When planning your move to the UK, you’ve probably created a checklist of all the things to take into consideration. Even as you work out employment, living arrangements, the kids’ schooling, household supplies, conveyance, and a myriad other details, don’t forget to contact an experienced expat tax consultant in the UK. Among the many aspects to figure out, you need to learn about the taxation regulations you must comply with. Missing out on tax obligations may result in you incurring heavy penalties that include a fine and jail term. Read ahead for detailed information about the typical errors US expats should avoid.
Not Filing Returns with the IRS
Most US expats overlook the rule that they must continue with financial reporting to the American IRS regardless of the country where they reside. And, whether or not they are liable to pay taxes. US law dictates that all citizens and Green Card holders are expected to file returns every year and report all their income earned from worldwide sources. Further, you must report your financial assets held in overseas bank accounts by completing and filing IRS Form 8938, Statement of Specified Foreign Financial Assets. You’ll also add up assets in retirement accounts, stocks, bonds, mutual funds, and any other holdings. If, at any point during the financial year, the total ran up to above $300,000 per individual, filing the form becomes mandatory.
Not Using Tax Exclusions Made Available
US expats are expected to report their income and pay taxes on it, regardless of where they live. But, the IRS has several exclusions that US expats can use to lower their tax burden. Each year, a specific income bracket is set after taking inflation into account. For the year 2022, this bracket has been set at $112,000, and you’ll pay taxes on the income above this sum by way of the Foreign Earned Income Exclusion (FEIE).
Expats can also use the Foreign Tax Credit (FTC) provision. Accordingly, you can claim credit for the taxes you pay to the UK government on your US tax return. These exclusions have been instituted by the treaty enacted between the US and the UK to allow residents to avoid paying double taxation on the same income to two different countries.
Not Determining the UK Resident Status
US expats in the UK must file returns with Her Majesty’s Revenue & Customs (HMRC), the UK tax authority, similar to the IRS back home. Before filing your returns, you must take the “Statutory residence test” to determine if you are a bona fide resident of the country. You must have spent at least 183 days out of a calendar year in the UK. Alternatively, you must have only one home which is in the UK that you have lived, owned, or rented for at least 91 days.
Taxation regulations can be complex and confusing, which is why, it is advisable to consult a knowledgeable professional and make sure you comply with the rules.