Dual Citizenship and taxes
Sep 21st 2019, 10:57 pm
#1
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Joined: Jul 2019
Posts: 16
Dual Citizenship and taxes
Hi guys,
Wrote a post here not too long ago regarding obtaining US citizenship and living in the UK soon after. After speaking to a lawyer I am fairly confident this is doable. However, I just wanted to open a discussion about US taxes and living abroad and see if you helpful people can provide any insight.
I am self employed and work remotely for US companies as a freelancer and I plan to continue doing this in the future. I realise I need to file a tax return to the US every year, along with an FBAR. My plan was to hire an accountant in the US and one in the UK. Will my working for US clients from the UK complicate my taxes further? How does it complicate things a lot more if I make over $100,000 in a year? Is there anything else I should know about here? Thank you!
Wrote a post here not too long ago regarding obtaining US citizenship and living in the UK soon after. After speaking to a lawyer I am fairly confident this is doable. However, I just wanted to open a discussion about US taxes and living abroad and see if you helpful people can provide any insight.
I am self employed and work remotely for US companies as a freelancer and I plan to continue doing this in the future. I realise I need to file a tax return to the US every year, along with an FBAR. My plan was to hire an accountant in the US and one in the UK. Will my working for US clients from the UK complicate my taxes further? How does it complicate things a lot more if I make over $100,000 in a year? Is there anything else I should know about here? Thank you!
Sep 22nd 2019, 6:56 am
#2
BE Enthusiast
Joined: Nov 2012
Posts: 902
re: Dual Citizenship and taxes
If you are a US citizen or green card holder you remain subject to US tax on worldwide income & gains. You would continue to file an FBAR & Form 8938. Assuming you are self-employed you would file Schedule C & Form 8858 each year. After claiming credit for UK tax it is unlikely you would owe any US tax.
If the engagements are employments the engager of the work will want to consider UK corporate tax, VAT, employment law & PAYE issues.
If the engagements are employments the engager of the work will want to consider UK corporate tax, VAT, employment law & PAYE issues.
Sep 22nd 2019, 6:56 pm
#3
DE-UK-NZ-IE-US... the TYP
Joined: Mar 2010
Posts: 2,854
re: Dual Citizenship and taxes
As a Us Citizen you get a foreign earned income exclusion, but if the income is from a US customer / employer I don’t think that would apply. Assuming it was 1099, they would still have to file that with the IRS , which country gets the tax and where you claim the credit may depend on where the payment is sent, a US bank account or U.K. one, US works on a worldwide basis while UK has the remittance concept. You should definitely get some advise and figure out the optimal setup, and maybe also consider where you will pay SS / NI as this could have an impact later in life.
Sep 22nd 2019, 11:41 pm
#4
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re: Dual Citizenship and taxes
Yeah, I wouldn't exactly be employed by these companies, I work remotely and not under contract on projects. It looks like im good with the foreign earned income exclusion but I still may need to pay some social security. Seems like alot of a pain to be honest. I'm terrible with tax stuff at the best of times!
Sep 23rd 2019, 2:12 pm
#5
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: Dual Citizenship and taxes
Taxation for a US/UK dual citizen who is permanently resident in the UK is straightforward. The UK will have first dibs, and will tax worldwide income. The US, due to CBT, will also tax the same worldwide income. To establish if you are resident in the UK for taxation (arising basis), use the following SRT chart:
https://assets.kpmg/content/dam/kpmg...-flowchart.pdf
Worldwide UK taxation will be on income earned during the UK tax year, and it makes no difference where the income is earned or deposited (US or UK). The same applies for US taxation. As a UKC, if you meet the SRT criteria for UK residence, you cannot use the remittance basis to exclude income. The only possible exception could be a split year for residence.
Most in the UK, working in these circumstances, select to be treated by HMRC as a 'sole trader'. The amount of income (~$100,000) will require National Insurance Contributions to the UK and the US/UK Totalization Agreement means you do not have to pay US Social Security on the income. You will also have to file a UK tax return and use the additional 'Foreign Pages'.
The amount of income will be in, at least, the 40% UK tax bracket. This will allow most, but possibly not all, US tax to be offset; but a US return must still be filed to secure the offset. In these circumstances, you may use either the FEIE (foreign earned income exclusion) or FTC (foreign tax credit). Interest, etc., from UK investments will be unearned income. If they are below the US standard deduction limit, they may be covered by it, but if more, FTCs via 1116 will be required to offset. To properly avoid double taxation, most would file the FTC with form 1116 using the 'resourced by treaty' basket for US earned income.
