The legalities of being an American in Britain

This is really great info Lisa (I don't come to this website as much as I should!)

I'm curious about something. I've got various savings plans through my previous US employers. I'm keeping them going because I know if I take the money now, I'll be taxed. If I was to become a UK citizen would that have any affect on my US accounts? I don't plan to do this, I'm just wondering.

No effect on your US accounts. But do keep filing taxes, even though you won't have to pay anything. I've got an IRA (Individual Retirement Account), same early withdrawal penalties you're talking about, and have kept that going all this time.

Hi,
I haven't read this topic before, I should have because I too was told by my tax consultant in the states, that I did not have to pay income tax,  and never thought about it again.  (The ignorance thing), Now I am worried because I haven't filed in the 2 years since I have been here, What does one do to find out about how to straighten things out.  I have visions of the IRS waiting for me on my next visit in the states at the airport, with some sort of warrant.  Help!!!
Celia 

The IRS would be very happy for you to just fess up and file the last two years. It happens all the time and really, honestly, no offense intended, but you're not really a human face to them, so they're not focusing on you. The worst that will happen is that you might have to pay some sort of late penalty. The best thing? Your peace of mind. I wouldn't sweat not filing in the sense of feeling too guilty to make up for it. Just shrug, say "oops" and go ahead and file. It is that easy.

I need to contact the IRS and request the appropriate form for me. I have lived and worked in the UK since 2002, but I have not filed any of the income I've earned here. What forms do I need and how do I get them?? somebody please help, I am hopelessly inept at these things

Contact the American Embassy in London...the IRS has an office there.
Click for IRS Frequently Asked questions
(Also contains phone and address in London.)

Lisa, did you find out the scoop about life insurance? I am British married to a US citizen living in the UK and we both have life insurance of £100,000 via Norwich Union. Will his being a US citizen affect this?

Another thing people might want to know: some travel insurance policies do not apparantly cover US citizens for emergency medical treatment in the US. We have annual travel insurance (about £9 a month for us as a couple through Goldfish).

I was able to get life insurance here in this country for myself. The company knows I'm American. I would suggest that if you're thinking about doing the same, make sure the company KNOWS he's American and agrees to insure him because it could affect the payout.

I have car insurance with Norwich Union for an American car and have had no trouble.

The US gov't does not require you to file taxes if you earned less than a certain amount in a year - these amounts are very small.\
For example, if you are single, you are exempt from filing taxes if you made less than about $7,800 for the year.
Anything above that and you're required to file (it varies for married filing jointly or separately).

If you need to file a US tax return, in most cases, due to a treaty between the UK and US, you are exempt from having
to pay tax on the first $80,000 you earn over the year.  You must have lived in the UK for a certain period of time to qualify
otherwise you will have to pay the tax and then later request a refund when you are eligible.

Inheritance tax in the UK is based on any amount over £255,000.  There's no tax levied on anything below this.

I really like the UK tax system where most people tend to only pay tax via the PAYE system right out of their paycheck.  Really beats having to fill out tax returns every year.  Obviously, if you're a higher rate tax payer or have had certain circumstances you will need to file a UK tax return or it may be in your interest to do so.

Matt

Ok, maybe I'm just completely dense, but I don't really understand the whole "domicile" concept.  What is the difference between domicile and residency? 

This is my understanding.  All US citizens have to file Federal income tax returns. 

Whether or not you file a state return depends on if your state is a domiciliary residence state and if your state has an income tax.  Obviously, if you were a resident of a non-income tax state, you never filed state income tax returns and won't in thhe future.  That's the easy one. 

For all the other states, you have to figure out if they are a domiciliary residence state.  This information is generally on the state's department of revenue website.  If your state is one of these, you continue to file state income tax returns, unless you can prove that you became a resident of another state (look at the earlier list LisaE provided).  Moving to another country doesn't get you out of this.  The only way to get out of filing in that state is taking up residence in another STATE. 

On the other hand, some states do not have domicile rules.  For instance, my residence is in LA and it is a not domiciliary residence state.  I will not have to file state income tax, in the future, because of this, regardless of the fact that I will still have ties to the state (like voting, bank accounts, etc.).

The US gov't does not require you to file taxes if you earned less than a certain amount in a year - these amounts are very small.\
For example, if you are single, you are exempt from filing taxes if you made less than about $7,800 for the year.
Anything above that and you're required to file (it varies for married filing jointly or separately).

I'm going to challenge this... not for any other reason that I don't think it holds true for people living outside the US. For those INside the US, yes, I agree.

Jemima is right.  If you make under a certain amount for your filing status, even outside the US, then you don't even have to file at all.

It makes sense. I think my confusion comes from the fact I went through a custody thing where all my finances from the past four years were put under a neutron microscope...and I had to file whether there was income or not.

By now you should know well that the IRS is a very reptillian & unforgiving & suspecting creature. It clearly informs you at its website that all Americans have to file a 1040 (or whatever's applicable) every year if they make any income and live anywhere on this planet. The only time you don't have to file is when you have made absolutely zero income---and even then it is in your best interest to file so that it doesn't appear to their computers that you are dodging & hiding.

I agree with Mr. Toke on this one.  My teenagers have had incomes some years and not others, but I've ALWAYS filed a tax return for them, with the same thought in mind - is someone at the IRS going to wonder why they didn't file this year?  My 16-year-old, at the rate she's going  will not earn a penny this year, but I'll still file a federal return for her.  It's a short form, easy to fill out and mail, I'd rather be safe than sorry no matter where I live.