Important Information for American Expats in the UK and their US taxes

Important Information for American Expats in the UK and their US taxes

No matter where they live, U.S. citizens and residents pay taxes on their worldwide income. Therefore, you must also report any income you report on your UK return on your US return. Filing requirements in the US are determined by your filing status and your income amount.

Finding conformity between your UK and US tax year

In the UK, the tax year runs from 6th April to 5th April, so submitting your US tax returns may be difficult as the IRS expects to see your earnings from January 1 to December 31.

This issue can be addressed in many ways, but we find the most accurate method is to use the following formula:

Take the amount of your P60 this year – The YTD amount from your PAYE statement from the previous year + The YTD amount from PAYE statement of this year = The amount current year amount.

In addition to calculating the amount of money you earned last year, this calculation can also be used to calculate the amount of money you paid to HMRC during the year.

Avoid paying taxes twice

There should never be a double taxation of the same income. Americans in the UK typically pay their income tax to the UK first, then file their US tax returns. Foreign Tax Credits are available in both the United Kingdom and the United States, thus allowing for a smaller tax due amount on foreign-sourced income.

Totalization Agreement

The Totalization Agreement came into effect in February 1984. As a consequence, US citizens living in the UK are not subject to double social security payments or taxation.

Exemption from foreign earned income – Form 2555

If US expats living in the UK meet either the Bona Fide Residence Test or the Physical Presence Test, they may qualify for a reduction or, in some cases, pay zero US tax.

Report of Foreign Bank and Financial Accounts – FBAR

Every year, Americans who have accounts outside the United States with a balance of at least $10,000 must file a FBAR, or FinCEN Form 114, by October 15. Bank, investment, and retirement accounts should be included in the report, converted into US dollars. The Form 8938 is required for taxpayers with UK accounts worth more than $200,000.

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 (tax imposed on expatriates). 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.