jminaz

This may have been mentioned before, but I did not see anything so please bear with me if it has... I am a dual citizen, having been born in England but living the last 30+ years in the US. I am trying to figure out what the US tax laws are when you move back to England permanently and understanding the IRS jargon is difficult. The local IRS office was of no use. Not sure if it was laziness on their part or what.

1-Do you have to file taxes in the US each year or is there a way to get out of it, other than the first year? I don't want to have to pay taxes twice!
2- when you sell your house in the US does the US charge you capital gains taxes on the sale of your house even if you intend on purchasing one in the US? We do not make a lot and as far as I can tell they only do if you make quite a lot of money.
3-Are there specific forms to fill out prior to moving back to UK?
4-Is anyone knowledgeable of what is best thing to do in regards to IRA's, etc? If you transfer it to a UK bank does the US take a portion?

This tax stuff is so confusing and I can't really afford to talk with a lawyer, even if we could find one that knows Int'l regs (I am in a small town rather than a big city).

Thanks in advance for any info provided or links to where to look for answers. I did check out Wiki but not much really applies to my situation.

dunroving

Re: #1, yes, USC's have to file US tax return wherever they live, but you are coovered by the dual taxation treaty so won't get taxed twice (though I guess it means you'll get taxed at whichever is the higher rate of the two countries).
Re: #2, did you mean to say purchase one in the UK ...? I don't think US wiould tax you if you are buying another home with the proceeds.
Re: #3, forms for what ...? Taxes? Immigration? NHS? NI number?
Re: #4, not sure why you;d transfer an IRA to a UK bank ... but I know a lot of retirement and other "tax-free" investmantes (like ISAs) are treated differently in US and UK, which can make it difficult to transfer, or transfer with the same tax-free status in both countries.

Mummy in the foothills

I can only comment on #1 and #2
1 yes we all have to file annually forever I suppose if we are goignt o be collecting a social security pension them we should, but we won't be taxed twice, they will also pay the pension into a UK account, Jasper has already go into this on another thread. He moves back this month and is already 65

2 Unless you have made a ton of profit selling you don't pay capital gains, $250,000 for a single person or $500,000 for a couple last time we checked even if you aren't buying another house.

We have no IRA's just a union pension coming, that can be paid anywhere you live including Europe. But since we will be filing taxes and getting a US pension the windfall thing will apply and the SS pension will be duly reduced.

jminaz

oops, yes buying a property in the UK after selling a property in the US. Forms such as IRS that are required. We are contemplating renouncing our US citizenship since we don't plan on moving back from the UK once we leave. Not sure if this makes any difference in regards to US tax filing. Were figuring if we left IRA/401, etc where they are then that could cause problems if we renounce US citizenship - keep us tied to the US. Thanks for your response.

jminaz

Thanks for the info No we don't expect to make much over 200k for our house so should be ok on that end, thankfully i guess!

Tahiti_Bound

Dear Jminaz

As others have noted, when you move to the UK, your tax affairs will become a little complex! So adding to the other answers already received for your first question:

You will have to consider your finances from both the US and UK angles. Firstly, to review your tax liabilities from the UK angle you could look at this:

http://www.hmrc.gov.uk/cnr/hmrc6.pdf

As is typical of UK tax guidelines, it is rather complex because there are a number of different residency statuses that one could adopt. It seems to me though that if you are moving back permanently, you will be ordinarily resident and domiciled in the UK for tax purposes (but you can look at the multitude of options described to decide for yourself!). In this case, Her Majesty's govt will want a cut of foreign earnings, pension distributions, dividends and capital gains from all sources worldwide (as well as wanting a cut of any UK earnings etc. of course).

Luckily, as others have mentioned, there is a tax treaty between the US and the UK that helps avoid having to pay two lots of taxes. Here are some useful notes on how it works:

http://www.hmrc.gov.uk/manuals/dtmanual/DT19850+.htm

And in particular, there was an amendment in 2003 that amends how pension contributions (including 401K and the like) are treated:

http://www.hmrc.gov.uk/manuals/dtmanual/DT19876B.htm

Also, it covers the taxation of social security payments:

http://www.hmrc.gov.uk/manuals/dtmanual/DT19876.htm - which says that social security payments are taxable in the country in which you are living (so the UK in your case)

And it also covers distributions from IRAs and the like: which says that in the UK from 2003, distributions are taxable (just as they would be if you were living in the US). On the other hand, if you have a tax free lump sum distribution in the UK, then that would be taxed in the US as stated here:

http://www.hmrc.gov.uk/manuals/dtmanual/DT19876A.htm

You can also most likely claim an exemption on foreign earnings (i.e. anything you earn in the UK - e.g. income or pensions) on your US tax return if you stay out of the US:

http://www.irs.gov/publications/p54/ch04.html

So the upshot of all this is you pay taxes (on worldwide income) in the UK if you are resident in the UK, and you will have to do a UK tax return:

http://www.direct.gov.uk/en/MoneyTax...urn/DG_4017116

and then you have to complete a tax return in the US because you are a US Citizen (get a copy of Turbotax!). And you are allowed to exempt some (up to around $90K) foreign (ie sourced outside the US) income on your US tax return and you can also claim back some of the UK tax you might pay.

