Tax laws around the world have become increasingly complex in recent years with ever more scrutiny on tax evasion. The USA is no different, and the US Congress and tax authorities have been tightening up their compliance rules for US taxpayers with non-US income and assets.
It is estimated that over 250,000 US taxpayers live in the United Kingdom. In addition, thousands of UK taxpayers have investments in the United States. There will, no doubt, be GWA clients included in that number, all of whom are required to comply with the US tax system. Failure to meet these requirements could lead to sizable penalties being imposed if you are not aware of your filing requirements.
Are you a ‘US Person’?
As part of the US tax system, all US persons are obligated to file annual income tax returns along with other supporting documentation to report worldwide income.
But who are US persons? Individuals may be considered “US Persons” no matter where they live in the world. A US person can be any of the following:
- born in the United States – they do not need to hold US passports
- born outside the United States of a US parent (even if they have never lived in the United States)
- naturalized citizens
- green card holders – even if the green card has expired
- tax residents (check the IRS Residency Tax Calculator for further information)
If you think you, or your children, fall into one of the above categories, then you should let us know immediately in case there is a requirement to file in the US which has not yet been addressed.
US Tax Returns
All US citizens and green card holders anywhere in the world who earn a minimum of $10,000 (or just $400 for those who are self-employed) are required to file a US federal tax return and pay taxes to the IRS, regardless of where they live or where their income is generated. However, if you are already paying income tax in the UK, there are various exclusions and exemptions available to prevent you paying tax on the same income to both HMRC and the IRS.
If you are classed as a US citizen or green card holder (including dual citizens) and you have been living in the UK for some time but didn’t know you should be filing a US return, don’t worry. There is a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any fines. Nevertheless, it is better to be proactive with this procedure rather than wait for the IRS to come to you.
UK tax planning may not necessarily achieve the desired benefits when the impact of the US tax system is taken into consideration. In fact, it may actually increase your overall tax exposure. Therefore it is imperative that we know if you are classed as a US person and taxpayer before this work is carried out.
If you have any concerns or require further clarification in relation to US tax please contact the partner who manages your affairs. We will then be able to provide the appropriate guidance in relation to any action required.