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Tax return: Spouse non-resident?

Tax return: Spouse non-resident?

Old Dec 12th 2015, 8:22 pm
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Default Tax return: Spouse non-resident?

Hello!
This is my first time completing the self-assessment and I'm not so clear on my wife's status.

We moved to the US on April 21 2014 and apart from a two week stay over Christmas, we spent the whole time in the US. I am employed full time but my wife has not worked at all in the US.

I pass the third automatic overseas test, but my wife passes neither of the overseas or UK tests. As I understand it, it falls to the number of ties to determine her UK status, but she has insufficient ties to qualify as UK resident. Does that make her a non-resident then, and should we mark box 1?

Also struggling with the fact that the software we're using wants to tax us on UK rental income when it's already been taxed by the Inland Revenue in the US.

Any direction greatfully appreciated...
Thanks!
D
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Old Dec 12th 2015, 10:39 pm
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Default Re: Tax return: Spouse non-resident?

Originally Posted by Vlookup View Post
Hello!
This is my first time completing the self-assessment and I'm not so clear on my wife's status.

We moved to the US on April 21 2014 and apart from a two week stay over Christmas, we spent the whole time in the US. I am employed full time but my wife has not worked at all in the US.

I pass the third automatic overseas test, but my wife passes neither of the overseas or UK tests. As I understand it, it falls to the number of ties to determine her UK status, but she has insufficient ties to qualify as UK resident. Does that make her a non-resident then, and should we mark box 1?

Also struggling with the fact that the software we're using wants to tax us on UK rental income when it's already been taxed by the Inland Revenue in the US.

Any direction greatfully appreciated...
Thanks!
D
What is the visa status of you and your spouse. Remember that if you are US resident the US is your primary tax authority and you will be taxed on your worldwide income by the IRS and can take tax credits on your UK taxes for any US tax you've already paid.
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Old Dec 12th 2015, 11:46 pm
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Default Re: Tax return: Spouse non-resident?

Thanks for the response.

I'm on an L1 visa and my wife an L2. We'll be here for a few years.
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Old Dec 12th 2015, 11:55 pm
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Default Re: Tax return: Spouse non-resident?

I also don't understand if we should be looking at Split Year Treatment or not. Does that only apply if she passes the UK residence test?
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Old Dec 13th 2015, 3:00 am
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Default Re: Tax return: Spouse non-resident?

Split year treatment has nothing to do with whether you wife is primarily taxable in the US or the UK, they are two mutually exclusive questions. If you have worked in the US for only part of 2015 then you probably need a split year tax return for 2015.

Where is your wife living? Did she move to the US at the same time as you? If "yes" she needs the same split year treatment as you. If she remained in the UK until late in 2015, or is still in the UK, she may still be tax resident in the UK, but we need more information about what she did/does for work, when/if she worked, and where. ..... If she is still tax resident in the UK then you probably need to file "married, filing separately" in the US, on your split year return.
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Old Dec 13th 2015, 7:04 pm
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Default Re: Tax return: Spouse non-resident?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/454492/sa109-notes_2015.pdf

According to these instructions, you can either tick box 1 (not UK resident) or box 3 (applying for split year treatment) but not both.

My wife and I lived and worked in the UK from Apr 1 - 21 (and all years prior to that). We then moved and have remained in the US, where I have worked full time but she has not worked at all.
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Old Dec 13th 2015, 9:15 pm
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Default Re: Tax return: Spouse non-resident?

Have you used the HMRC residency tool?

HM Revenue & Customs: Service unavailable

If you are living and working in the US it seems likely that both you and your spouse are UK non-resident.
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Old Dec 14th 2015, 7:55 pm
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Default Re: Tax return: Spouse non-resident?

Originally Posted by Vlookup View Post

Also struggling with the fact that the software we're using wants to tax us on UK rental income when it's already been taxed by the Inland Revenue in the US.
The tax treaty does not cover passive income. You will need to pay UK income tax on UK rentals and also US tax. You can offset the UK taxes against the US taxes.
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Old Dec 15th 2015, 3:22 am
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Default Re: Tax return: Spouse non-resident?

Originally Posted by mrken30 View Post
The tax treaty does not cover passive income. You will need to pay UK income tax on UK rentals and also US tax. You can offset the UK taxes against the US taxes.
Passive income is definitely covered by the treaty.
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Old Dec 15th 2015, 4:57 am
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Default Re: Tax return: Spouse non-resident?

