Hello,
My USC wife is immigrating to the UK in the next month, and we're trying to prepare for our future together - a big part of this is (the boring but important) understanding of the tax implications for her as a USC residing abroad.
Some context:
• We intend to remain in the UK for at least the medium term, until she can gain citizenship.
• We're undecided on our residence for long term, we're in our late 20s.
• USC will have employment as a nurse and will receive a regular salary and be enrolled into the NHS employer pension plan.
• USC will file Married Filing Separately.
• Non-USC is a dual citizen for UK/Ireland, and non-resident in USA.
• We plan to use TurboTax for filing taxes - it is what my USC wife has used when resident in USA, and I've seen a number of people on this forum recommending it, even when residing abroad.
From some initial research online and on this forum, the primary tax forms for us to consider for her are:
• f1040 - U.S. Individual Income Tax Return
• f2555 - Foreign Earned Income Exclusion (FEIE) - the FEIE limit will fully cover the salary, thereby reducing the tax bill to $0.
• f4868 - Application for Automatic Extension of Time to File U.S. Individual Income Tax Return - USC arrives in August, and we'll want to file for an extension until 15 October of the following year, to pass the 330 days residence/physical presence test in the UK and satisfy the requirements to use FEIE. This will be a one-off for the first year.
• FinCEN 144 - FBAR (Foreign Bank Account Report)
• f8938 - FATCA (Foreign Account Tax Compliance Act) - not applicable for us, but one to be aware of
Below are some of my assumptions, if you could please confirm or correct them. I've tried to categorise them under headings.
Employer's (defined contribution) pension plan
• Can you confirm that the employer's contributions and employee's pension contributions are non-taxable by IRS and aren't required to be reported anywhere?
• Can you confirm that pension pot interest is non-taxable by IRS due to US-UK tax treaty? This includes the use of stocks/funds (PFICs) within the pension.
• Following from the two statements above… Is it correct that employer pension plans can effectively be ignored re. tax complications due to the US-UK tax treaty? Until retirement, when you begin to withdraw from it as income and this can then be taxable…
• Is an employer (DC) pension plan FBAR reportable and counts toward the limit of $10,000?
General Thoughts (please confirm/correct my assumptions)
• USC to avoid ISAs, investments in funds, etc. to avoid IRS taxation & complicated tax returns. Alternatively consider opening these accounts in the sole name of the non-USC.
• Following the above, any interest accrued from bank accounts or elsewhere are taxable by IRS. Therefore is it best for USC to avoid interest accruing bank accounts for the hassle of having to report it to IRS? (considering the interest rates given are minimal anyway…)
• Sale/capital gains of jointly owned home can be taxed by IRS - is this correct? It's not something I've yet looked in detail, as we don't own property.
• Be mindful of joint accounts and them becoming FBAR reportable with the non-USC's details.
• Does anyone have any tips of good practice of recording financial information for tax purposes? E.g. to record USC's monthly gross salary… anything else?
Gift Tax Exclusion
"The annual gift tax exclusion for gifts to non-citizen spouses of $152,000 (2018) provides opportunities to lower U.S. taxable income and capital gains tax exposure for the mixed nationality couple that includes a non-resident alien spouse."
• Does this allow the USC to gift the interest accrued from savings, e.g. bank account, to the NRA spouse, and therefore avoid taxation? Or is interest not covered under this tax exclusion?
Finally, can anyone recommend a US-UK tax specialist in Belfast or Northern Ireland? Or websites which have a useful directory for such specific services?
I've tried to collate all my findings and queries into one post, so apologies if this is a long-winded post. Thanks very much for any help!!
Best,
Keith
