The US government requires its citizens to pay tax for their international income even if they have gained permanent resident status in another country. Fortunately, there are some special provisions that protect US national from double taxation:
Foreign Earned Income Exclusion – expats should take advantage of the Foreign Earned Income Exclusion to reduce taxable income on their US tax for the first $108,700 they earn while being a resident in the UK.
Foreign Tax Credit – this credit makes it possible for expats to reduce their tax bills on certain incomes, based on the amount of tax paid to the UK government.
Foreign Housing Exclusion – US nationals may gain benefit from additional exclusion based on the amount paid for their household expenses, while living in the UK.
When planning their finances and preparing their tax returns, US nationals should take advantage of these provisions, which will minimise their overall tax bill. US nationals still need to file tax return, although they no longer owe US expat taxes. It is important to do research and ask plenty of questions to apply for any available credits, deductions, and exclusions while living and working in the UK. It is also possible to simplify tax filing to make the process relatively hassle-free.
If US nationals have become UK residents, their investment income will be taxed, regardless of the location. If they are UK residents, but currently not living in the UK, they can file with remittance basis for both capital gains and foreign income. If the expats are both a resident and domiciled in the UK, but not a resident ordinarily, the remittance is only for foreign income, but not for capital gains. Using remittance basis, US nationals may choose to become liable for UK tax payments for investment incomes remitted within the UK territory. HMRC requires remittance of income, if the income is earned in the UK or is brought into the UK. It’s recommended to consult with a tax advisor to get more detailed and relevant advice about UK taxation system for expats.
Contact British American Tax
To learn more about saving money on taxes while living and working in the UK, contact British American Tax today and consult with an expert tax advisor who can answer any questions you might have about taking a pro-active approach to your tax planning.
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