Tax Benefits For US Expats Working In The UK?

Working as a US expat in the UK can be an exciting opportunity, but it also comes with its own set of tax implications. In this article, we’ll explore some of the tax benefits available to US expats working in the UK, including the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the UK-US tax treaty.

Foreign Tax Credit

The Foreign Tax Credit (FTC) is a tax benefit that allows US expats working in the UK to claim a credit against their US tax liability for any foreign taxes paid on their UK-sourced income. This credit is designed to prevent double taxation, where the same income is taxed in both the US and the UK. The FTC is generally available to US expats who pay taxes in the UK, but there are some restrictions and limitations to be aware of.

To claim the FTC, US expats must file Form 1116, which details the amount of foreign taxes paid and calculates the credit. The credit is limited to the amount of US tax that would be due on the same income, and any excess credit can be carried forward or back to other tax years.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is another tax benefit available to US expats working in the UK. The FEIE allows US expats to exclude a certain amount of their foreign earned income from US taxation. For tax year 2021, the maximum amount that can be excluded is $108,700.

To qualify for the FEIE, US expats must meet either the physical presence test or the bona fide residence test. The physical presence test requires US expats to be present in a foreign country for at least 330 full days in a 12-month period, while the bona fide residence test requires US expats to establish a bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year.

UK-US Tax Treaty

The UK-US tax treaty is a bilateral agreement between the UK and the US that aims to prevent double taxation and promote trade and investment between the two countries. The treaty covers a range of tax issues, including income tax, capital gains tax, and estate and inheritance tax.

Under the treaty, US expats working in the UK may be eligible for certain tax benefits, such as reduced withholding tax rates on dividends, interest, and royalties. The treaty also provides for the resolution of disputes between the two tax authorities and contains provisions to prevent tax evasion and avoidance.

US expats working in the UK have several tax benefits available to them, including the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the UK-US tax treaty. These tax benefits can help US expats reduce their US tax liability and avoid double taxation. It’s important for US expats to understand the rules and regulations governing these benefits and to seek professional advice if necessary.

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.

Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.