The US FEIE is based on your residence for the year, not the origin of the income.
Using an accountant in the US to do the US return and a separate UK accountant in the UK to due the UK return can be a recipe for disaster. If an advisor is required, it would be best to use a dual qualified US/UK accountant in either one country or the other. If you're resident in the UK, a UK based advisor would seem the most logical. Many in these circumstances do not use a tax advisor due to the associated costs.
Be very careful if intending to make investments in the UK. Unless selected with knowledge, they can result in punitive US taxation.
https://assets.kpmg/content/dam/kpmg...-flowchart.pdf
Worldwide UK taxation will be on income earned during the UK tax year, and it makes no difference where the income is earned or deposited (US or UK). The same applies for US taxation. As a UKC, if you meet the SRT criteria for UK residence, you cannot use the remittance basis to exclude income. The only possible exception could be a split year for residence.
Most in the UK, working in these circumstances, select to be treated by HMRC as a 'sole trader'. The amount of income (~$100,000) will require National Insurance Contributions to the UK and the US/UK Totalization Agreement means you do not have to pay US Social Security on the income. You will also have to file a UK tax return and use the additional 'Foreign Pages'.
The amount of income will be in, at least, the 40% UK tax bracket. This will allow most, but possibly not all, US tax to be offset; but a US return must still be filed to secure the offset. In these circumstances, you may use either the FEIE (foreign earned income exclusion) or FTC (foreign tax credit). Interest, etc., from UK investments will be unearned income. If they are below the US standard deduction limit, they may be covered by it, but if more, FTCs via 1116 will be required to offset. To properly avoid double taxation, most would file the FTC with form 1116 using the 'resourced by treaty' basket for US earned income.
The US FEIE is based on your residence for the year, not the origin of the income.
Using an accountant in the US to do the US return and a separate UK accountant in the UK to due the UK return can be a recipe for disaster. If an advisor is required, it would be best to use a dual qualified US/UK accountant in either one country or the other. If you're resident in the UK, a UK based advisor would seem the most logical. Many in these circumstances do not use a tax advisor due to the associated costs.
Be very careful if intending to make investments in the UK. Unless selected with knowledge, they can result in punitive US taxation.
Last edited by theOAP; Sep 23rd 2019 at 2:50 pm.
Sep 23rd 2019, 3:36 pm
#6
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Joined: Jul 2019
Posts: 16
Re: Dual Citizenship and taxes
Taxation for a US/UK dual citizen who is permanently resident in the UK is straightforward. The UK will have first dibs, and will tax worldwide income. The US, due to CBT, will also tax the same worldwide income. To establish if you are resident in the UK for taxation (arising basis), use the following SRT chart:
https://assets.kpmg/content/dam/kpmg...-flowchart.pdf
Worldwide UK taxation will be on income earned during the UK tax year, and it makes no difference where the income is earned or deposited (US or UK). The same applies for US taxation. As a UKC, if you meet the SRT criteria for UK residence, you cannot use the remittance basis to exclude income. The only possible exception could be a split year for residence.
Most in the UK, working in these circumstances, select to be treated by HMRC as a 'sole trader'. The amount of income (~$100,000) will require National Insurance Contributions to the UK and the US/UK Totalization Agreement means you do not have to pay US Social Security on the income. You will also have to file a UK tax return and use the additional 'Foreign Pages'.
The amount of income will be in, at least, the 40% UK tax bracket. This will allow most, but possibly not all, US tax to be offset; but a US return must still be filed to secure the offset. In these circumstances, you may use either the FEIE (foreign earned income exclusion) or FTC (foreign tax credit). Interest, etc., from UK investments will be unearned income. If they are below the US standard deduction limit, they may be covered by it, but if more, FTCs via 1116 will be required to offset. To properly avoid double taxation, most would file the FTC with form 1116 using the 'resourced by treaty' basket for US earned income.
The US FEIE is based on your residence for the year, not the origin of the income.
Using an accountant in the US to do the US return and a separate UK accountant in the UK to due the UK return can be a recipe for disaster. If an advisor is required, it would be best to use a dual qualified US/UK accountant in either one country or the other. If you're resident in the UK, a UK based advisor would seem the most logical. Many in these circumstances do not use a tax advisor due to the associated costs.
