While living in the UK can be one of the most incredible experiences in the world, many Americans who live in the UK find themselves having to file both US and UK taxes. This is because the US requires all citizens and Green Card holders to file US taxes irrespective of where they live and the UK requires all UK residents to file taxes as well.
Many Americans living abroad are unaware of the procedures or requirements of filing US taxes from abroad. It is our hope that US tax advice for UK residents will help below:
Know US Filing Dates
If you live in a foreign country, you have an automatic extension until June 15th to file, with a further extension up to October 15th if you request it. Along with a form 1040, you will also be required to file the necessary forms to claim one or more exemptions available to reduce tax liability. You may also have to report your foreign financial accounts by filing a Foreign Bank Account Report (FBAR) which is due by October 15th.
Claim the Foreign Earned Income Exclusion
The Foreign Earned Income exclusion allows you to exclude the first $102, 100 of your earned income from US tax provided you have proof you earned this income in a foreign country. This will require that you take the Bona Fide Residence test that is aimed at proving you are a permanent resident of the foreign country and a Physical Presence test which seeks to prove that you spent at least 330 of 365 days in that country. If you pass both tests, you can claim the Foreign Earned Income Exclusion by filing form 2555 along with your tax return.
Claim the Foreign Tax Credit
If you happen to pay more UK tax than US tax, you should consider claiming the Foreign Tax Credit. This tax credit gives an American a $1 tax credit for every dollar of tax paid in the foreign country. You can claim this credit by filing form 1116 long with your return.
Check if You Need to File an FBAR
If you have a foreign bank or investment account, you may have to file a Foreign Bank Account Report (FBAR). The FBAR should be filed if the total balance in all foreign accounts, that benefit you as an American or that you have control over even if the account is not in your name exceeds $10,000 during the tax year. The FBAR should be filed online before October 15th. Failing to file the FBAR can result in fines starting from $10,00o a year if the offense is considered unintentional.
Check if Your Filing Requirements are Under FATCA
The Foreign Account Tax Compliance Act is a law that was passed in 2010 to prevent tax avoidance. The law requires that all Americans living abroad who have financial assets that exceed $200,000 during the tax year to report them on form 8938 which should be filed together with form 1040.
Consider the Streamlined Procedure if you’re Behind
If you are behind on your taxes, you can take advantage of the Streamlined Procedure IRS amnesty program. To qualify, you will have to file your last 3 tax returns, your last 6 FBARs, pay any back taxes that are due and self-certify that the con-compliance was not intentional. But do this as soon as possible and don’t wait for the IRS to come to you.
Don’t Forget to File British Taxes
If your only income is from employment in the UK, the tax income will be deducted at source and you won’t have to file the UK tax return. If your income comes from other sources, you should file a UK tax return to the HMRC, reporting your income by January 31st following the end of the British tax year (April 6th to April 5th.)
If you have any doubts about how to handle the filing of taxes while abroad, consider contacting a US expat tax strategist for assistance.