No matter where you reside, you are required to file US expat taxes. If you choose to live in the United Kingdom, how are these taxes impacted? With its numerous ethnicities, English language, and long-held position of power in the globe, the UK is a particularly popular choice for American expatriates since it offers a fresh experience without linguistic hurdles. It is crucial to comprehend the taxes you must pay to the UK while living there as well as how staying in the UK impacts your expat taxes in the United States.No matter where they live, US citizens and permanent residents must submit annual expatriate tax returns to the federal government. Many persons are required to submit a report using FinCEN Form 114 that discloses assets maintained in overseas bank accounts in addition to the regular tax return for income (FBAR).
The United States is one of a select few nations that taxes the foreign income produced by its citizens and permanent residents who live abroad. However, various safeguards assist shield against potential double taxation.
To explain which country's social security system an expat may be required to pay into, the US and the UK have a totalization agreement. The purpose of this agreement, like the US-UK tax pact, is to prevent double taxation.
The typical US individual income tax return is Form 1040. No matter where they reside—in the US, the UK, or elsewhere—all US citizens must submit this form.
Form 1040 is generally due on April 15; however, for expats, the deadline is automatically extended to June 15.
You must submit a FATCA report if you have financial assets outside the US that are worth above a particular amount. Your filing status and whether you meet the criteria for being a bona fide resident of the UK will determine the precise threshold for your financial situation.
If a FATCA report is required, just complete it, include it with your Form 1040, and submit everything at once.You must file FinCEN Form 114, generally known as the FBAR if you have at least $10,000 deposited in one or more non-US bank accounts.
The FBAR cannot be filed by mail, in contrast to the earlier forms. It must be submitted digitally using the FinCEN BSA E-Filing System.The FBAR is officially due on April 15; however, if that date is missed, it is automatically extended until October 15. You won't even need to submit a request for an extension.
The majority of Americans who reside in the UK are already protected from double taxes according to the US-UK tax treaty. However, the IRS also offers several additional possible tax breaks and credits for foreign residents. We will explain one of them to you.
A tax advantage known as the Overseas Earned Income Exclusion enables you to remove from US taxation a specific amount of foreign earned income (above USD 100,000).
One way the IRS assists expats in avoiding double taxes on their foreign-sourced income is through the FEIE. The IRS permits you to exclude overseas earned income from US taxation using the FEIE because it presumes that you will be taxed on this income in your country of residence.
Feel free to reach out to us at US Expat Taxes for more guidance.