Be very careful if intending to make investments in the UK. Unless selected with knowledge, they can result in punitive US taxation.
https://assets.kpmg/content/dam/kpmg...-flowchart.pdf
Worldwide UK taxation will be on income earned during the UK tax year, and it makes no difference where the income is earned or deposited (US or UK). The same applies for US taxation. As a UKC, if you meet the SRT criteria for UK residence, you cannot use the remittance basis to exclude income. The only possible exception could be a split year for residence.
Most in the UK, working in these circumstances, select to be treated by HMRC as a 'sole trader'. The amount of income (~$100,000) will require National Insurance Contributions to the UK and the US/UK Totalization Agreement means you do not have to pay US Social Security on the income. You will also have to file a UK tax return and use the additional 'Foreign Pages'.
The amount of income will be in, at least, the 40% UK tax bracket. This will allow most, but possibly not all, US tax to be offset; but a US return must still be filed to secure the offset. In these circumstances, you may use either the FEIE (foreign earned income exclusion) or FTC (foreign tax credit). Interest, etc., from UK investments will be unearned income. If they are below the US standard deduction limit, they may be covered by it, but if more, FTCs via 1116 will be required to offset. To properly avoid double taxation, most would file the FTC with form 1116 using the 'resourced by treaty' basket for US earned income.
The US FEIE is based on your residence for the year, not the origin of the income.
Using an accountant in the US to do the US return and a separate UK accountant in the UK to due the UK return can be a recipe for disaster. If an advisor is required, it would be best to use a dual qualified US/UK accountant in either one country or the other. If you're resident in the UK, a UK based advisor would seem the most logical. Many in these circumstances do not use a tax advisor due to the associated costs.
Be very careful if intending to make investments in the UK. Unless selected with knowledge, they can result in punitive US taxation.
Sep 23rd 2019, 6:19 pm
#7
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: Dual Citizenship and taxes
US citizenship.
There's nothing wrong with a USC resident in the UK setting up a UK Limited Company as long as it is established correctly for US tax purposes, and with an understanding of how the IRS treats foreign entities and the reporting involved. See reply #2 above from Cook_County and the reference to form 8858. Establish it incorrectly with the IRS and it can become unpleasant.
https://www.buzzacott.co.uk/insights...-a-uk-business
https://www.greenbacktaxservices.com...out-form-8858/
There's nothing wrong with a USC resident in the UK setting up a UK Limited Company as long as it is established correctly for US tax purposes, and with an understanding of how the IRS treats foreign entities and the reporting involved. See reply #2 above from Cook_County and the reference to form 8858. Establish it incorrectly with the IRS and it can become unpleasant.
https://www.buzzacott.co.uk/insights...-a-uk-business
https://www.greenbacktaxservices.com...out-form-8858/
Oct 30th 2019, 3:57 pm
#8
Lost in BE Cyberspace
Joined: Jul 2016
Posts: 10,005
Re: Dual Citizenship and taxes
Taxation for a US/UK dual citizen who is permanently resident in the UK is straightforward. The UK will have first dibs, and will tax worldwide income. The US, due to CBT, will also tax the same worldwide income. To establish if you are resident in the UK for taxation (arising basis), use the following SRT chart:
https://assets.kpmg/content/dam/kpmg...-flowchart.pdf
Worldwide UK taxation will be on income earned during the UK tax year, and it makes no difference where the income is earned or deposited (US or UK). The same applies for US taxation. As a UKC, if you meet the SRT criteria for UK residence, you cannot use the remittance basis to exclude income. The only possible exception could be a split year for residence.
Most in the UK, working in these circumstances, select to be treated by HMRC as a 'sole trader'. The amount of income (~$100,000) will require National Insurance Contributions to the UK and the US/UK Totalization Agreement means you do not have to pay US Social Security on the income. You will also have to file a UK tax return and use the additional 'Foreign Pages'.
The amount of income will be in, at least, the 40% UK tax bracket. This will allow most, but possibly not all, US tax to be offset; but a US return must still be filed to secure the offset. In these circumstances, you may use either the FEIE (foreign earned income exclusion) or FTC (foreign tax credit). Interest, etc., from UK investments will be unearned income. If they are below the US standard deduction limit, they may be covered by it, but if more, FTCs via 1116 will be required to offset. To properly avoid double taxation, most would file the FTC with form 1116 using the 'resourced by treaty' basket for US earned income.
The US FEIE is based on your residence for the year, not the origin of the income.