Originally Posted by nun View Post
Passive income is definitely covered by the treaty.
Tht is not what HMRC told me. There are several sites referring to non resident landlord scheme. It's a pain, they can make your tenant pay your income tax from the rent. Your letting agent needs to be registered with HMRC and you have to apply for a SA login.

Non-Resident Landlord Scheme | MyTaxResidency.com
https://www.gov.uk/tax-uk-income-live-abroad/rent
PIM4800 - Overseas landlords

This is from the IRS website re:UK/US treaty
https://www.irs.gov/pub/irs-trty/uk.pdf
ARTICLE 6
Income from Immovable Property (Real Property)
(1) Income from immovable property (real property), including income from agriculture or forestry,
may be taxed in the Contracting State in which such property is situated.

(2) The term "immovable property" shall be defined in accordance with the law of the Contracting
State in which the property in question is situated. The term shall in any case include usufruct of
immovable property and rights to variable or fixed payments as consideration for the working of, or the
right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not
be regarded as immovable property.
(3) The provisions of paragraph (1) shall apply to income derived from the direct use, letting, or use
in any other form of immovable property.

Last edited by mrken30; Dec 15th 2015 at 5:02 am.
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Old Dec 15th 2015, 3:19 pm
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Default Re: Tax return: Spouse non-resident?

Originally Posted by mrken30 View Post
Tht is not what HMRC told me. There are several sites referring to non resident landlord scheme. It's a pain, they can make your tenant pay your income tax from the rent. Your letting agent needs to be registered with HMRC and you have to apply for a SA login.

Non-Resident Landlord Scheme | MyTaxResidency.com
https://www.gov.uk/tax-uk-income-live-abroad/rent
PIM4800 - Overseas landlords

This is from the IRS website re:UK/US treaty
https://www.irs.gov/pub/irs-trty/uk.pdf
ARTICLE 6
Income from Immovable Property (Real Property)
(1) Income from immovable property (real property), including income from agriculture or forestry,
may be taxed in the Contracting State in which such property is situated.

(2) The term "immovable property" shall be defined in accordance with the law of the Contracting
State in which the property in question is situated. The term shall in any case include usufruct of
immovable property and rights to variable or fixed payments as consideration for the working of, or the
right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not
be regarded as immovable property.
(3) The provisions of paragraph (1) shall apply to income derived from the direct use, letting, or use
in any other form of immovable property.
I did not say that the UK would not tax rental income.....or any other passive UK source income.......it will. The US/UK tax treaty gives a frame work for taxing passive income, but local law must be applied. Very few Articles actually modify local law, the few that do are in the areas of pensions, social security and dividends. Still rental income is specifically covered in the treaty and with Article 24 you can avoid double taxation.

If your UK source income is less than your personal allowance there will be no UK tax to pay. If you do have UK tax due then the US tax that you pay on your UK rental can be used to offset the UK tax. The US must be paid first if you are a US resident as the US does not have to give you credit for any UK tax you pay.
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Old Dec 15th 2015, 3:56 pm
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Default Re: Tax return: Spouse non-resident?

One other thing to be aware of is UK property is depreciated over 40 years not 27.5 like US property. I have met CPAs who want to treat overseas property like US property. It's also difficult to find in turbotax
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Old Dec 15th 2015, 4:45 pm
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Default Re: Tax return: Spouse non-resident?

Originally Posted by mrken30 View Post
One other thing to be aware of is UK non-US property is depreciated over 40 years not 27.5 like US property. I have met CPAs who want to treat overseas property like US property. It's also difficult to find in turbotax
FIFY. There is nothing special about property in the UK.
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Old Dec 15th 2015, 5:08 pm
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Default Re: Tax return: Spouse non-resident?

Originally Posted by Pulaski View Post
FIFY. There is nothing special about property in the UK.
It is special in that it is generally always made of brick, unlike in the US. It is also quite expensive in parts. Price doesn't always guarantee quality.

Last edited by mrken30; Dec 15th 2015 at 5:19 pm.
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Old Dec 15th 2015, 5:15 pm
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Default Re: Tax return: Spouse non-resident?

Originally Posted by mrken30 View Post
It is special in that it is generally always made of brick, unlike in the US.
I wouldn't even be too sure of that any more. They started throwing up American-style timber frame houses clad in "brick veneer" near where I lived in London nearly 20 years ago.
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