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Back in the UK - but only temporarily! Tax question

Back in the UK - but only temporarily! Tax question

Old Jun 20th 2022, 9:05 am
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Default Back in the UK - but only temporarily! Tax question

Hi all, I'm a longtime non-resident UK citizen coming back to the UK for about nine months then headed back to the US. Being UK-born with a father who was also UK-born, I believe that if I stay in the UK more than 183 days in a tax year, I am considered "domiciled" in the UK and have to pay UK tax on my worldwide income. Can anyone confirm this? I'm reaching out to some tax professionals now to get advice on this issue but curious if anyone here knows or has been in a similar situation. I'm planning to change my plans such that I don't spend more than 183 days in the UK but it's rather a hassle so I want to be absolutely sure before I blow up my itinerary.
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Old Jun 20th 2022, 9:16 am
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Default Re: Back in the UK - but only temporarily! Tax question

It's not really as simple as just 183 days or more, it will depend on other factors. You can be tax resident with less than 183 days. This may help - https://www.gov.uk/government/public...-test-srt-rdr3

HTH.
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Old Jun 20th 2022, 10:40 am
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Default Re: Back in the UK - but only temporarily! Tax question

Originally Posted by christmasoompa View Post
It's not really as simple as just 183 days or more, it will depend on other factors. You can be tax resident with less than 183 days. This may help - https://www.gov.uk/government/public...-test-srt-rdr3

HTH.

I agree, it can be complicated. A person can be both tax resident and non-domiciled meaning they pay tax on UK income and money they bring into the UK, being taxed on the "remittance basis".
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Old Jun 20th 2022, 5:12 pm
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Default Re: Back in the UK - but only temporarily! Tax question

Thanks for the link to the statutory test. That was sobering. With a wife, three kids and a rental house in the UK, I'm definitely going to be resident. And being born in the UK to a UK father, I will also be domiciled. Great. So now bracing for the massive UK tax bill. I'm curious if any of you know how the US Foreign Tax Credit works. If I'm paid by a US employer in dollars while resident in the UK, and pay UK taxes on that sum, plus UK taxes on some US capital gains and dividends, do I get all that off as a credit on my US taxes, for the current year and, via the carryover, for the next ten years? If I could get the money back over the course of several years, that wouldn't be so bad. I will not be resident in the UK in 2023 or 2024 and will likely have no UK tax liability for those years.
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Old Jun 20th 2022, 5:24 pm
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Default Re: Back in the UK - but only temporarily! Tax question

You can claim back the UK taxes on your IRS return using foreign tax credits, form 1116.

Your situation is quite different but when we returned our UK taxes were less than our US taxes + healthcare premiums (we had retired early so had lost the employer subsidised insurance)
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Old Jun 22nd 2022, 12:40 pm
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Default Re: Back in the UK - but only temporarily! Tax question

We will be in a similar situation when we file our taxes next year. Interested to know, once you become resident in the UK, will your US Employer be withholding US taxes too when you are being paid in US dollars?

Last edited by Russet; Jun 22nd 2022 at 12:40 pm. Reason: typo
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Old Jun 22nd 2022, 2:53 pm
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Default Re: Back in the UK - but only temporarily! Tax question

You mean will they be withholding the UK taxes in addition to the US taxes? My guess is no. It is a state government and I think they have no idea. I think I will just declare everything on a UK self-assessment.
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Old Jun 22nd 2022, 3:50 pm
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Default Re: Back in the UK - but only temporarily! Tax question

The way it works for me is that I’m living in the UK and receiving a US pension. Each month the company withholds US taxes from my pension, which I claim back with foreign tax credits after HMRC also taxes my US pension.
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Old Jun 22nd 2022, 4:09 pm
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Default Re: Back in the UK - but only temporarily! Tax question

So you are able to claim the US foreign tax credit based on UK taxes paid on US-source income? I read that the US foreign tax credit can only be claimed if the UK tax is on foreign, ie UK, income. If you have only US source income and are paying UK tax, you don't get a US foreign tax credit. Rather you pay the US tax and claim foreign tax relief on your self-assessment. I'm no expert though.
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Old Jun 22nd 2022, 5:36 pm
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Default Re: Back in the UK - but only temporarily! Tax question

Originally Posted by ArizonaTrail View Post
You mean will they be withholding the UK taxes in addition to the US taxes? My guess is no. It is a state government and I think they have no idea. I think I will just declare everything on a UK self-assessment.
No, Will your employer be withholding US taxes (Fed and State) ? This is the case for us. Then as we will be UK resident, we will need to file and pay UK taxes on this income. Then we need to file a US tax return for this income.

