Taxes for Expats in the UK
Tax & FBAR Compliance for U.S. Expats in the UK
The familiar culture, ample business opportunities, and access to capital markets in London have long made England and the UK a destination for American expatriates. If the commercial opportunities in the British Isles aren’t sufficient, the United Kingdom also boasts cultural and historical sites and artifacts that are especially appealing to Americans used to historical sites with only a few hundred years of history. In the UK, the history of cultural and historical landmarks stretches back for millennia making it home to many US expats who need to ensure they understand the requirements for taxes for expats in the UK.
However, many expats can find it difficult or impossible to maintain all aspects of their tax compliance. This is partly due to the complex array of tax laws and regulations written in lawyerly and opaque language. However, expats do not have to handle all aspects of their tax compliance alone. The Tax Law Office of David W. Klasing is dedicated to assisting American expatriates with an array of tax obligations or concerns. If you have already been contacted by the IRS, our tax professionals can advocate and negotiate on your behalf to mitigate the consequences of your noncompliance.
Each Year U.S. Taxpayers Must Disclose Foreign Financial Accounts
In recent years, the use of offshore financial accounts, trusts, and other entities to conceal offshore income tax evasion has been a point of emphasis for the U.S. government and IRS. Due to perceptions of rampant offshore tax fraud and tax evasion, recent revisions by Congress to the Bank Secrecy Act and the passage of FATCA have imposed additional disclosure burdens on taxpayers with an interest in or signature authority over foreign accounts.
FBAR obligations must be filed by June 30th each year and apply to all U.S. taxpayers regardless of where they reside. The obligation to disclose foreign financial accounts on FinCen Form 114 arises when the balance in a foreign financial account exceeds $10,000. A disclosure is still required even if the balance only exceeded $10,000 for a moment. A taxpayer can face penalties of up to $10,000 for even a single act of inadvertent noncompliance.
The reporting threshold for a FATCA disclosure obligation on form 8938 is dependent upon whether the taxpayer lives in the United States and whether he or she files taxes jointly. Expatriates who file an individual tax return or file separately from their spouse have an 8938 reporting threshold of $200,000. A similarly situated individual living in the United States must disclose the account on form 8938 if his or her covered foreign assets exceed $50,000.
US Taxpayers Also Have a Worldwide Obligation to Pay Tax on all Income
The United States is home to a unique and, in comparison to most nations, a peculiar way of assessing taxes. In fact, only one other nation – Eritrea – taxes in this fashion. U.S. citizens, legal permanent residents, and others with sufficient connections to the United States must report and pay tax on their worldwide income regardless of the jurisdiction where it was earned. Expatriates are subject to the same income threshold filing obligations although U.S. taxpayers living outside of the U.S. are automatically granted a two month extension to file. However, many expatriates make the error of thinking that they do not have to pay their taxes until June 15. Unfortunately the automatic extension is only an extension of time to file and does not provide an extension of time to pay. If you will owe money to the IRS, you must make an estimated tax payment or additional fines, penalties, and interest can be imposed.
If expats have to pay tax in the country where they are residing plus U.S. taxes, this brings us to another related concern: double-taxation. However, there are provisions of the U.S Tax Code that address the problem of double-taxation for expatriates living abroad. Understanding the foreign income exclusion provision is integral for American expatriates worried about excessive taxation due to living overseas.
The foreign income exclusion can be claimed by those taxpayers living in a foreign nation for one entire tax year. This includes U.S. citizens and resident aliens of the U.S. when their home nation has reached a tax treaty with the U.S. government. Furthermore, citizens and resident aliens who were absent from the United States for a minimum of 330 days may also claim the exclusion. These taxpayers must file taxes, but are not obligated to pay taxes on their income unless their earnings exceed inflation-adjusted thresholds. Income exclusion thresholds for recent tax years include:
- 2013: $97,600
- 2014: $99,200
- 2015: $100,800
U.S. taxpayers living abroad may be able to leverage other tax-saving provisions such as the ability to exclude the value of certain employer-provided fringe benefits like meals and lodging. Taxpayers should proceed with caution, however. This provision is subject to limitations.
U.S. Tax Issues While living in the UK?
Your isolation from the day-to-day events and culture in the United States can make it easy to miss a filing deadline or to make a mistake on a more recently enacted obligation like FATCA and FBAR. If you are seeking assistance with maintaining your U.S. tax reporting and payment obligations or due to problems caused by offshore accounts, contact The Tax Law Offices of David W. Klasing. Call 800-681-1295 today.