Lowdown on Tax Issues

Old Aug 12th 2020, 1:15 am
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Default Lowdown on Tax Issues

Hi,
I was wondering if anyone could supply some bullet points of what to take care of in terms of taxation when one returns from the USA to the UK, while relying on US pension and social security? What if I have earnings from the UK, so as state pension?

I'm not at all proficient in all things tax and accounts, but I understand that I will need to file a tax return each year to the US. From this point onward, I tend to get confused.

Thanks a lot
Ed
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Old Aug 12th 2020, 7:00 pm
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
Hi,
I was wondering if anyone could supply some bullet points of what to take care of in terms of taxation when one returns from the USA to the UK, while relying on US pension and social security? What if I have earnings from the UK, so as state pension?

I'm not at all proficient in all things tax and accounts, but I understand that I will need to file a tax return each year to the US. From this point onward, I tend to get confused.

Thanks a lot
Ed
Once you have settled into your residence, registered to vote etc, you can go online and register with HMRC for self assessment as you will have foreign income. You will also need to file a return with the USA each year. Both HMRC and the IRS will tax on worldwide income but foreign tax credits can be used to reduce the tax burden. According to the US/UK Double Taxation Treaty OAP is taxed by both but US SS is only taxed by the UK.

I also have US pensions which are taxed by both countries and I use foreign tax credits to reduce the US taxes.
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Old Aug 12th 2020, 9:36 pm
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Default Re: Lowdown on Tax Issues

durham lad, do you file the tax returns yourself or have someone do it for you? It sounds horribly complicated.
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Old Aug 12th 2020, 10:43 pm
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
durham lad, do you file the tax returns yourself or have someone do it for you? It sounds horribly complicated.
I do use an individual based in London but she is not taking new clients.

Two companies I have on my “reserve” list are below but I’m sure there are more out there. I have not used either company myself.

https://www.taxesforexpats.com/

https://www.greenbacktaxservices.com/

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Old Aug 12th 2020, 11:59 pm
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Default Re: Lowdown on Tax Issues

Thanks.

I always thought the US was the only country that taxed foreign income, so I'm surprised the UK taxes earnings from the States.

Can you give a tax-illiterate person the basics of how credits work?

And if, as an example, one earns, 20 K stirling from combined US social security/pensions, taxed in the US, how much roughly would one pay in taxes to the UK?

Does the US tax you on savings in the UK?

Cheers
Ed
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Old Aug 13th 2020, 2:32 am
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
Thanks.

I always thought the US was the only country that taxed foreign income, so I'm surprised the UK taxes earnings from the States.
Not at all, among many others Australia also taxes worldwide income. You know the old saying about death and taxes
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Old Aug 13th 2020, 8:48 am
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
Thanks.

I always thought the US was the only country that taxed foreign income, so I'm surprised the UK taxes earnings from the States.

Can you give a tax-illiterate person the basics of how credits work?

And if, as an example, one earns, 20 K stirling from combined US social security/pensions, taxed in the US, how much roughly would one pay in taxes to the UK?

Does the US tax you on savings in the UK?

Cheers
Ed
The US is the only major country in the world to tax its citizens on worldwide income regardless of where they are living, that is the difference.

When filing US taxes you file forms 1116 to claim foreign tax credits of income that has also been taxed by a foreign country.

Yes the US taxes on interest income from U.K. savings including cash ISAs.
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Old Aug 13th 2020, 8:49 am
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Default Re: Lowdown on Tax Issues

Try this free U.K. tax calculator

https://www.moneysavingexpert.com/tax-calculator/

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Old Aug 13th 2020, 9:00 am
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Default Re: Lowdown on Tax Issues

