Despite the recent crackdown by the UK coalition government on the numbers of non-EU nationals gaining access to the workplace, it has been estimated that there are still in excess of 200,000 US citizens living and working in the UK.
Although they may no longer be resident in the US, all expat citizens and Green Card holders will still be required to complete a US Expat Tax Return if their global income is in excess of $93,000.
Due to generous allowances made by the US government, they will be granted an exclusion of $90,000 of their earned foreign income which will be judged as ineligible for taxation. The government also has in place Tax Treaties with a number of foreign governments to ensure that US citizens living and working abroad should not fall prey to double taxation.
Understanding the Red Tape
All US expats living and working in the UK will need to complete a 1040 Form as they would do if they were still resident in the US.
In addition, they will need to fill in a 2555 Form for Foreign Earned Income and a 1116 Form which deals with Foreign Tax Credit. If they are holding overseas assets in excess of $200,000 the completion of an 8938 Form will also be a requirement.
The components which must be completed are:
<li><strong>Schedule A:</strong> Itemized deductions</li>
<li><strong>Schedule B:</strong> Income from Dividends and Investments</li>
<li><strong>Schedule C:</strong> Expenses and Income generated through Self Employment</li>
<li><strong>Schedule D:</strong> Details of Capital Gains and Losses</li>
<li><strong>Schedule E:</strong> Details of property rental ownership</li>
</ul>
Some US citizens will also be required to file State Tax Returns although this will be dependent on their last place of residence. Those traveling as former residents of New Mexico, South Carolina, California or Virginia will need to complete a State Tax Return.
Citizens whose last place of US residence was Nevada, Florida, Alaska, Wyoming, Texas, South Dakota, or Washington will not. It is highly advisable to check with your tax consultant to make sure that you are compliant with all the current legislation.
Making the Best of the System
Those US taxpayers who relocate to the UK to fill an executive position with a salary in excess of £150,000 (238,000 approx. USD) will be liable to the highest rate of taxation at 45%.
The only way to get around this requirement would be to pay an annual charge of £30,000 (47,500 USD) to the UK government in order to maintain 'non domicile' status. Although the rules surrounding this and who qualifies for it are rather complicated. Speak to a tax attorney if you want to go down this route.
Reductions to both the UK and US tax liability could be secured by utilizing current UK Venture Capital Trusts to reduce costs or to pay off an outstanding mortgage. Many US expats find it beneficial to employ the services of a UK based tax specialist who is available to offer assistance in finding your way around the issues of legislation compliance.
They can also suggest other options which may help reduce the overall tax burden on those US citizens working in the UK.
For couples who may have dual citizenship with one partner holding a UK passport, it is possible to take advantage of the various tax efficient products available such as ISAs (Individual Savings Accounts) and 'with profits' bonds and investments without incurring any Passive Foreign Investment Company US tax penalties.
They could also benefit from the 15% US tax rate on income earned through capital gains and dividends as a way of reducing their overall tax burden.
The UK economy, in common with the US and many of the world's leading nations, is still experiencing ongoing problems and may have to wait a few more years to see any significant improvement in conditions.
However, for the US expat, the advantages of experiencing a new culture and gaining insight into other commercial markets cannot be underestimated. You never know; you may also return home at the end of your stay with a new found respect for Queen Elizabeth 2nd, a taste for warm beer, or tea in the morning as opposed to coffee!
<p>Ian Wright works with <a href="http://www.expertmarket.us/credit-card-processing" target="_blank">Expert Market Card Processing</a>, which helps businesses with their office product needs. He is also a keen walker and swimmer.</p>
