US and UK Expat Tax Services for IRS & HMRC

Moving between the United Kingdom and the United States

Moving from the United States to the United Kingdom or the UK to the US: This journey may cost you more tax than you bargained for. Have you planned ahead?

Paying the IRS and HMRC across the Atlantic

Living or investing in the UK: Americans must remember that they still must file 1040 US tax returns to the IRS each year. Depending on the number of days living/working in the UK will determine if you also need to pay tax to HMRC.

Living or investing in the US: Depending on the number of days that you choose to live in the United States will determine your US tax residence with the IRS. British people who become tax residents must apply for an ITIN number and submit 1040 tax returns to the American IRS.

Our international expat advisors can save you money in the United States and tax in the United Kingdom

Our expat tax advisors and accountants are here to ensure that you pay the minimum of amount of tax to the IRS and HMRC whenever possible.

What do you need to consider when moving from or to the United States?

VISAs, Passports and Residence

You will need to file and submit tax returns in both the UK and the US based on the number of days that you reside in each country. You may have heard that you only need to pay tax in the UK or in the US once you exceed 183 days. This is not the case and you need to check the small print to see if your case results in a requirement to file and pay tax to either the IRS or HMRC

Tax treaties

There is a double tax treaty between the UK and the US. However, you may not get full tax relief in one country for the tax you have paid in the other. You need to be aware of the foreign tax credits and foreign tax deductions that the IRS and HMRC provide to you. Most people find that they pay more tax in the UK than they do to the IRS in the US.

Tax years

The United States and The IRS work on a calendar basis for tax purposes. This means your income is taxed from 1st January to the following 31st December. This is not the case in the UK where income is taxed by HMRC from 6th April to the following 5th April. Not only do you need to consider different timings but you also need to consider the foreign exchange rate differences too

Considerations if you are investing in the United Kingdom or moving to the UK as an American.

We are sure you have considered many things about leaving the United States for the United Kingdom. Vice versa applies if you leave the United Kingdom to move to the United States.

We appreciate that it is not a priority or natural to think about the tax being paid to The IRS in the US or to HMRC in the UK with the excitement of a new country.

That said, the oversight of financial planning could cost you more tax than the cost of moving to a different country. Think about it another way. You may spend up to £30,000 or $40,000 moving to or from the United Kingdom / United States. However, the overpayment of tax could dwarf this amount repeatedly and maybe compound over time.

International considerations when you are in a new country

Tax treatments of income and investment

You may have certain tax concessions in the UK where ISAs and pension incomes are tax free (for those over 55) but they may not be relieved from tax in the United States by the IRS. The same applies to certain investment in the United States that are not fully relieved from tax by HMRC.

International Inheritance tax, estate tax and legacy planning

It is clear and obvious that the HMRC in the UK charge a lot more inheritance tax on death than the IRS in the United States. You need to carefully plan where you live and how you can mitigate this death tax.

International tax advice

It is important that you understand how income and investments are taxed in both the United States and United Kingdom to avoid horrific tax charges and penalties. You can use certain tax structures that will help you become tax efficient in both countries

Do you need to pay tax in the country you are moving to?

Fortunately, the UK and the US gave similar tax treatments to residency. There are nuances in both counties, so please get some advice from our international tax advisors before you move.

You may need to register with HMRC in the United Kingdom or the IRS in the United States to file and pay your taxes. Getting a Unique Tax Reference (UTR) code from the HMRC in the UK is more straightforward. it is a little more challenging to get an Individual Taxpayer Identification Number (ITIN) from the IRS in the US.

The tax years are different in the US than in the UK. The IRS American tax system uses a calendar basis from the 1st of January (or if you are an American reading this January, 1) to the 31st of December (December 31). The HMRC British tax system uses a fiscal year from the 6th of April (April, 6) to the following 5th of April (April, 5).

Hopefully, you will see that you cannot simply transfer data from one tax return to another. If life was simple, you could get your investment income on your 1040 tax return, which is submitted to the IRS, onto your HMRC SA100 tax return. Sadly, this is not the case, and you will need to take your earnings monthly. This could, of course, mean that you will pay different levels of tax in the US and UK.

Do you need to pay tax on your worldwide income?

It is possible for you not to pay tax either in the United Kingdom or in the United States as a British person moving to the US with careful tax planning.

