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Filing US taxes and resident in UK

Filing US taxes and resident in UK

Old May 12th 2016, 10:34 pm
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Default Filing US taxes and resident in UK

I am British with dual citizenship. I am moving back to England after 12 years in the US. I'm a little puzzled as to filing US taxes for one thing. The other is filing UK taxes and claiming dependents. All a bit confusing but here are my questions.

From 2017 when I have no longer worked in the US do I still have to file US taxes? Can I claim dependents and is it of any value?

My other question is how does it work in the UK with regards to filing taxes and claiming dependents?

Sorry I have no idea. It's been so long.

Thank you
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Old May 12th 2016, 10:47 pm
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Default Re: Filing US taxes and resident in UK

As a US citizen, you are subject to US taxation wherever you live in the World.

You have to file taxes unless your income is below the level to file. This is a very small amount. Note that it is often that case that you don't owe any US tax but are still required to file.

There's a load of info here: https://www.irs.gov/Individuals/Inte...-Living-Abroad

Edit: UK (actually, everybody else's) taxes are simpler than the US. Most people in the UK are automatically given a tax code by HMRC, which is sent to their employer, who withholds the implied amount of taxes. Generally, only fairly high-earners and the self-employed have to complete a self-assessment form, which is the equivalent of filing taxes in the US.

Last edited by Owen778; May 12th 2016 at 10:51 pm.
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Old May 12th 2016, 11:28 pm
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Default Re: Filing US taxes and resident in UK

Thanks. Does that mean I can claim dependents too and is there any monetary value in that? I have 2 children.
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Old May 13th 2016, 1:31 am
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Default Re: Filing US taxes and resident in UK

There's already at least a hundred threads on here that have covered this topic in the past.

Read IRS publication 54, that's the main bit.

The forms you will probably need to file are:

1040
2555-EZ (the most important one)
1040 schedule B
8938
8965

You also have to do the FinCEN FBAR form (if you have foreign accounts totalling more than $10,000) but that's actually a website now.

The real trick is reporting ISAs, the IRS keep telling me different things (even in writing). Given that the US will tax them anyway, no point having one really.

The other form you might use is 1116 to claim a foreign tax credit, say you've got something that you do actually have to pay tax on in the US, this allows you to credit the UK tax against it (obviously with an ISA there is no UK tax, but the US taxes it, so there's no point to an ISA).

Generally if you are under the FEIT reporting limit on 2555 you pay no US tax and even if you are subject to US tax you can usually claim a foreign tax credit to eliminate it.

If you ever receive a gift of $100,000 or more it has to be reported on 3520.

There all kinds of deductions and credits you can apply but there's no point bothering to work them out unless you're actually liable to pay tax. Foreign tax credit is the main one. Some of the others are detailed in publication 54. Yes you can claim the married person exemption if you want. Foreign housing deduction, etc.

June 15th is the filing deadline if you reside abroad.
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Old May 14th 2016, 2:43 pm
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Default Re: Filing US taxes and resident in UK

What a mess. Also as a dual citizen, makes me want to consider the renunciation route. The arrogance and annual paperwork are just too much. By the way, I assume Canadians don't have their government follow them around the world.
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Old May 15th 2016, 8:14 pm
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Default Re: Filing US taxes and resident in UK

I don't want to renounce US citizenship as I will be traveling back with my children twice a year to visit their father. Also, maybe in the future we will move back.
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Old May 15th 2016, 8:18 pm
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Default Re: Filing US taxes and resident in UK

Yes, that was just me thinking outloud about my situation and in frustration over it. But many expats have actually renounced purely due to the tax requirements. I probably wouldn't either. Having many choices of where to live is a nice luxury and not to be taken for granted.
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Old May 16th 2016, 2:33 am
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Default Re: Filing US taxes and resident in UK

Renouncing is a waste of time and money imo. I'm convinced the reason the State Dept. raised the fee was to make it comparatively cheaper to get an accountant to do your tax return. At that point, 95% of people realize it's not that hard to do the return.

Once you've done it once, it's not that hard really, unless you've got a complex tax situation.

And you don't necessarily get rid of the tax filing requirement by renouncing anyway because of the expatriation tax, you may have to file a 1040NR and an 8854 for ten years.

If you look at those forms I've listed it's pretty quick to do it, hardly anything goes on the 1040 other than the personal details and a signature.

No, Canadian taxes are not as complex but it's very easy living on the other side of an artificial line drawn across a continent to get yourself into a situation where you have to file a US return.

