outerlimitsboats

Dear Forum,
I am American and my girlfriend is British. We currently live in the UK but may move to the U.S. I am also a British citizen (lived in UK for nearly 10 years). We are planning on marrying and starting a family. I had a few questions:

If we move to the U.S. after we are married and both work for U.S. companies, then what liablity do we have for UK taxes on our income or assets in the U.S.? Any?

Also, she has a UK rental property...how does that get taxed?

Thanks for your help!

Bob

Your meant to be filing taxes to the IRS as a USC anyway, nothing changes regarding you with living in the UK or US in that regard. Might not have any taxes owned if your earning less than $86K or whatever the threshold is.

Who you work for is irrelevant.

Don't know about her rental, depends if she pays tax in the UK on it or not.

There's a few threads on the subject anyway that might be worth searching out.

and welcome to BE.

Cape Blue

On the UK rental - she'll do a self assessment tax return (as normal) and if she has a net income above the tax free limit she'll pay tax on the profits. (i.e. if she has a profit of over 8k (ish) after all mortgage interest, agents fees, insurance etc)

She will also have to include the income (& costs) on her US tax return, but any tax already paid in the UK can be deducted.

You will both need to complete a P85 before you move, she will also need to complete a NRL1 to ensure the rent is paid gross and the agents don't have to deduct tax at source.

Peter Newton

Hi:

The foreign tax credit works the other way around: the country in which you are resident gets to tax you first. So if you are resident in the US, you will first pay US tax on the rental income, and then will take a credit for this on your UK taxes.

Also, when figuring your US tax on the rental, you will be able to deduct depreciation expense and council tax.

Good luck!
Pete

Cape Blue

That's interesting, I'll mention it to my accountant who has been deducting my UK self-assessment tax paid, from my US return rather than the other way around. (although this works for me as my US marginal rate is higher than my UK).

I was under the impression that the country where the gain arose got first dibs on it.

Tenant normally pays the council tax. The depreciation deduction is pretty useful in the US - there isn't one in the UK.

Peter Newton

I double checked and you were right. While income is generally first taxed in the country where you are resident, there is an exception for income from property. In that case it is first taxed in the country where the property is located.

Sorry about that!

Cape Blue

hey, well thanks for coming back on that

outerlimitsboats

Thank you for helping me with your replies. That was very helpful. I do currently file U.S. tax returns while I have been living in the UK.

So just to clarify, when we move to the U.S., if I ignore her UK rental property for a moment...the income we both earn from jobs in the U.S. and from U.S. investments like mutual funds is solely taxed by the U.S., correct? Will we have any UK tax liability on our U.S. jobs' income or U.S. mutual funds?

Thanks again, really appreciate the advice!

dunroving

My understanding is that you can't get double-taxed (due to the UK-US tax treaty). However, this doesn't mean you will owe the UK no tax.

If, based on your income from various sources, the IRS would estimate your tax due to be $15,000 under US tax laws, for example, and under UK tax laws the IR would estimate your tax due to be $18,000, your tax bill due to the UK for that year would be $3,000 ... because the remaining $15,000 was paid to the US, the UK would not double-tax you that amount.

It's as well the UK-US tax treaty exists, but it's a bit of a bummer that wherever you live, you end up paying in total whichever is the higher of the UK or US estimated tax due.

outerlimitsboats

Ah, I was afraid that was the case. So basically you always end up paying the higher marginal tax rate between the U.S. and UK. I always thought that when Brits go abroad that they only paid local taxes (that's why all the F1 drivers move to Switzerland and Monaco...but I guess there's no UK-Swiss tax treaty?).

Peter Newton

Hi:

Once you lose your tax residency in the UK, you would not pay any UK tax on your employment income if you work for a US employer, none of your duties are performed in the UK, and none of the funds are remitted to the UK.

You would also not pay any UK tax on investment income arising in the US, if none of the funds are remitted to the UK and you elect the remittance basis on your tax return.

Generally, you lose your UK tax residency when you spend less than half a tax year there. So the first year you are in the US you may have a UK tax liablility as explained by dunroving above.

Cheers
Pete

dunroving

Good point. These things are not straightforward, are they?

I'm interested to see what happens regarding these tax havens (Brown has been sounding off about them recently). I'm pretty sure that USC's have to pay tax on worldwide income regardless of whether they live in a so-called tax haven (though I'm sure people find tricky ways around this - setting up tax-exempt companies, etc., etc.) Sorry, bit OT.

Peter Newton

A lot of US folks have money in places like Switzerland and never report it. Even that is changing as the Swiss have agreed to relax their bank secrecy laws somewhat. I think the concept of tax havens will eventually go away except for a few rogue states. Anyone fancy investing in North Korea?

Bob

Lichteinstein is more secure and popular anyway, if you've got that kind of capital

But the cheap scam is setting up a shell company that all your wealth goes towards and you just draw a small salary from that company and the company actually expenses everything.

Wasn't it a case of even the Barclays brothers only paying something like £34K in taxes a few years ago and they're worth how many small countries?