Finally (on this question), the answers to the question posed here are quite good:

http://www.laborlawtalk.com/archive/...p/t-94704.html

All of the above just scratches the surface - so you might want to get someone to do your tax returns (for the UK and the US) for the first year you are back in the UK. And you might want to consider when you relocate so you can take advantage of the foreign earnings exemption.

Regarding your question 2 - just to add to the response indicating you get a $250K (or $500k if you are married) US tax exemption on capital gains - this applies as long as you have owned the home and lived in the home for a minimum of two years. Those two years do not need to be consecutive:

http://taxes.about.com/od/taxplannin...e_sale_tax.htm

Regarding question 3 - I can't think of any forms you need to complete - but I would keep a record of when you were in an out of each of the UK and USA (since these will be needed to ascertain what taxes you pay where when you first move to the UK).

Finally, regarding 4, you can't move or roll over a 401K or other retirement instrument in the US to an equivalent in the UK. You would take distributions in the US, and then transfer the funds to the UK via normal means. And the US will want some tax paid on the distributions as they would if you were in the US.

I hope this all helps - and good luck.

Tahiti

nun

If you have substantial assets (I think it's a couple of million) the US has big penalties on people who renounce their US citizenship for tax purposes. Also it will affect your SS. If you have 30 years of payments that will be a substantial check.

I'd keep your citizenship and just deal with filling 2 tax forms every year. you'll have to Self Assess in the UK because of the investments/income form US 401ks etc.

One piece of advice is that before you return to the UK liquidate all your US property and investments and take any capital gains. you can reinvest at a later date. I makes life easier as you'll only have to deal with the gains on US taxes.

Tahiti_Bound gives some excellent links so I'd read as much of those as you can and then call a US/UK tax specialist. Here are a couple

www.towertax.co.uk
www.britishamericantax.co.uk

nun

Post your experiences as this is something I'll be doing in a few years and although I've done a lot of research it's so complicated that it's still a big worry to me. Good Luck

jminaz

Many thanks for all the info you shared. A lot to read but much appreciated! I am sure others will benefit from it as well.

jminaz

Thanks. I have a lot of reading in the near future Will let you know how it goes.

windsong

Won't renouncing one's U.S. citizenship get you out of having to file U.S. tax returns? When I leave, they can have their citizenship back - with pleasure. Come to think of it, though, I will be collecting U.S. social security and a company pension from the U.S. Drat! I was hoping I could forget about the USA forever! Looks as if I will have to file both US and UK tax returns forever. What a bummer!!!!

J.J

The following is my opinion after reading up on US tax for USC Brits moved back to UK. I am not an expert or trained in tax matters.

Re: renouncing USC to escape having to file annual US tax filings, I feel the inconvenience of filing is a good insurance against any grab that IRS may make on US based Social Security pensions or private pensions paid to people abroad.

Despite filing US Tax, likelihood of owing Tax to IRS (after our first full year working abroad) is slim, given the high income tax rates in UK. Any tax deducted by US on income there can be offset in UK as foreign tax paid.

The US Expatriation Act aims to prevent USC's escaping US tax through renouncing USC.
For instance, a foreign address signals a 401k custodian to withhold, and forward to the IRS, 30% of withdrawals unless the beneficiary can certify they are a USC. Withdrawing it all while in US to take with you will attract penalties if you are under permitted withdrawal age and if it is a large sum will push up your annual tax bill.
Renounced US expats with US based finances will be a soft target for future funding of the US deficit.

Filing US tax after the end of 2010 is going to be our next nail-biting experience. No doubt we will see a thread on the subject early next year. DH will give it a shot by himself with TurboTax for USC abroad, he's read up a lot on the subject. If it fails to work out then we will be prepared for consultation with a US-UK tax Adviser (thanks Nun for the links)

Thanks to Tahiti Bound for the very comprehensive list of links.

windsong

My reason for mentioning I would renounce my citizenship was actually not a decision cast in stone. It's got nothing to do with taxes and was really my way of trying to forget I ever came here. I know that won't work, though, not in reality. Also, after reading your post, it might be easier for me to hold on to it. I just didn't want to have to file U.S. taxes and UK taxes every year - too complicated.

J.J

Re: filing US tax when back in UK.
I found this posting on TurboTax, as an answer to returnees question of filing their first out-of-US tax.

This was posted Posted 2008 by PK, a UK returnee from US:

First; I would suggest using a tax professional to do your taxes , at least for this first year.
Second; (in my personal case when I moved to UK in the middle of the year, October) my tax preparer, filed a request for extension for the year so that we could go past the filing date of the UK taxes and then filed the US Federal for the year. ...... By this time you would have complied with the requirements of the foreign income exclusion [J.J reads this is 330 days in new country, alternatively one whole US tax year] and also know your foreign taxes. Now you file the US Federal.

Food for thought, as it moves the need to file US after making your UK filing, so one can report UK tax paid on the US filing, rather than roll to the following year.

windsong

Thanks, JJ. I am going to file away this info so when I get there (UK) I know what to do.