Using an accountant in the US to do the US return and a separate UK accountant in the UK to due the UK return can be a recipe for disaster. If an advisor is required, it would be best to use a dual qualified US/UK accountant in either one country or the other. If you're resident in the UK, a UK based advisor would seem the most logical. Many in these circumstances do not use a tax advisor due to the associated costs.
Be very careful if intending to make investments in the UK. Unless selected with knowledge, they can result in punitive US taxation.
https://assets.kpmg/content/dam/kpmg...-flowchart.pdf
Worldwide UK taxation will be on income earned during the UK tax year, and it makes no difference where the income is earned or deposited (US or UK). The same applies for US taxation. As a UKC, if you meet the SRT criteria for UK residence, you cannot use the remittance basis to exclude income. The only possible exception could be a split year for residence.
Most in the UK, working in these circumstances, select to be treated by HMRC as a 'sole trader'. The amount of income (~$100,000) will require National Insurance Contributions to the UK and the US/UK Totalization Agreement means you do not have to pay US Social Security on the income. You will also have to file a UK tax return and use the additional 'Foreign Pages'.
The amount of income will be in, at least, the 40% UK tax bracket. This will allow most, but possibly not all, US tax to be offset; but a US return must still be filed to secure the offset. In these circumstances, you may use either the FEIE (foreign earned income exclusion) or FTC (foreign tax credit). Interest, etc., from UK investments will be unearned income. If they are below the US standard deduction limit, they may be covered by it, but if more, FTCs via 1116 will be required to offset. To properly avoid double taxation, most would file the FTC with form 1116 using the 'resourced by treaty' basket for US earned income.
The US FEIE is based on your residence for the year, not the origin of the income.
Using an accountant in the US to do the US return and a separate UK accountant in the UK to due the UK return can be a recipe for disaster. If an advisor is required, it would be best to use a dual qualified US/UK accountant in either one country or the other. If you're resident in the UK, a UK based advisor would seem the most logical. Many in these circumstances do not use a tax advisor due to the associated costs.
Be very careful if intending to make investments in the UK. Unless selected with knowledge, they can result in punitive US taxation.
Oct 30th 2019, 8:14 pm
#9
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: Dual Citizenship and taxes
Under the Totalisation Agreement and the treaty, US SSA benefits are only taxed in the UK. I suppose one could try to opt out of the treaty and pay tax on SSA benefits to both the UK and US and then use FTCs to offset the US tax. Out of curiosity I've explored this in the past. For me (85% tax on SSA benefits) the increase in the US income bracket on the 1040 meant I actually ended up owing more to the IRS, which meant more UK FTCs were required to offset the tax.
If the question relates to FICA, contributions to US SSA are not allowed for someone resident in the UK (unlike UK Class 2 NICs for UKCs resident in the US). There is one exception under the Totalisation Agreement. An employee of a US company temporarily assigned to the UK for a definite period of less than 5 years may pay only FICA to the US, but the contributions cannot be offset against UK tax. The money funding NICs through a UK pay cheque is treated as taxable income in the UK.
Oct 31st 2019, 4:44 am
#10
Lost in BE Cyberspace
Joined: Jul 2016
Posts: 10,005
Re: Dual Citizenship and taxes
Under normal circumstances, I can't think of any situation where a UK resident would pay tax on US SSA.
Under the Totalisation Agreement and the treaty, US SSA benefits are only taxed in the UK. I suppose one could try to opt out of the treaty and pay tax on SSA benefits to both the UK and US and then use FTCs to offset the US tax. Out of curiosity I've explored this in the past. For me (85% tax on SSA benefits) the increase in the US income bracket on the 1040 meant I actually ended up owing more to the IRS, which meant more UK FTCs were required to offset the tax.
If the question relates to FICA, contributions to US SSA are not allowed for someone resident in the UK (unlike UK Class 2 NICs for UKCs resident in the US). There is one exception under the Totalisation Agreement. An employee of a US company temporarily assigned to the UK for a definite period of less than 5 years may pay only FICA to the US, but the contributions cannot be offset against UK tax. The money funding NICs through a UK pay cheque is treated as taxable income in the UK.
Under the Totalisation Agreement and the treaty, US SSA benefits are only taxed in the UK. I suppose one could try to opt out of the treaty and pay tax on SSA benefits to both the UK and US and then use FTCs to offset the US tax. Out of curiosity I've explored this in the past. For me (85% tax on SSA benefits) the increase in the US income bracket on the 1040 meant I actually ended up owing more to the IRS, which meant more UK FTCs were required to offset the tax.
