

A tax refund means you overpaid tax. For example, if you use an incorrect "tax code" (number of deductions) you might pay too much tax (let's say for the sake of argument, you pay $1,000 too much tax).

Following the logic above, after filing your tax return, you would get the $1,000 back the following tax year, and it would count as "income".

If in the relevant tax year, you had used the correct "tax code" (correct number of deductions), you simply would not have overpaid the $1,000 tax (i.e., you would have received the $1,000 as income, that by definition, was not taxable). You wouldn't then get taxed on that $1,000 afterwards.

Am I missing something?

lansbury

I think you need a new CPA. Track down Peter Newton a member here and contact him. Pete Newton, EA www.britishexpatstax.com
Your UK income is exempt from UK tax only if HMRC grant an exemption. If your teachers pension is classed as a government service pension, and you are only a UK citizen, it is only taxable in the UK.

If you are a dual UK/US citizen living in the US it is only taxable in the US. You then have to apply to be exempt from UK tax.

Michael

That only applies if you are itemizing deductions during the year that you get a refund. That is because you are reducing your tax burden for the current year more than the taxes that are due.

The law was done that way to allow you to file federal income tax returns before you file state or foreign tax returns. If they didn't do it that way and people filed all kinds of tax extensions on their state or foreign returns because of issues, they couldn't file their federal tax return until those other returns were complete. Think of the problems that would if IRS required a foreign or state to be calculated first but the foreign country or state required that the US federal taxes to be calculated first.

However now that you mentioned it, there may be a large loophole in the law since refunds are only considered as income in the following year if you itemize deductions. I wonder what would happen if he didn't itemize deductions since he has tax credits and not deductions? I don't see why he can't file a 1040EZ and still take the credits. I may be missing something.

Michael

I don't think that is the issue. It appears that he feels that since the his income is taxable in the UK (even though he will get a refund for all taxes paid), he shouldn't have to pay taxes in the US and believes that is double taxation.

Double taxation agreements don't eliminate the possibility of paying taxes in the country of residence but only that the tax owed for that income in the country of residence can be offset by the tax paid in a foreign country.

lansbury

If his teachers pension is classed as a government service pension it can only be taxed in one country and not the other. Article 19 UK/US Tax Convention. The offset for tax paid isn't part of that equation. Any other income he has is treated as you said.

Not sure why he thinks the UK will refund tax paid on UK income. I paid UK tax on all my UK income until I become a US citizen, whence I them filled out the forms to claim exemption and have it taxed in the US. That was partly necessary because my government service pension then only become taxable in the US, and I had to prove to HMRC I was a US citizen, and partly I decided to ask for my other income to be exempted at the same time.

Michael

That I didn't understand either.

EricTheViking

Thanks for all the good advice above.

As I am a greencard holder, not a citizen, and my Teacher's pension is a government service pension, I believe that HRMC will insist on it being taxed in the UK.

The Double Taxation Convention seems to directly contradict the advice of my CPA on interest income too. It seems that if this is taxed in the UK, then taxes paid can be credited against US taxes.

I will take lansbury's advice and contact Peter Newton, but am not sure where he is based.

If anyone knows of a good CPA based on the East Coast (I am in Massachusetts) I'd be grateful for a recommendation.

Thanks again for all your help

lansbury

Don't worry about where he is based, it is NY. You don't have to visit in person it, he helps many on here who do it online and by post. Give him a shout and see what he can do.

I was lucky enough to find a local CPA, with a dual UK citizen LPR working there, but most will have to research it like your first CPA did.

meauxna

I don't think that is correct though. You should be able to elect where you have it taxed. It was just a better deal for us to leave it taxed in the UK, pre-citizenship.
Do get a second opinion. What your CPA says just doesn't track with what we've collectively learned over the years.

How much do I hate tax season.
good luck