Originally Posted by durham_lad View Post
Try this free U.K. tax calculator

https://www.moneysavingexpert.com/tax-calculator/
So, if the calculator says that I will pay 1,300 pounds in UK tax and 1,100 pounds in UK NI, and I have already paid tax on the income in the USA, roughly how much of the UK tax and NI will I have to pay (I hadn't even considered NI)? Does the tax treaty mean that I won't pay any of the UK tax? A few hundred pounds? Just a ballpark figure, if you can.
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Old Aug 13th 2020, 11:12 am
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
So, if the calculator says that I will pay 1,300 pounds in UK tax and 1,100 pounds in UK NI, and I have already paid tax on the income in the USA, roughly how much of the UK tax and NI will I have to pay (I hadn't even considered NI)? Does the tax treaty mean that I won't pay any of the UK tax? A few hundred pounds? Just a ballpark figure, if you can.
The tax treaty says that if you are resident in the U.K. that you will pay all of the U.K. tax on that income you listed, so £1,300 will go to HMRC. Suppose you paid the IRS £500 on that same income, then you can reduce your US taxes to zero.

You will only be paying NI on earned income, not pensions so OAP or UK private pensions does not attract NI.

You mention US pension and SS. If the US pension is a government pension, including a State pension, then it is only taxed by the USA and not by the UK. SS is only taxed by the UK and not by the US. This is all per the DTA.

https://www.gov.uk/government/public...a-tax-treaties
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Old Aug 15th 2020, 2:50 am
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Default Re: Lowdown on Tax Issues

Thanks durhamlad and everyone else.

To clarify:

1. Once residing in the UK, HMRC will not tax (nor charge NI) me on any of the following:
  • USA state pension (monthly)
  • Withdrawals from 403b (= 401k for educators) OR any monies rolled over from 403b into a Roth IRA.
  • SS
Correct?

2. Will these items need to be “declared” in any way to HMRC?

3. However, I will need to declare any UK state pension and income (earned and unearned, such as ie interest on savings) to IRA?

4. The US tax on these UK earnings will be minimal because of tax credits? (also, I presume, because the UK pension will be below 8K pounds).

Thanks again,
Ed
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Old Aug 15th 2020, 8:43 am
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
Thanks durhamlad and everyone else.

To clarify:

1. Once residing in the UK, HMRC will not tax (nor charge NI) me on any of the following:
  • USA state pension (monthly)
  • Withdrawals from 403b (= 401k for educators) OR any monies rolled over from 403b into a Roth IRA.
  • SS
Correct?

2. Will these items need to be “declared” in any way to HMRC?

3. However, I will need to declare any UK state pension and income (earned and unearned, such as ie interest on savings) to IRA?

4. The US tax on these UK earnings will be minimal because of tax credits? (also, I presume, because the UK pension will be below 8K pounds).

Thanks again,
Ed
To clarify, this is for a USC living in the UK, paying tax on an arising basis.

1. Not all correct.
HMRC will tax periodic withdrawals from a 403b or 401k. It will not tax 1-off lump sum conversions to a Roth.
HMRC will tax SS. IRS will not tax SS

2. Probably, however, I declare lump sum conversions and IRA withdrawals in the “white space” on the HMRC self assessment showing the amounts and why they are tax exempt by quoting the relevant paragraph in section 17 of the DTA.

3. Correct

4. Correct, although the amount of amount of U.K. pension is irrelevant, it is all subject to taxes by the IRS after the usual deductions.
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Old Aug 15th 2020, 9:05 pm
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Default Re: Lowdown on Tax Issues

Thanks durhamlad.

This is helping a lot as I prepare and gather context to navigate the situation.

Would any of your answers above be changed by the fact that I am a UK citizen but have a greencard rather than hold US citizenship?

Cheers
Ed
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Old Aug 15th 2020, 10:22 pm
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
Thanks durhamlad.

This is helping a lot as I prepare and gather context to navigate the situation.

Would any of your answers above be changed by the fact that I am a UK citizen but have a greencard rather than hold US citizenship?

Cheers
Ed
I think it would definitely change once the green card expires or is given up. I only know my own circumstances as a USC. Hopefully someone will come along and advise.

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Old Aug 16th 2020, 12:56 am
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Default Re: Lowdown on Tax Issues

Originally Posted by durham_lad View Post
HMRC will tax SS. IRS will not tax SS
I believe the IRS will tax your SS depending on your total income.

https://www.bogleheads.org/wiki/Taxa...urity_benefits
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