Americans moving to the United Kingdom may pay tax on their worldwide income in error because they know that The IRS demand that you pay tax on worldwide income. HMRC in the UK does not have this rule and allows you to pay tax on a remittance basis. This means that you do not need to pay UK tax to HMRC on money earned in the United States.

Depending on the type of investments that you may have in the United Kingdom, such as pensions, ISAs, VCTs or even EIS schemes, these investments may not be recognised in the United States. The IRS may tax any money that you receive from tax-efficient investments in the UK.

The same applies to the United Kingdom, whereby you have tax-efficient investments in the United States, such as various health plans. The IRS provides a tax deduction on the money invested into these plans. HMRC will not give a tax deduction.

Where you get tax relief in one country on your investments, be it in the US or the UK, please do not assume that you will receive the same tax benefits in another country. You may be tax-efficient in one country but tax inefficient across the Atlantic. Our international tax advisors will help you understand the transatlantic tax effects of all your worldwide incomes and financial decisions.

This is why it is important to do effective tax planning to ensure that you do not pay too much tax to the IRS in the US or HMRC in the UK. You may be tax efficient in one country but end up paying more tax across the Atlantic.

Not only do British people need to think about paying the IRS federal tax, but they also need to consider state tax. That is right. British people need to pay two levels of tax on their worldwide income. This is Federal Tax and State Tax.

Many people assume you pay less tax in the United States than in the United Kingdom. This may be true if you live in places like Florida, where there is no income tax. However, if you live in sunny climates such as California, you start to see tax rates of over 50% of your worldwide income. This could be even more than the tax you pay in the UK.

US Capital Gains and UK Capital Gains

We have clients that have paid Capital Gains Tax to the IRS in the United States when they sold their main home in the United Kingdom. This is because they assumed that the tax laws for selling a home in the United States were the same as those in the United Kingdom. They paid thousands of unnecessary taxes to The IRS. With a little more tax planning with our international tax advisors, they would have sold their UK home and not paid tax anywhere in the world.

Real Estate Property Tax in the United Kingdom

We need to also consider you buying a home in the UK. In the UK, you pay a tax called Stamp Duty Land Tax, also called SDLT, when you buy a home. There is also a special surcharge of a 3% higher rate if you already own a home anywhere else in the world. The 3% SDLT higher rate applies to the total value of the property if the value is greater than £40,000. This basically means you pay 3% of the entire property value.

Buying a UK home will mean you pay an unnecessary 3% SDLT surcharge if you keep your home in the United States. Thinking about selling your US home before buying a home in the United Kingdom is important.

There is also another SDLT surcharge that you need to be aware of. This is called the 2% foreign surcharge. Like the 3% SDLT higher rate, the 2% SDLT foreign surcharge applies to the total value of the property. This may easily be avoided if you wait to buy a UK home when you get into the country from the US.

US Estate Tax and UK IHT

Americans moving to the United Kingdom need to consider the longer-term tax effects on their wealth. The IRS does not charge estate tax on American families that pass assets down to their children on their death unless the assets are in excess of $11m (increased for couples and gifting of assets).

HMRC in the United Kingdom charges a 40% inheritance tax on potentially worldwide assets above their UK lifetime allowance. This could cost many Americans a lot more tax than they bargained for.

Imagine that you are in your fifties and move to the UK from the US. 16 years later you pass away and think that there are no estate taxes or inheritance taxes to worry about. Your loved ones then receive a tax demand from HMRC for millions of pounds because the worldwide assets exceed their IHT lifetime allowance.

Fail to plan and plan to fail. Tax is not the biggest concern for many families but could be the death of your family’s wealth if you do not focus on it.

Whether you wish to live in the United Kingdom or the United States, you need to consider tax on your investments that receive special tax treatment in your home country.

Not only do you need to work with our international tax advisors to think about federal tax you also need to work out how much state tax you will be paying. Choose wisely, as the sun may cost you much more tax than you thought.

Additional considerations when moving between the US and UK

An additional consideration here is the exchange rates. Americans that leave the US for the UK may cause financial problems by exchanging their money at a low exchange rate. The vice versa clearly applies. Working with a financial specialist is important to help you get the right exchange rate when converting American dollars to British pounds.

The exchange rate also provides potential problems to people that wish to do their tax returns. This is because HMRC and The IRS have exchange rates that need to be adhered to. Be sure to get this right to avoid investigations from either tax authority. Our international tax advisors are here to help you do your tax returns in either country.

US and UK Tax Advice From Expat Advisors