If the question relates to FICA, contributions to US SSA are not allowed for someone resident in the UK (unlike UK Class 2 NICs for UKCs resident in the US). There is one exception under the Totalisation Agreement. An employee of a US company temporarily assigned to the UK for a definite period of less than 5 years may pay only FICA to the US, but the contributions cannot be offset against UK tax. The money funding NICs through a UK pay cheque is treated as taxable income in the UK.
Oct 31st 2019, 8:38 am
#11
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Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,129
Re: Dual Citizenship and taxes
The Medicare portion which is much smaller is lost money though.
Oct 31st 2019, 5:16 pm
#12
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: Dual Citizenship and taxes
Is the worker a contractor, or does the US company view the worker as an employee?
With global remote working becoming more and more popular the situation is not uncommon. It arises often on the UK-Yankee site. Some US employers believe they can retain a worker as an US employee and not worry about tax/social security as long as they meet US requirements. Unfortunately, if the worker is in the UK and the US employer has not taken due legal advice for the UK responsibilities of employing a UK worker, the US employer will be in severe contravention of UK employment laws.
I have no idea if when the error is discovered, what the consequences would be for both the US employer and the UK worker.
The certificate is also used by a dual citizen when preparing Schedule C of 1040 to avoid the requirement to pay FICA by the self-employed (the '$400' threshold).
Nov 21st 2019, 5:20 pm
#13
Lost in BE Cyberspace
Joined: Jul 2016
Posts: 10,005
Re: Dual Citizenship and taxes
A US/UK dual citizen, self-employed and resident on the arising basis in the UK, must register as self employed with HMRC and file a self assessment tax return paying both UK tax plus UK NICs. Any FICA withheld from work done for a US client, by that US client, would be withheld in error. The worker has no SSA responsibility, and there are certificates available from HMRC to provide to both the US employer and the IRS to prove there is no SSA FICA liability. HMRC would likely not allow credits against UK tax for foreign funds withheld in error.
Is the worker a contractor, or does the US company view the worker as an employee?
With global remote working becoming more and more popular the situation is not uncommon. It arises often on the UK-Yankee site. Some US employers believe they can retain a worker as an US employee and not worry about tax/social security as long as they meet US requirements. Unfortunately, if the worker is in the UK and the US employer has not taken due legal advice for the UK responsibilities of employing a UK worker, the US employer will be in severe contravention of UK employment laws.
I have no idea if when the error is discovered, what the consequences would be for both the US employer and the UK worker.
The certificate is also used by a dual citizen when preparing Schedule C of 1040 to avoid the requirement to pay FICA by the self-employed (the '$400' threshold).
Is the worker a contractor, or does the US company view the worker as an employee?
With global remote working becoming more and more popular the situation is not uncommon. It arises often on the UK-Yankee site. Some US employers believe they can retain a worker as an US employee and not worry about tax/social security as long as they meet US requirements. Unfortunately, if the worker is in the UK and the US employer has not taken due legal advice for the UK responsibilities of employing a UK worker, the US employer will be in severe contravention of UK employment laws.
I have no idea if when the error is discovered, what the consequences would be for both the US employer and the UK worker.
The certificate is also used by a dual citizen when preparing Schedule C of 1040 to avoid the requirement to pay FICA by the self-employed (the '$400' threshold).
I have another question though, if US social security not taxable in the states if received in UK as UK resident, then does it have to be reported on US tax return ?
Nov 21st 2019, 5:55 pm
#14
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Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,129
Re: Dual Citizenship and taxes
The FICA issue a bit complicated as if the worker pays FICA to US employer, then the US income doesn't reduce the social security benefits over the threshold where they start become reduced. Strange rule that only effects US Expats ( not supposed to work over 45 hours a month for example if abroad), and one assumes Green Card holders.
I have another question though, if US social security not taxable in the states if received in UK as UK resident, then does it have to be reported on US tax return ?
I have another question though, if US social security not taxable in the states if received in UK as UK resident, then does it have to be reported on US tax return ?
Nov 21st 2019, 6:50 pm
#15
Lost in BE Cyberspace
Joined: Jul 2016
Posts: 10,005
Re: Dual Citizenship and taxes
I’m pretty sure that the SS still has to be reported on the US tax return. A great many US residents don’t pay tax on their SS. It is reported on line 5a and the taxable amount, $0, reported on line 5b. The same goes for Roth IRA withdrawals for UK residents, total reported on line 4a and taxable amount, $0, reported on line 4b.