Leaving London (U.K.) and moving to New York (U.S.) example Writing about many tax numbers in the United Kingdom (U.K.) and the United States (U.S.) may be confusing. This is why we will explain the US/UK taxes as an example. Moving from London to New York is very popular amongst many Brits. U.K. Income Tax and Compliance - Compare it to New York In London, George is an I.T. contractor with an income of £100,000. U.K. Income Tax in the U.K. operates on a progressive scale—20% on earnings over the Personal Allowance (which was £12,570 for the 2021/22 tax year) up to £50,270, and 40% on income above that. George also had to file self-assessment tax returns, typically involving forms SA100 and SA109, due by January 31 each year. Before leaving the UK, George would need to complete a P85 form to inform HMRC of his departure, impacting his year-end tax calculations. Late Filing Penalties in the U.K.: If George misses the Self-Assessment filing deadline, he could face a £100 penalty, escalating further with continued delay. U.S. Federal and New York State Income Tax In New York, George’s new annual salary is $150,000. In addition to U.S. federal income tax, he’ll also need to consider New York state income tax returns. The federal tax system is progressive, similar to the U.K., but George will now also face state income taxes (up to 10.9%), and New York City income tax rates are in addition to the New York income tax rates up to 3.876%. Tax forms to note are the federal 1040 and the New York State IT-201, both generally due by April 15. Late Filing Penalties in the U.S.: The IRS imposes a failure-to-file penalty, usually five percent of the unpaid taxes for each month or part of a month that a tax return is late. How does this compare to the tax in the UK? Selling Property in London and UK Capital Gains (CGT) If George sells his London home, he’ll be subject to Capital Gains Tax in the U.K. and Capital Gains Tax in the U.S. U.K. rates for property can reach up to 28%, while U.S. federal rates cap at 20%, plus 3.8% Net Investment Income Tax. New York also has its own capital gains tax, aligned with its state income tax rates. Retirement: U.K. State Pensions, NICs, and U.S. Social Security George has contributed to the U.K.’s National Insurance and is eligible for U.K. state pensions. He can also make voluntary NIC contributions to maximize this pension. In the U.S., Social Security functions similarly but through a credit system. Financial Accounts: UK ISAs and £100,000 in Bank Accounts George has £100,000 in UK ISAs and bank accounts. In the U.S., he’ll have to report these foreign accounts through FBAR (FinCEN Form 114) and potentially Form 8938, depending on specific conditions. In summary, George’s life-changing move from London (U.K.) to New York, United States (U.S.), necessitates meticulous planning and execution of Income Tax, Capital Gains Tax, and more. Compliance with both HMRC and IRS and adherence to key dates for filing various tax forms will be critical in avoiding costly penalties. George’s navigation through this complex tax landscape requires timely actions. US UK Double Tax Treaty Agreement (DTA) Anyone moving from the United Kingdom (UK) to the United States (US), and vice versa, ought be be aware of the US UK Double Tax Treaty Agreement (DTA) Dual Residency The US/UK tax treaty helps in determining the individual’s tax residency. If George were to become a tax resident in both countries, the treaty would provide tie-breaker rules. Generally, the country where George has a “permanent home available” would be considered his tax home. If that’s inconclusive, it would be the country where his personal and economic relations are closer. Income Tax The treaty outlines how different types of income are taxed. Salary or business income generally gets taxed in the country where the work is performed. However, if George is in the U.S. for less than 183 days in the relevant fiscal year and his income is not paid by a U.S. resident or borne by a U.S. permanent establishment, then the salary would only be taxable in the U.K. Dividends, Interest, and Royalties The treaty often reduces the withholding tax rates on dividends, interest, and royalties. If he has such income from the U.K., George might see lower withholding tax rates when he becomes a U.S. resident. Capital Gains The treaty provides that gains from the sale of personal property are taxable only in the country of residency. However, gains from the sale of real estate are generally taxable in the country where the real estate is located. So, if George sells his London home, the U.K. would have the first right to tax. Pension and Social Security For U.K. state pensions received while residing in the US, George would generally be taxable only in the U.S. However, early distributions might attract additional tax. Social Security benefits paid by one country to a resident of another country are taxable only in the country of residence. Tax Credits To avoid double taxation, the treaty allows for tax credits. The U.S. would generally allow George to claim a credit for taxes paid to the U.K. and vice versa. Forms and Reporting For George to avail the treaty benefits, he may need to complete US IRS Form 8833 and may also need to complete a residence certificate from the HMRC to claim treaty benefits in the U.K. FAQ What are the first steps I need to take with HMRC when I plan to move from London to New York? Before leaving the UK, you should inform HMRC of your plans to move abroad. You will likely need to fill out a P85 form to establish your non-resident status and to reconcile your UK income tax affairs. This will also help you avoid double taxation, thanks to the UK/US tax treaty. What are the essential tax forms I need to be aware of when moving to New York for tax filing with the IRS? As a new resident in the U.S., you will typically need to file a federal income tax return using Form 1040. If you have income sourced in New York, you will also need to file a New York State tax return using Form IT-201 or IT-203. Important deadlines generally include April 15th for federal and state income tax returns. If I sell my home in London after moving to New York, what are the Capital Gains Tax implications? In the UK, you might be subject to Capital Gains Tax on the profit from selling your home if it is not your primary residence. In the US, you will also need to report this gain to the IRS. However, you may be eligible for relief under the UK/US tax treaty. New York State may also levy its own capital gains tax. How do UK state pensions and NIC voluntary contributions affect my tax situation when I move to New York? If you have a UK state pension, you'll still receive it while living in the U.S. However, you may be subject to U.S. income tax on these amounts unless specific treaty rules exempt them. If you make National Insurance Contributions (NIC) voluntarily to maintain your UK state pension, these are generally not deductible for U.S. tax purposes. How does having a UK ISA and bank accounts amounting to £100,000 affect my U.S. tax obligations? Having financial accounts in a foreign country triggers a reporting requirement in the U.S. You will likely need to file an FBAR (Foreign Bank Account Report) if the aggregate value of your foreign accounts exceeds $10,000 at any point during the tax year. ISAs are tax-free in the UK but not recognized as such by the IRS, meaning any income earned in your ISA will be subject to U.S. income tax.
