Specialized ?s for the tax gurus

Boy - taxed are complicated.  I'm having trouble 'translating' between US and UK scenarios.  A couple questions that I can't seem to get a clear answer from IRS publications....

1) Do UK employer contributions to a pension have to be declared?  If so, would it be okay to enter this under 'Other Income' on the 1040 (I can't figure out where else it would go)?

2) I have a couple of long term investments - do I have to declare their increase in value for the year?  Any increase is automatically re-invested and as I don't actually get anything until they are cashed out, how would I determine amount?  (side note, if I had to pay tax on them now, and again when they pay out, isn't that double taxation?)  Again, if this has to be declared, can it go into 'Other Income'?

3) Can Stamp Duty be claimed as a real estate tax on Schedule A?

Hoping someone can help!  Thanks

1. Generally speaking employer contributions get entered on the "Other Income" line.  They are normally foreign source for foreign tax credit purposes; but do not qualify to be excluded as part of the $80,000 foreign earned income exclusion.

2. It will depend on the kind of investment.  Can you be more explicit here?  Is this a UK endowment policy, unit-trust ISA, stocks & shares ISA, national savings certificates, etc etc.

3. Stamp duty is not claimable as a real estate tax (nor is council tax).  Mortgage interest that you pay is deductible, but gains made on repaying foreign currency mortgages are taxable as are gains on sales of residences.  For these reasons it is common planning for the home to be owned in the name of the non-American spouse. 

4. Do remember to file separate TDF90-22.1s for joint foreign accounts each year plus those for any sole foreign accounts. 

5. The US return must report worldwide income and gains even if not taxable in the UK (eg child benefit, premium bond prizes, ISAs etc).  The UK only needs worldwide reporting if you are domiciled within the UK, which is unlikely for most readers of this forum.

In order to protect yourself from penalties you may want to think about having the US returns looked over by a specialist before filing.

Guya, when you say most will not be domiciled in the UK, what does that mean?

Thanks.

Put simply, you are domiciled for UK tax purposes in the place that your father was domiciled when you were born UNLESS you move to another place expecting to remain there for the rest of your life AND sever connections with your previous place of domicile.

Almost all Americans moving to the UK will remain domiciled within the United States (along with having to file taxes there every year!).

Full details of HMRCs view on domicile can be found in their booklet IR20 (http://www.hmrc.gov.uk/pdfs/ir20.pdf).

You were curious whether stamp duty can go on Sch A.  Guya is right, it doesn't go there.  Instead, it is included in the basis (purchase) price of your house.  When you eventually sell the house, this is included in the tax-free basis that is subtracted from the sale. 

1. Generally speaking employer contributions get entered on the "Other Income" line.  They are normally foreign source for foreign tax credit purposes; but do not qualify to be excluded as part of the $80,000 foreign earned income exclusion.

Can I assume that if you've reported the contributions when the employer has to make them, you don't have to report the money again when you receive it as income (e.g., an annuity from the pension fund)? (Considering that pre-retirement, you don't actually have access to the money in an occupational pension.)

Lets say - to make life simple - you get to age 65 and draw an annuity, and you are still a US citizen.

My understanding is that - generally speaking - the US treats the already taxed contributions as basis.  An actuarial calculation is then done to figure out the proportion of each months payment that represents the basis; and this fraction is not taxed.

There are complications however if you draw a lump-sum, are age under 59.5, draw an alternatively secured pension, or are still UK resident at retirement.

Do bear in mind that you will need separate advice at that time because the tax laws may have changed.

Thanks. I am pretty sure I will be a UK resident when I retire.  I seriously doubt that I will be retiring before 59 1/2, and I don't have the level of income to be drawing an alternatively secured pension. (Unless I get rich between now and retirement )