Living in two countries at once, i.e., holding citizenship in one and residing in another, may feel like living the best of both worlds. However, this feeling may as well be temporary or fluctuating because living in two countries also means paying 2x of the due taxes.
Yup, that’s true, particularly if you are unaware of the proper procedures and fail to abide by the provided guidelines. So, here in this post, we’ll give you complete tax advice on the matter. Our post particularly addresses the American Expats living in the UK because that’s one dense area of concern!
Plus, the tax liabilities and regulations for these two leading countries of the world serve as guidelines for most other places.
Note that our guide is a brief overview of standard rules, regulations, and requirements. For final decisions, accurate tax calculations, exclusions, and documentation, we recommend consulting a UK expat tax consultant.
Who Classifies as a UK resident?
Before we get to the real waters, let’s get our heads clear on the fundamental aspect of our debate; are you a UK resident yet?
According to the HMRC (Her Majesty Revenue and Customs), you have to be physically present in the UK for more than 183 days to be categorized as a permanent resident. And by permanent, we refer to a tax-paying resident. If you stay any less than that, you are not accountable for any taxes. Note that in official terms, staying until midnight on the land of the UK classifies as spending a day in the country.
Some other conditions that classify you as a UK tax-paying resident are:
- Coming to the UK with intentions of staying for more than two years.
- Spending over 91 days of every tax-year in the UK for four years or more.
Note that tax is due on both ordinarily and non-ordinarily residents. The ordinarily residents are those who come with the intent of staying three years. Non-ordinarily residents are those who intend to stay for two years but not three years.
Overview of Tax for American Expats in UK
Currently, it is estimated that about 200000 American Expats are living in the UK. These individuals are liable to their homeland taxes (i.e., US taxes) as well as the British taxes.
If you happen to be a new addition to the increasing count and can’t seem to understand why you should get taxed twice on your income. Or how should you go about the UK taxing as a US citizen living there, then sit back and relax. We will unveil each detail one by one.
First, know that you will not be taxed twice on the same income. The UK and US authorities have come up with the double tax treaty which minimizes double taxation on the same income. In simple words, one of the governments will reduce your tax liability if complete tax has been charged by the other. For example, as an American Expat living in the UK, you will be paying complete taxes of the UK but reduced taxes of the US.
However, to avail yourself the best of this treaty, you’ve to be vigilant in your tax-paying activities. Otherwise, you may have to pay twice the amount or you may get penalized.
US Tax Rules
Technically, the American rules for US Expats residing in the UK are very much the same as the residents living in the USA. It’s quite flexible and also has much room for exclusion, especially under the FEIE.
FEIE refers to Foreign Earned Income Exclusion. It offers the American Expats to avoid or quit paying taxes until they have earned their first $101,300 in the foreign land. The policy itself has numerous specifications, making much room for exclusion and non-payment. But if you do not qualify for any and unjustifiably resort to FEIE to skip your taxes, then you may have to pay heavy penalties. Hence, we recommend consulting a UK Expat Tax consultant before opting for any route at all.
With that said, the prominent difference is in the deadlines. American citizens are expected to clear their taxes by the 15th of April every tax year. On the contrary, Expats get an automatic extension of two months.
UK Tax Rules
UK Tax rules for American Expats are much more defined and strict. The UK tax year runs from the 5th of April to the 6th of April of the upcoming year. And the Expats are expected to clear their taxes within this time frame. In case of any delays, you will have to pay late fees as well. However, unlike the US tax rules, you will first have to classify as a UK tax resident. If you don’t classify as one, you will only have to pay taxes for the income arising from UK’s land (i.e., investments, work, rental income, etc.)
Lastly, before proceeding to your UK Expat tax consultant for specific details of your individual case, we will advise you to check if you’re eligible for the UK domicile. A UK domicile is essential for factoring your worldwide income and declaring the UK as your permanent residence for a long while. If you have one, you’re likely a permanent resident. If you don’t, you’re a non-resident. You can learn more about your details upon consultation with an expert. Good luck!