The frequently asked questions about Brits moving to the US and paying tax
As property accountants, we are regularly asked about Brits moving to the US and paying tax. We will look to answer the below questions in this Article.
“Are you a Brit paying too much tax in the US?”
“Are you a Brit moving to the US and paying too much tax?”
“What are the basics of Brits paying tax in the US?”
“Is Tax in the US more complicated than that in the UK?”
“Should you report your UK State Pension in the US?”
“What type of VISA do I need?”
“How can I benefit from the UK & US double taxation treaty?”
“Do Brits in the US pay tax on the sale of property in the UK?”
“Are Brits subject to FATCA and taxation on non-US based investments?”
“Which UK ex-pats are required to file taxes in the US?”
“Is the US tax year the same as the UK’s?”
“Does the US have multiple ways to file its Tax Returns?”
“Can some Brits have to file Tax Returns in both the UK and the US?”
“How do Brits file taxes in the US?”
“How can I avoid paying tax in the US as a Brit?”
Are you a Brit paying too much tax in the US?
Our tax specialists help over 1,000 monthly retained landlords and property investors to minimise tax whilst building their wealth.
There are many reasons why some Brits pay more tax in the US than they need to.
This is because:
– They do not know what they do not know.
– They have not spoken to a tax specialist to go through their situation to see what tax reliefs are available to them.
– Their accountants or solicitors are unaware of the many reliefs available to their clients and are not taken advantage of.
– Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.
Tax when moving to the UK
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Are you a Brit moving to the US and paying too much tax?
Are you a Brit moving to the US and paying too much tax? The chances are you will be unaware.
It’s critical if you are a Brit moving to the US and paying tax to get the right advice before you move.
We have produced useful information from our UK and US advisors to help Brits moving to the States.
Book a tax consultation to find out how we help UK ex-pats move to the US to pay less tax today.
What are the basics of Brits paying tax in the US?
As tax accountants serving thousands of landlords, we know that moving to the US is both exciting and intimidating at the same time.
According to industry sources, more than 678,000 Brits have moved to the US, with 20% of the total population living in New York City.
The average income for British ex-pats working in the US is $101,125 (£77,747) a year, significantly higher than back home in the UK (£26,500).
Is Tax in the US more complicated than that in the UK?
Tax in the US is more complicated than in the UK.
There are seven instead of three tax brackets, although the highest tax rate never exceeds 40% of earnings.
Earning the equivalent of £50,000 would put you in the 22% tax bracket in the US.
Health insurance is private in the US, so the broader economy and population can afford a lower tax rate.
Should you report your UK State Pension in the US?
If you’ve built up a state pension in the UK, it is important to inform the relevant authorities, and you should be able to claim a UK pension if you’ve paid enough UK National insurance contributions.
In the US, pensions have multiple components: the pension paid by the state and the private pension called 401K.
Both of these are non-tax-deductible.
The age to receive a pension in the US is 67. To receive these funds early, you have to be 62 years old and willing to lose 20-30% of your monthly pensions payments.
What type of VISA do I need?
To live permanently in the US and gain these benefits, you must get the right type of VISA.
Getting a US VISA can be a lengthy process taking up to and over 12 months. These VISAs can include:
Working VISA – this is the primary type of VISA taken by those looking for work. There are specific requirements that must be met. Having a Masters or PhD increases the chances of gaining this VISA.
Sponsored Employment VISA – many UK ex-pats secure employment before moving to the US. If you are offered a job by a US company, it’s unlikely you will be denied this type of VISA.
Family VISA – if you have family within the US, the support of your relatives could be beneficial. These VISAs take the longest to accept and need to be applied for well in advance.
The above VISAs allow you to work in the US for a specific time period.
After this, you either have to re-apply for a Work VISA or apply for a Green Card.
Holding a Green Card means that you are not considered an immigrant and are allowed permanent residency in the US.
Have a question about property investments, tax or being an expat?
There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.
How can I benefit from the UK & US double taxation treaty?
There is a tax treaty between the UK and the US designed to eliminate double taxation.
The US taxes its citizens and residents on worldwide income as defined by the US tax rules.
Brits may be used to certain tax benefits, exclusions or exemptions in the UK that will not necessarily be applicable for US tax purposes.
The US is not obliged to recognise the tax-free status of ISAs, capital gains exemptions on the sale of property, the benefits of premium bonds, or gambling wins.
Brits moving to the US are potentially subject to US tax (including State and local taxes) once they establish residency in the US.
If you are subject to tax rules in the UK and US, you may be able to utilise the double tax treaty between the two countries to avoid paying tax twice.
Tax treaties can be complex, and it is critical to seek advice from an experienced tax consultant to ensure that the tax treaty is implemented properly to avoid fines being levied in the UK and the US.
The IRS has also produced helpful information on US tax for resident aliens that are worth reviewing.
Do Brits in the US pay tax on the sale of property in the UK?
It is common for Brits moving to the US to have a property in the UK which may be used to generate a rental income.
If the UK ex-pat decides to sell the property, it will be subject to Capital Gains Tax in the US even if it is not in the UK.
The exemption would be if the property sale qualified for the ‘Home Sale Tax Exclusion’ rule, enabling individuals up to $250,000 and married couples up to $500,000 of tax-free gains.
Seeing as the average house price in the UK is over both thresholds, the US Capital Gains Tax would likely apply to any UK property sale.