We are just not sure if we file for foreign tax credits on our US tax return because as you state, and I had read too, you can only claim foreign tax credit on foreign income and not US sourced income. Or if when we file our UK taxes do we apply for credit (UK relief) at this time.
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Old Jun 22nd 2022, 5:48 pm
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Default Re: Back in the UK - but only temporarily! Tax question

If you look at form 1116 you will see that there is a box labeled “Resourced by Treaty” which treats US source income as if it were foreign because the UK/US tax treaty specifies certain types of income as the UK being the primary taxation authority, US private pensions being one such type, and US earned income being another, I believe. The UK also has first bite of the cherry with dividends from taxable accounts.

ETA
I file 2 forms 1116, one with Resourced By Treaty marked for my US pensions and a 2nd form marked as General Category for my UK private pensions, UK interest etc

Last edited by durham_lad; Jun 22nd 2022 at 6:04 pm.
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Old Jun 22nd 2022, 6:51 pm
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Default Re: Back in the UK - but only temporarily! Tax question

Originally Posted by durham_lad View Post
If you look at form 1116 you will see that there is a box labeled “Resourced by Treaty” which treats US source income as if it were foreign because the UK/US tax treaty specifies certain types of income as the UK being the primary taxation authority, US private pensions being one such type, and US earned income being another, I believe. The UK also has first bite of the cherry with dividends from taxable accounts.
Touche, DurhamLad - I was not aware of that.

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Old Jun 22nd 2022, 6:53 pm
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Default Re: Back in the UK - but only temporarily! Tax question

Originally Posted by Russet View Post
No, Will your employer be withholding US taxes (Fed and State) ? This is the case for us. Then as we will be UK resident, we will need to file and pay UK taxes on this income. Then we need to file a US tax return for this income.

We are just not sure if we file for foreign tax credits on our US tax return because as you state, and I had read too, you can only claim foreign tax credit on foreign income and not US sourced income. Or if when we file our UK taxes do we apply for credit (UK relief) at this time.
My US employer is carrying on as if nothing has changed, and is withholding the usual state and federal taxes. I think as DurhamLad said, we are supposed to get it back as a refund when we file with the foreign tax credit.
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Old Jun 22nd 2022, 7:07 pm
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Default Re: Back in the UK - but only temporarily! Tax question

Curious if either of you know about how retirement contributions are handled in this situation? I'm planning to max out my 403b (a type of 401k), my 401a and our IRA during the months I am in the UK in an effort to drive down my taxable income. My understanding is that there's a 40K pound limit on deductible pension contributions. I can't quite get there by maxing out everything in 2022, largely because I made too many contributions this year while I was still in the US. I'm currently planning to leave with my wife and kids at the end of December 2022, but could I perhaps let my family go home but I extend my stay a few days into January and max out our IRAs for 2023, which might work because of the UK's April to April tax year. Any thoughts on this strategy?
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Old Jun 22nd 2022, 7:15 pm
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Default Re: Back in the UK - but only temporarily! Tax question

Originally Posted by ArizonaTrail View Post
Curious if either of you know about how retirement contributions are handled in this situation? I'm planning to max out my 403b (a type of 401k), my 401a and our IRA during the months I am in the UK in an effort to drive down my taxable income. My understanding is that there's a 40K pound limit on deductible pension contributions. I can't quite get there by maxing out everything in 2022, largely because I made too many contributions this year while I was still in the US. I'm currently planning to leave with my wife and kids at the end of December 2022, but could I perhaps let my family go home but I extend my stay a few days into January and max out our IRAs for 2023, which might work because of the UK's April to April tax year. Any thoughts on this strategy?
I’m afraid I don’t know about this, I was well retired when we moved back to England. However, it is exactly the sort of thing I would want to do in your situation. I believe pension contributions are covered in article 18 of the treaty

https://assets.publishing.service.go...-_in_force.pdf
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