The US and UK tax system are totally different.

Despite living in a different country, you find yourself in the complicated predicament of having to file both US and UK taxes. This is because the US is one of only two countries that still taxes its citizens despite their change in location. The US taxation system is citizenship-based, it doesn’t matter where you live. It’s also based around the calendar year.

The UK tax system is residency-based, and runs from April 6, to April 5.

There is a comprehensive tax treaty (Totalization Agreement) between the US and UK, and it helps prevent US citizens and Green Card holders from double-taxation. Most income streams are covered, but not all.

  • In the UK there are two types of Americans…

    The first is Americans that have recently moved to the UK. They could be here for just a few years on a work consignment or have moved permanently. The second type is a US citizen that has been in the UK for many years, they may be a dual national or Accidental American.

    An Accidental American is a person who has US citizenship, but they may not have been aware of it. Perhaps they were born in the United States and moved to the UK when they were very young, or simply inherited US citizenship from one of their parents. As an example, if you have an American mother and British father, you could have US citizenship without knowing about it. Either way, once you’re a US citizen, you’re open to the US taxation system.

    Boris Johnson MP left the United States when he was 5 years old and moved to London with this parents. When he was 55, he sold his London apartment. The IRS came after him for Capital Gains Tax. The amount he paid is undisclosed, but based on the profits from the sale of his London apartment, we estimate it was in the tens of thousands.

    The US tax system is based on US citizenship. Almost every country has its taxation system based on residency, except the United States and Eritrea. The US tax system requires all US citizens and Green Card holders to declare their worldwide income each year on a US tax return.

    Not everybody has to file a US tax return! The IRS (Inland Revenue Service) set out filing thresholds which determine who has to file and who does not. Your filing threshold depends on your filing status. We’ll go through different filing status types later. As a broad rule, if you’re working and earning, you’ll need to file US tax return.

    There is a big difference between filing a US tax return and paying US Tax. Hundreds of thousands of Americans based in the UK file US federal tax returns every year. Only a very small percentage have to actually pay any US tax.

    Income tax rates are much higher in the UK than they are in the United States for the equivalent salary. We take the tax that you’ve paid in the UK, and we raise something called a foreign tax credit. We use the foreign tax credit to offset your US tax liability. Tax rates in the UK are much higher than they are in the US, so for the large majority, there is always enough “credit” to offset their US tax liability.

    Things can get a little more complicated if you own a limited UK company. Many company owners pay themselves a small salary and the rest in dividends to take the best advantage of the UK tax system. Dividends are not classified as earned income, they are classified as investment/passive income, so you need two types of foreign tax credit, both earned and passive.

    If you’re self-employed or a contractor, you can still use the foreign tax credit method.

    The foreign tax credit method is not the only way to file a US tax return from the UK, but it is the most beneficial. Parents with children under the age of 17 may be eligible for the US child tax credit refund, even without paying any US Tax. This is only possible with the use of foreign tax credits.

    Be very careful of filing a US tax return using Form 2555 from the UK. This form is also known as the Foreign Earned Income Exclusion. This form is really designed for American citizens living abroad in a very low or zero tax country. Get professional US taxation advice before using this form, you could be missing out!

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IRS Streamlined - I Haven’t Filed US Tax Returns For 10 Years…

  • Income tax in the UK ranges from 0% to 45%. However, if your whole income comes solely from UK employment, then, you don’t have to file a UK tax return as taxes will already be deducted at source.

    Remember: you should file your SA100 to Her Majesty’s Revenue and Customs (HMRC), the British equivalent of the Internal Revenue Service or the IRS.

  • What many American Expats in London do not know is that you can apply for several exclusions in order to reduce your US tax liability to zero.

    If you happen to pay more in UK income tax than the US tax they owe, for example, you can claim the Foreign Tax Credit by filing form 1116. This gives US expats in London a $1 tax credit for every tax they’ve paid abroad. With these tax credits, you can eliminate US tax liabilities and have enough credit you can use in the future.

    If you earn under or around $100,000 and pay less UK tax than the US tax they owe, on the other hand, the Foreign Earned Income Exclusion is a better fit. It lets expats who are either permanent residents in London or has spent at least 330 days outside the US to exclude the first $100,000 of their income from being taxed in the US. You can claim this exclusion by filing form 2555.

  • American expats who have over $10,000 in total foreign bank or investment accounts during the year are required to file an FBAR or Foreign Bank Account Report. Other than filing federal returns, consistently filing these FBARs is crucial as almost all foreign banks and investment terms directly give information about US account holders to the IRS.

    These reports can be filed in FinCEN form 114 online but, because these FBARs are not filed to the IRS, penalties can be much higher. Expats who have intangible foreign assets worth $200,000 during the year must also report these assets by filing form 8938, along with their federal returns.

  • Didn’t know you had to file US taxes while residing in London?
    We have good news: the IRS Streamlined Tax Amnesty Program!

    The IRS Streamlined Tax Amnesty Program allows you to catch up on your US tax returns without the unwanted fees and penalties.

    Because the process is “streamlined”, the IRS will only require you to file 3 years’ worth of federal returns and 6 years of FBARs—completely ignoring the past tax obligations you neglected and absolving you of all the penalties that come with them. It is a great opportunity for American Expats in London who weren’t even aware they had to keep up with US taxes in the first place.

    Become tax compliant with the streamlined procedure now!

IRS Streamlined Tax Amnesty Program

  • Are you an American citizen or green card holder living in London? Have you fallen behind in Submitting your tax returns?
  • Maybe you didn’t even know that you had to pay US taxes in London, in the first place? You’re not the only one.
  • You can now start fresh with a streamlined procedure that allows you to catch up on taxes wherever you want to call home!
  • The IRS Streamlined Tax Amnesty Program helps overseas Americans file their unsettled US tax returns without the fees and penalties.
  • Click on this link and read about the IRS Streamlined Tax Amnesty Program.
  • Am I eligible for the US Child Tax Credit Refund?
    Click on this link and read about the Additional Child Tax Credit Refund for Americans based in the UK.



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