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Dual Citizenship and taxes

Dual Citizenship and taxes

Old Sep 21st 2019, 10:57 pm
  #1  
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Default 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!
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Old Sep 22nd 2019, 6:56 am
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Default 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.
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Old Sep 22nd 2019, 6:56 pm
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Default 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.
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Old Sep 22nd 2019, 11:41 pm
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Default 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!
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Old Sep 23rd 2019, 2:12 pm
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Default 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.

Last edited by theOAP; Sep 23rd 2019 at 2:50 pm.
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Old Sep 23rd 2019, 3:36 pm
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Default Re: Dual Citizenship and taxes

Originally Posted by theOAP View Post
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.
Thank you. Can I ask, why would most select to be treated as a sole trader? Does setting up a UK Limited company complicate things more?
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Old Sep 23rd 2019, 6:19 pm
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Default Re: Dual Citizenship and taxes

Originally Posted by mattiel View Post
Can I ask, why would most select to be treated as a sole trader?
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/
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