Whenever I phone them up I get the impression they couldn't care less about people who don't actually owe anything. The fact I can never get a straight answer about ISAs and TFSAs indicate they don't really care about those either.

Get this - I actually got a letter from the IRS, sent a copy of that letter to another IRS office and they said that letter was wrong, wouldn't say why it was wrong, but I should write to another office to get an explanation.

And when I say I "got a letter from the IRS", it was written using a Word 97 template. In 2016.

So you might think, nobody at the IRS is going to care if I don't file.

Back in 1974, my uncle moved from the US to the UK and never filed an I-407 to surrender his green card (ergo, remains resident in the US for tax purposes).

Couple of years later, he gets a letter from the IRS saying he's going to be audited - in the UK. So he goes to the embassy with all of his paperwork and hasn't got a clue what he needs to file so the auditor fills it all in and he gets a bill for two years worth of tax. And another bill from the IRS for filling in his tax return for him. Which was something really steep because I remember my uncle vociferously complaining about it, like £100, which was a lot back in 1976.

I very seriously doubt nowadays they would be as diligent, but it can happen.
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Old May 16th 2016, 7:47 am
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Default Re: Filing US taxes and resident in UK

Looking on the internet I read that Boris Johnson is renouncing his US citizenship. He had to pay US tax on the sale of his house in London just because he happened to be born in the US. He's right to think it's unfair. (His renunciation may not be for this reason though).

The fee for renunciation is high- $2,350. Before 2010 it was free.

Only one other country is like the US- Eritrea!-in taxing its citizens living abroad on their worldwide income. Reading about this I couldn't find the reason why the US has this policy while almost every other country does not.
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Old May 16th 2016, 9:43 am
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Default Re: Filing US taxes and resident in UK

It’s obvious anyone intending to live in the US permanently in the future should not renounce US Citizenship. That would include those who have US citizenship now, live in the US now, intend to retire to the UK or elsewhere, but wish to protect the right to return to the US permanently someday. The parent of children born in the US who have/will grow[n]-up and remain permanently in the US may consider returning to the US once they reach old age in order to be near the children and grandchildren. Family is usually the main driver although profession and retirement are amongst other considerations.

Those who have renounced may re-enter the US afterwards as a normal visitor…….for now. What will happen in 5, 10, or 20 years time remains to be seen.

Expats (and past renouncers) are an easy target. There are those in power in the US who demonise anything financially foreign as an attempt to avoid US tax. An expat living in the UK with a local HSBC or Lloyds account in their local village become theoretical ‘tax cheats’ who must prove their innocence. This may get worse, rather than better.

Originally Posted by Steve_ View Post
And you don't necessarily get rid of the tax filing requirement by renouncing anyway because of the expatriation tax, you may have to file a 1040NR and an 8854 for ten years.
The 10 year obligation ended in 2008. There are a few who expatriated prior to 2008 who will continue to file yearly for another few years, but anyone renouncing today will not have to file for ten further years. Instead, one now files the Exit Tax. If one is above the thresholds, the Exit Tax can be quite punitive. All of ones assets are valued according to ‘Gift Tax’ rules and if they’re over the threshold, they then calculate tax according to ‘Estate Tax’ rules. The thresholds appear to be quite high but when one considers how the evaluation is made, it’s easy for fairly average successful people to fall under the tax. One doesn’t have to be rich to fall under the Exit Tax. The procedure of valuation and taxation is complicated. Part is MTM, and other assets are taxed as deferred. The deferred assets (such as pensions) can draw a fairly significant tax bill, due immediately, if they are foreign. US deferred assets are less punitive as tax is paid only during the time they are paid out. There’s also NIIT to consider. Do not become a ‘covered expatriate’ if at all possible.

Originally Posted by Asg123 View Post
Only one other country is like the US- Eritrea!-in taxing its citizens living abroad on their worldwide income. Reading about this I couldn't find the reason why the US has this policy while almost every other country does not.
The IRS would probably agree. It’s very doubtful CBT (citizenship based taxation) is profitable in total. The problem lies with the few exceptionally rich individuals who may take advantage of the system. NO Congressperson or Senator wants to be seen allowing those ‘scoundrels’ to get away with anything. As a result, all expats (under CBT) will pay the price, and going to RBT (residence based taxation, as the rest of the civilized world) would give the impression of letting those ‘scoundrels’ off the hook. It's politically better to be seen as being tough on all 'tax cheats'.

Unfortunately, it really is that simple.