Leaving London (U.K.) and moving to New York (U.S.) example Writing about many tax numbers in the United Kingdom (U.K.) and the United States (U.S.) may be confusing. This is why we will explain the US/UK taxes as an example. Moving from London to New York is very popular amongst many Brits. U.K. Income Tax and Compliance - Compare it to New York In London, George is an I.T. contractor with an income of £100,000. U.K. Income Tax in the U.K. operates on a progressive scale—20% on earnings over the Personal Allowance (which was £12,570 for the 2021/22 tax year) up to £50,270, and 40% on income above that. George also had to file self-assessment tax returns, typically involving forms SA100 and SA109, due by January 31 each year. Before leaving the UK, George would need to complete a P85 form to inform HMRC of his departure, impacting his year-end tax calculations. Late Filing Penalties in the U.K.: If George misses the Self-Assessment filing deadline, he could face a £100 penalty, escalating further with continued delay. U.S. Federal and New York State Income Tax In New York, George’s new annual salary is $150,000. In addition to U.S. federal income tax, he’ll also need to consider New York state income tax returns. The federal tax system is progressive, similar to the U.K., but George will now also face state income taxes (up to 10.9%), and New York City income tax rates are in addition to the New York income tax rates up to 3.876%. Tax forms to note are the federal 1040 and the New York State IT-201, both generally due by April 15. Late Filing Penalties in the U.S.: The IRS imposes a failure-to-file penalty, usually five percent of the unpaid taxes for each month or part of a month that a tax return is late. How does this compare to the tax in the UK? Selling Property in London and UK Capital Gains (CGT) If George sells his London home, he’ll be subject to Capital Gains Tax in the U.K. and Capital Gains Tax in the U.S. U.K. rates for property can reach up to 28%, while U.S. federal rates cap at 20%, plus 3.8% Net Investment Income Tax. New York also has its own capital gains tax, aligned with its state income tax rates. Retirement: U.K. State Pensions, NICs, and U.S. Social Security George has contributed to the U.K.’s National Insurance and is eligible for U.K. state pensions. He can also make voluntary NIC contributions to maximize this pension. In the U.S., Social Security functions similarly but through a credit system. Financial Accounts: UK ISAs and £100,000 in Bank Accounts George has £100,000 in UK ISAs and bank accounts. In the U.S., he’ll have to report these foreign accounts through FBAR (FinCEN Form 114) and potentially Form 8938, depending on specific conditions. In summary, George’s life-changing move from London (U.K.) to New York, United States (U.S.), necessitates meticulous planning and execution of Income Tax, Capital Gains Tax, and more. Compliance with both HMRC and IRS and adherence to key dates for filing various tax forms will be critical in avoiding costly penalties. George’s navigation through this complex tax landscape requires timely actions. US UK Double Tax Treaty Agreement (DTA) Anyone moving from the United Kingdom (UK) to the United States (US), and vice versa, ought be be aware of the US UK Double Tax Treaty Agreement (DTA) Dual Residency The US/UK tax treaty helps in determining the individual’s tax residency. If George were to become a tax resident in both countries, the treaty would provide tie-breaker rules. Generally, the country where George has a “permanent home available” would be considered his tax home. If that’s inconclusive, it would be the country where his personal and economic relations are closer. Income Tax The treaty outlines how different types of income are taxed. Salary or business income generally gets taxed in the country where the work is performed. However, if George is in the U.S. for less than 183 days in the relevant fiscal year and his income is not paid by a U.S. resident or borne by a U.S. permanent establishment, then the salary would only be taxable in the U.K. Dividends, Interest, and Royalties The treaty often reduces the withholding tax rates on dividends, interest, and royalties. If he has such income from the U.K., George might see lower withholding tax rates when he becomes a U.S. resident. Capital Gains The treaty provides that gains from the sale of personal property are taxable only in the country of residency. However, gains from the sale of real estate are generally taxable in the country where the real estate is located. So, if George sells his London home, the U.K. would have the first right to tax. Pension and Social Security For U.K. state pensions received while residing in the US, George would generally be taxable only in the U.S. However, early distributions might attract additional tax. Social Security benefits paid by one country to a resident of another country are taxable only in the country of residence. Tax Credits To avoid double taxation, the treaty allows for tax credits. The U.S. would generally allow George to claim a credit for taxes paid to the U.K. and vice versa. Forms and Reporting For George to avail the treaty benefits, he may need to complete US IRS Form 8833 and may also need to complete a residence certificate from the HMRC to claim treaty benefits in the U.K.
