The Ultimate Tax Advice for US Expats in the UK
If you are an American working in the UK, you probably have heard how overwhelming US tax processes can get. Besides worrying about the elaborate procedures to file your US taxes, other questions that could haunt you are as follows:
- Do your UK financial accounts affect your tax filing?
- Are there any options available to reduce your tax liability?
- How does taxation work if you are a dual US/UK citizen?
If you are filing your taxes for the first time and finding it tiring to do so, here is your ultimate tax advice for US expats in UK,
US taxes are based on citizenship and not place of residence which means that no matter where you live, you are under the obligation to file US tax. Irrespective of how long you stay and work in the UK, you have to report the income on US taxes.
If you are a US taxpayer with over $10,000 in your foreign bank account then you are subject to FBAR filing and reporting requirements. For foreign assets valued at more than $200,000, you may be subject to FATCA reporting requirements.
One great piece of tax advice for US Expats in UK is to benefit from the following tax strategies to lower your US tax bill and avoid dual taxation.
Strategy 1: Foreign Earned Income Exclusion
This tax benefit allows you to exclude taxation of all or a part of your income from US taxes. You can be eligible for this exclusion if you are a US citizen who qualifies as a bona fide resident of the UK, or any other foreign country for that matter, for a complete tax cycle without interruptions in your stay.
Strategy 2: Foreign Tax Credit
If you are a foreign income tax-paying US expat, then you can claim US tax returns on dollar for dollar basis with the help of the Foreign Tax Credit. Since income tax rates are higher in the US than in the UK, when you claim Foreign Tax Credit you receive enough US tax credits to eradicate the tax liability.
One thing that you need to remember is that the process of tax filing as a US expatriate is not as easy as it may sound. A lot depends on your current situation when it comes to filing taxes. So, when it comes to tax advice for US Expats in UK, it is always best to consult experts who can help you in the process and guide you through the complexities.
For instance, your investments in the UK that are deemed tax-free are not exempted from taxes in the US. You may consider it wise to invest in a tax-free Individual Savings Account (ISA) in the UK. However, these are not considered tax-free when it comes to US taxes irrespective of whether the investment is in cash or shares and stocks.
If you feel lost in the series of processes, our expert team of tax advisers at Xerxes Associates LLP is there to help you. Trust our experienced tax accountants to guide you in every step with responsive and personalised service. From tax compliance to return preparations and submissions, we cover it all for you.