Don't misunderstand, most US expats living in foreign countries are as much against tax evasion as anyone else. It's just the unique US CBT which causes ill feelings among those US Persons abroad.
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Old May 16th 2016, 10:58 am
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Default Re: Filing US taxes and resident in UK

All I can say is that the criminal and civil penalties of failing to accurately report foreign income or holdings is astounding. Even by mistake, misunderstanding, or calculation error, the IRS can penalize 50% of the U.S. citizen's foreign assets.

Renouncing for many is not as silly or unwise as it may seem. Many expats want to live in mental peace with no strings attached to an arcane system that essentially watches every foreign financial move they make. They no longer have nor want ties to their home country and prefer to live their lives on their own terms elsewhere. In my mind, I understand this point of view.

What are the repercussions for failing to file an FBAR?

"The repercussions for failing to file an FBAR are significant. Criminal exposure can range from up to $500,000 in fines to 10 years in prison. Civil penalties can reach the greater of $100,000 or 50% of the balance of the foreign account. Taxpayers must also consider the cost of any back taxes, penalties and interest on any unreported income."
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Old May 16th 2016, 12:22 pm
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Default Re: Filing US taxes and resident in UK

Originally Posted by whistlestop01 View Post
Thanks. Does that mean I can claim dependents too and is there any monetary value in that? I have 2 children.
I'm not sure you've had an answer to this question for the UK.

There are no exemptions for children as a taxpayer in the UK like there is in the US. There are tax free items and the tax free Personal Allowance, but no exemptions on the tax return for children. Each taxpayers income is dealt with individually. There are no 'joint' returns. Interest, for example, on a savings account held by a husband and wife result in both paying tax (if above a tax free threshold) with the interest being split 50/50 for tax purposes.
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Old May 16th 2016, 12:38 pm
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Default Re: Filing US taxes and resident in UK

Originally Posted by theOAP View Post
I'm not sure you've had an answer to this question for the UK.

There are no exemptions for children as a taxpayer in the UK like there is in the US. There are tax free items and the tax free Personal Allowance, but no exemptions on the tax return for children. Each taxpayers income is dealt with individually. There are no 'joint' returns. Interest, for example, on a savings account held by a husband and wife result in both paying tax (if above a tax free threshold) with the interest being split 50/50 for tax purposes.
For some background, there was a tax exemption for children but this was replaced by Child Benefit in the 1970s so that those who did not owe taxes could benefit and also so that weekly cash would be available.

You should check if you would be entitled to Child benefit when you return. It is about 20GBP per week for the first child and 14 for additional children. Also I think it is now means-tested.
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Old May 16th 2016, 12:44 pm
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Default Re: Filing US taxes and resident in UK

Originally Posted by Richard8655 View Post
Renouncing for many is not as silly or unwise as it may seem. Many expats want to live in mental peace with no strings attached to an arcane system that essentially watches every foreign financial move they make. They no longer have nor want ties to their home country and prefer to live their lives on their own terms elsewhere.
For the USC who may have lived for a long time abroad, it is a problem. It is also a problem for the dual UKC/USC (or Green card holder) who may have lived in the US for a period of 8 or more years (like the OP) but who may want to return to the UK or elsewhere to continue a career. There are many myths concerning USCs living abroad. Although complicated US tax returns may well be one reason for the large increase in renunciations, the (perceived*) restrictions on normal day to day financial planning is often a greater reason for renouncing if one plans never to live in the US again.

* You may have a stocks and shares ISA. It is not prohibited by US/IRS law, but the preparation, filing time (professional fees), and resulting tax bracket required may offset any profit it produces.

You'll find many examples of USCs abroad with only a salary below $100,000 and perhaps $1,000 in savings interest form 1 or 2 bank accounts stating how easy it is to file from abroad. If they qualify for FEIE, this may be true with preparation and filing only taking 2 to 3 hours to complete.

For the USC who intends to live abroad for an extended period, tax filing and financial planning can become a bit of an obstacle. Then, there are also the possible penalties if you get it wrong. Programmes such as the forgiving Streamlined Program for getting back into compliance are predicted to come to an end.
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Old May 16th 2016, 12:48 pm
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Default Re: Filing US taxes and resident in UK

Originally Posted by Richard8655 View Post
What a mess. Also as a dual citizen, makes me want to consider the renunciation route. The arrogance and annual paperwork are just too much. By the way, I assume Canadians don't have their government follow them around the world.
As a wife of a Canadian, yes, they do.
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