US/UK Tax Filing Requirements

Living and working abroad, and specifically in the UK, is a fun, exciting experience. But that’s until Uncle Sam comes knocking on your door for unpaid taxes. Many have experienced it before, most of them not even knowing what they did wrong in the first place.

As such, you must understand all the particulars of filing US/UK taxes. The earlier, the better. All American ex-pats have to declare their worldwide income the same as Americans living in the states. Why? The US government bases its taxes on citizenship and not residence.

Other requirements for filing US/UK tax include:

US tax filing considerations

In this case, all American ex-pats with income over $12,200 (in 2019) or self-employment income over $400 must file taxes. You also have to declare any investments, foreign bank accounts, business interests, and assets valued over $200,000 with FATCA (Foreign Account Tax Compliant) report.

Even more importantly, the US-UK tax treaty has the following tax strategies to help you avoid dual taxation and lower your U.S tax bill:

  • Foreign Earned Income Exclusion: It enables you to exclude your salary from your US taxes. You must meet the requirements set by the Internal Revenue Service (for a given year) to benefit from this option.
  • Foreign Tax Credit: Allows you to claim credits for income tax paid to foreign governments.

Take note that tax-free investments in the UK aren’t tax-free in the US. For instance, if you invest in an ISA (Individual Savings Account), you have to pay taxes to the IRS, regardless of whether the account has stocks, shares, or cash.

UK tax filing requirements

In Britain, the tax you pay on income depends on your domicile and residency status. Residency, here, refers to where you spend most of your time while domicile identifies where your permanent home is situated. You may have multiple residencies (in more than one country) but only one domicile.

Residents domiciled in the UK pay taxes on all capital gains and income regardless of where it’s earned. Non-domiciled residents pay only UK source income taxes and remittance on any foreign gains or income brought to Britain. Non-residents pay UK sourced income taxes only.

To confirm your residency status as an ex-pat, pass the Sufficient Ties Test or Automatic Residence Test. Nonetheless, the income tax rates in the UK are similar to those in the US — ranging from 0% to 45%, and the percentage of taxes to pay depends on your income bracket, known as income band in the UK.

2020 Deadlines for filing US/UK tax

As an American ex-pat living in the UK, be mindful of the following deadlines:

  • April 15th — Final tax filing deadline for Americans in the states and the first deadline for ex-pats.
  • June 15th — It’s the second deadline for ex-pats, which comes after an automatic two-month extension of the first deadline. The extension allows ex-pats who haven’t filed US taxes because of filing foreign taxes first to do so.
  • October 15th — If you still haven’t filed taxes by June 15th, you can request another deadline by filing form 4868.
  • October 15th — The FBAR filing deadline for anyone with over $10,000 in foreign investment or bank accounts.
  • October 31st — HMRC deadline for American ex-pats filing paper taxes in the UK.
  • January 31st — This is the E-filling deadline of UK American ex-pats.

Seek advice

Filing US/UK taxes doesn’t have to be complex. Talk to an ex-pat tax specialist today to secure your optimum long and short-term interest when filing for taxes. You also benefit from avoiding a future run-in with the law.