It is also worth considering that you may also be subject to UK Capital Gains Tax since the rule changes from April 2015.
Our property tax specialists have produced several Capital Gains Tax articles to help you.
We also recommend that you speak to a property tax accountant before moving to the US from the UK.
Are Brits subject to FATCA and taxation on non-US based investments?
In 2010, the IRS introduced the Foreign Account Tax Compliance Act (FATCA), designed to gather taxes on non-US based investments and financial assets held by US-taxpaying individuals, including British ex-pats.
FATCA requires banks and other financial institutions outside of the US to disclose financial matters of taxpaying US citizens and people subject to US tax rules, including investments, pensions, savings and large divorce settlements.
Many Brits moving to the US and paying tax there continue to hold financial assets in the UK, and the financial institutions that hold these are obliged to report them to the IRS.
Then the holder is potentially liable to pay tax in the US on them.
While the double tax treaty may reduce the tax liability, it may not eliminate it.
Depending on the type of financial vehicle, the tax levels in the US may be greater if it is deemed to be non-compliant with US rules.
Some common investments in the UK that are considered tax-efficient such as ISAs are not tax-free in the US and are subject to tax in the US.
HMRC has produced a series of helpful articles around tax for Brits living in the US worth reading.
It is also worth booking a tax consultation with our team of expert UK and US tax advisors.
Which UK ex-pats are required to file taxes in the US?
Anyone who meets US tax filing criteria and earns more than $10,000 per year must file a US tax return.
British ex-pats employed by a US employer must fill out Form W-4, which lets their employer know how much tax to withhold from their salary based on their circumstances.
The US tax return form is called Form 1040 and can be filed online.
Is the US tax year the same as the UK's?
The American tax year is the same as the calendar year, and the filing deadline is 15th April, following the end of the tax year. Fines for missing the US tax return filing date are higher than in the UK, so be aware.
Does the US have multiple ways to file its Tax Returns?
An important difference between the US and UK tax systems is that the US tax system allows for multiple ways to file.
The way you choose to file can mane a significant difference in how much tax you owe, so it is important for anyone other than UK ex-pats with the most straightforward circumstances (such as a single source of income with no property or investments) to seek the advice of an accountant with a specialism in ex-pat tax filing for them.
Can some Brits have to file Tax Returns in both the UK and the US?
Many Brits living in the US may have to file both US and UK tax returns.
This could be due to having income in the UK or qualifying for tax residence through the number of days spent in both countries.
This means that they may have to claim a provision from the US/UK tax treaty or otherwise claim credits in one country for taxes paid in the other.
A second UK/US treaty exists called a Totalisation Agreement designed to ensure that UK ex-pats living in the US only pay social security tax contributions in one of the two countries rather than both, with the contributions counting towards state pension entitlement in both.
Another US filing requirement that affects many Brits living in America is the requirement to report bank and investment accounts outside the US if the total combined balances of their accounts exceed $10,000 at any time in a year.
This can affect UK ex-pats living in the US who have savings, stocks or private pensions back in the UK.
UK ex-pats with qualifying accounts who are US taxpayers must report them in the US by filing an annual Foreign Bank Account Report (FBAR).
Form 8938 may also need to be filed with the IRS accompanying the 1040 tax return if you have savings outside the US amounting to more than $50,000. There are different limits above $50,000 dependent on your marital status. Please make sure you get specialist advice to help you with your 1040 and 8938 tax filings to the IRS.
How do Brits file taxes in the US?
Whereas the UK tax system is quite straightforward, there may be multiple ways to file any taxes in the US.
There are also different tax rates for Federal (countrywide) and Municipal (State, County and even city), and failure to pay the correct amount on time can lead to fines of up to 25% of the total tax due.
If you are employed in the US, it is also your responsibility to tell your employer how much tax to deduct by completing a W-4 Form.
If you earn in the US for a US company, you will be taxed at source but still have to file a tax return to the IRS.
If your situation is not clear-cut, you will need to determine whether you are required to submit a tax return.
The US has the Substantial Presence Test to determine if you need to file a US tax return if you spend more than 31 days in the current tax year or 183 days covering a three-year period.
If you are deemed a US resident, your worldwide income will be subject to US income tax.
If you become a US permanent resident or a US citizen, your worldwide income will continue to be subject to US tax rules even if you move abroad.
Contact our UK and US tax advisors if you’re unsure of your tax position as a Brit moving to the US.
How can I avoid paying tax in the US as a Brit?
There have been various tax avoidance schemes using foreign companies, and Trusts that the IRS has deemed abusive were abusive.
To restrict these schemes, there are very detailed rules in the US to curb such arrangements.
These rules are often so strict that innocent UK arrangements can be subject to extensive supplemental reporting and potentially unfavourable tax treatment by the US tax system.
If you own and control a UK Limited Company, consider some aspects before becoming a US resident.
These include additional reporting requirements and a potentially higher global tax bill in the future.
There are also pre-immigration tax planning measures available to mitigate tax. Still, the annual reporting requirements remain for Brits moving to the US with a business in place at home.
Once you become a resident, you will have an obligation to report the receipt of any gift or inheritance from a non-US person that exceeds $100,000. This includes any Trust distribution.
Ways to live in the US tax-free include:
– Live there part-time
– Become a student or scholar
– Work as a Diplomat
– Move to Puerto Rico or the Virgin Islands
For expert US tax advice, please speak to one of our team today.