If you are moving to a new country it is important to ensure you are not falling foul of the various tax regulations. This is especially important for US taxpayers as the US taxes its citizens on their income and gains regardless of where they are in the world.
We have pulled together 5 things that US taxpayers should consider when living in the UK.
1. LLC investments
LLCs are a common ownership structure in the US due to their simplicity and protection. However, these can cause quite significant tax implications in the UK due to the way HMRC treats them as corporate entities. This is due to the US looking through LLCs for tax purposes whereas the UK treating them as taxable entities, meaning you could find yourself in a situation where you are being taxed in both the UK and the US without the availability of a tax credit, leading to a potential tax charge of over 80%.
This has been further complicated due to the recent Anson case where the courts sided with the taxpayer over HMRC’s view of LLCs.
We would therefore strongly recommend that you seek advice should you have any LLC structures in place.
Trusts are a common form of asset protection in both the UK and the US and are very useful tools in the right circumstances. However, there are significant differences between the types of trust available between the two countries, which can have significant tax implications, so it’s important to understand the difference. For example, certain US trusts are looked through from a US tax perspective but are separate taxable entities from a UK perspective, leading to potential double tax charges.
3.The Double Tax Treaty
Where individuals are subject to tax in both the UK and the US, the Double Tax Treaty determines which country has the taxing rights over their income and gains. This is dependent on several factors such as tax residence and the source of the income/gains.
This means the Treaty needs to be considered carefully to ensure your tax returns are prepared correctly and you’re claiming tax credits in the right jurisdiction.
In the UK and the US, pensions are a great way of putting funds aside to grow in a tax efficient manner for later life. However, the technicalities of pension schemes need to be considered carefully to ensure they meet the relevant criteria in both jurisdictions. The position therefore needs to be considered both when putting money into the pension and when you are looking to make withdrawals.
Finally, we would always recommend obtaining specialist investment advice if you are both a UK and US taxpayer. This is because there are certain investments (including non-reporting funds, ETFs, etc.) that may be suitable in one jurisdiction, but which can provide significant tax and filing issues in the other. It is important to ensure that your investment manager is aware of specific UK/US issues.
Get in touch
While this list is not exhaustive, we have found these to be the most common concerns for our clients, and our tax team at RSM would be happy to discuss any queries that you may have as a UK and US taxpayer. Contact Rajiv Vadgama for more information.