Do American Citizens Living In London Need to Pay Taxes?
Do American Citizens Living In London Need to Pay Taxes? In short, Yes! If you are an American living in London or the UK, you must file a US tax return and pay US taxes on your British income. You are subject to the same rules when it comes to income taxation as Amercians are living in the US.
There are generally two systems used globally to calculate taxes – these are ‘territorial-based’ and ‘residence-based’ taxation policies.
Territorial-based taxation systems tax individuals only on income from sources earned inside the borders of that country and residence-based taxation systems tax their local residents on all income earned from both local and foreign sources. As a US expat living in London or the United Kingdom, you are subject to the latter.
You can avoid filing a US tax return and paying US taxes abroad only by renouncing your US citizenship. Renouncing your US citizenship is a serious and permanent decision that shouldn’t be taken lightly. For US citizens and green card holders, filing a tax return and paying associated taxes is required. However, it is possible to avoid double taxation and reduce your US tax bill using special tax credits, deductions, and exclusions available to Americans living in London and the UK, as explained here.
While living abroad, US citizens who fail to file their tax returns may face penalties, interest costs, or even criminal charges. The IRS charges financial penalties for both late filings and late payments. There are options available to you for late filings which may soften the response IRS takes against you.
There are a number of items you’ll need to report when it comes to filing your US expat taxes including your earned income and assets that exceed a certain amount. You may even have to pay taxes on your foreign retirement contributions. You should be familiar with the following three important additional tax requirements that apply to US citizens living in London and the United Kingdom.
● Foreign Bank Account Reporting
● Foreign Account Tax Compliance
● Tax Rules for Passive Foreign Investment Companies
Xerxes Associates LLP work closely with US and UK expats from all different backgrounds, circumstances and occupations as well as high-net worth individuals in order to help them through the complexities of US and UK tax compliance requirements. If you have a query or would like a friendly no obligation chat about your requirements then please get in touch and we shall be happy to assist you.