FAQs — New Clients
We are qualified to advise on both US and UK personal and business tax affairs; many of our enquiries are based around these most frequently asked questions.
Here is a review of the most common questions we are asked:
Do I need to file a 1040 if my income is below the Foreign Earned Income Exemption (FEIE)?
Yes. A US person is required to file a US tax return every year that their total income exceeds the rather modest sum of standard deduction and personal exemption.
I have an existing US accountant who prepares my US tax returns — can I be confident that they are being prepared correctly?
You are right to be concerned. We would be happy to review your most recently prepared return, on a no-fee basis.
What is my UK Domicile status and why does this matter?
In very broad terms, if you now reside in the UK, but you were born outside the UK you are likely to be considered non UK domicile. From a UK tax perspective, it may be possible to benefit from the ‘Remittance Basis’ of taxation. This means you are not required to report your non UK investment income and gains to the extent you do not bring these monies into the UK.
Should I invest in an ISA?
As stated above we are not an IFA. That said, from a tax perspective, careful planning can be as much about what not to do (as opposed to, what to do). For example, if you invest in a stocks and shares ISA this is great news from a UK tax perspective (not taxable/reportable) but this is likely to be considered a Passive Foreign Investment Company (PFIC) from a US tax perspective. US tax may be charged on such investments at a rate in excess of 100% and additional Forms 8621 are required to be prepared to report each fund.
What investments should I hold?
We are not qualified to provide investment advice but we do work with a number of Independent Financial Advisors (IFAs) who are familiar with providing investment advice to US persons resident in the UK. We would be happy to make the necessary introductions.
Do I need to file an FBAR if all accounts individually are below the $10,000 threshold?
Potentially, Yes. The FBAR (Foreign Bank Account Reporting) is required if the maximum balance during the year of all your non US bank accounts COMBINED are over the $10,000 threshold. So if you hold 3 accounts, with maximum balances during the year of $4,000 year, you will need to file. It doesn’t matter if this figure relates to the same funds which have been moved around your accounts. The FBAR report must include all foreign bank accounts, not just those exceeding the $10,000 threshold.
Does my non US citizen spouse need to file?
Not necessarily. Like any other person a ‘non-resident alien’ spouse would need to file a US tax return if they received US source income. However being married to a US person does not impose any US filing compliance. The US spouse will simply need to file a ‘married filing separate’ tax return indicating that their spouse is a non-resident alien who is not required to file.
Is it too late to complete a US return for years I’ve missed?
No. You should still file for years that you have missed, it is never too late. If you owe US tax then interest and penalties will continue to apply until submission/payment so the sooner your affairs are in order the better.
What is FATCA?
Many US persons living in the UK are finding that their UK (and other non US) banks are sending them rather intimidating FATCA compliance packs asking them to disclose any connection to the US. This has come about due to the new FATCA regulations.
FATCA (the Foreign Accounts Tax Compliance Act) has been introduced in the US and requires all banks and other foreign financial institutions to report information about the foreign bank accounts of their clients who are US citizens and/or residents. This is aimed to prevent tax evasion through the use of offshore accounts.
For a US person who has fallen behind on their US tax filing and foreign bank account reporting this can be very concerning. Not only is the compliance packs sent by the bank a long and confusing form, but it is also getting reported to the IRS who will be informed about accounts that have potentially not been disclosed.
This legislation is another reason to get caught up with your US tax compliance sooner rather than later.
How much will it cost to get up to date with my US taxes?
It may not be as much as you think. Hansen Sweeney provide a free initial consultation to discuss your position with you to help get your affairs in order (whether you decide to use our services or not). From this we will be able to provide you with a quote for the completion of you US tax return, FBAR reports and any streamlined procedures as applicable.