330 day rule?

Hi all, I have a question about my situation (and my husbands)...

we moved here on Aug 5 07 and plan to move back to the US by that same date in 08. We got paid in the US from Jan 1 07 to Aug 20 07 and began getting paid here in the UK on Aug 20 until present.

So, I know if we file an extension and stay here until Mid-July (we're going to the US for 10 days in March and I think that adds that much time onto how long we have to be here) then we can claim the foreign earned income exclusion for 2007 US tax year.

What I'm really concerned about is the 2008 US tax year. I don't have to satisfy any additional physical presence here to be able to claim the same exclusion for 2008 taxes after I move back to the states do I?

Oh, we are going to claim Not Ordinarily Resident for UK purposes but I have an additional question about what to file as on US taxes. My husband has a greencard that we don't want to lose upon going back (thus going back less than one year though the embassy says going back in mar resets that?) and we have heard that how you file on your tax return can affect that. Does anyone know the safest status to put on the US tax return? I don't even know what the options are yet.

I'm supposed to get help filing taxes via work with Ernst and Young but I haven't heard anything back from them yet... I'll check into that but I want to know some stuff on my own before I go in. We're researching all of this on our own but it helps to hear others thoughts/experiences.

1) You have to wait until the one year anniversary (Aug 2008) before filing your 2007 US return.  Don't bother running a pre-version, it's a waste of your time and effort.  You could have a sudden funeral to attend and that will bollux up your calculations.  Just sit tight until Aug 2008 has passed.

2) For 2008, the 330 days begins Aug 2007, so you will have met the 330 day requirement by the time you leave.  Thus, no need to file on extension for 2008.  However, E&Y will probably do it on ext anyway.

3)  Your husband can only claim Physical Presence Test, not Bona Fide Residence Test.  It sounds like that's what you're doing, so you've already addressed that issue.

4)  You sound very RNOR to me.

5)  E&Y will take their own sweet time. They will do a fantastic job.  They'll get all the right/safest status chosen and get you the lowest tax possible. It's being done by somebody over in India who speaks ESL, so there's no one for you to get chummy with and ask questions.  They should send you an organizer to enter your dates of entry and exit to and from the US and the UK.  Put all your concerns in writing along with the organizer, and they will be addressed.

Just to add that because you are RNOR you and your husband will both will not be able to claim a UK personal allowance in the 2008-09 tax year so either of you could end up owing UK taxes when you leave.  You'll want to pay those taxes by 31 December 2008 so keep nudging E & Y!

I thought the UK took out the appropriate amount of taxes as they went along so you didn't owe anything 99% of the time?

To be honest though, I'm not sure what a UK personal allowance is yet. I'll have to look that up. So, we would have to pay 2008-2009 taxes by mid-tax year? Wouldn't it be dec 2009?

It doesn't matter whether they're withholding the right amount or the wrong amount, since someone else has the headache of making sure you're "whole" (it's E&Y) instead of you.  In your case, they may be overwithholding (due to additional special tax breaks like detached duty relief and offshore workdays) or they may be underwithholding (due to your lack of a personal exemption), or they may have got it right.  In any event, it's their job to get you sorted.

You should try to make sure your UK return for 2008 is filed and PAID by 31 Dec 08 (one month early) to help reduce your US taxes even further.   

I realize it's very important to you to understand your finances, it's vital that you do so.  But tax law is something that people can spend their entire lives studying and still learn new stuff every year.  If you won a free year's worth of maid service in your home, would you clean the house before s/he arrived?  You've won free tax prep; they really are doing their best for you and will not miss a thing.

I'm not sure how much tax help we'll be getting after we leave here so we may end up having to do some of it on our own. Tax help was part of our package to move here... but we're deciding we want to come back to atlanta and we're having to pay for that move on our own. I'm not sure where the tax help falls. I think we'll still get the help for tax year 2007 for the US. Hopefully we'll get help with the UK taxes too. The tax year ends in April right? We'll still be here until July to hit the 330 day rule so we should get help with that too unless they wait until the end of the year to tackle that.

Ahhh The joys of moving

I'm not sure how much tax help we'll be getting after we leave here so we may end up having to do some of it on our own. Tax help was part of our package to move here... but we're deciding we want to come back to atlanta and we're having to pay for that move on our own. I'm not sure where the tax help falls. I think we'll still get the help for tax year 2007 for the US. Hopefully we'll get help with the UK taxes too. The tax year ends in April right? We'll still be here until July to hit the 330 day rule so we should get help with that too unless they wait until the end of the year to tackle that.

Ahhh The joys of moving

You may want to sign up for the Inland Revenue's on-line tax assessment now in case you don't get help next year, it does the calc for you if your tax isn't too complicated.  This may be the easiest thing to do if you're living back in the US.

Don't assume PAYE gets it right.  You will very likely be due money back for UK tax year 2008-09 because you are only working a partial year.  PAYE assumes you work the full year so it calculates a tax on what it believes will be your full year salary and charges an equal amount of tax each month.  Because of this, it overcharges those who work just the first few months of the year because it underestimates savings from personal exemptions and lower tax rates.

I did a rough calc and someone making £25,000 annual salary would be charged about £1250 through PAYE for the first 4 months, whereas true tax liability if they quit working would only be about £250 for a return of £1000.  Someone making £60,000 annual salary would be charged about £4700 through PAYE for the first 4 months, whereas true tax liability if they quit working would only be about £2,700 for a return of £2,000.  Substantial returns!

For those in this situation, it is pretty straight forward to get the money back...though this might be harder to sort out if you have already left the UK.


Vicky

Unfortunately for 2008-09 you will not get the refunds that mbmasters is thinking about because the personal allowance will not be available either because you will not be UK resident or if you are because you won't want to pay the £30,000 charge that is being introduced from 6 April...

Unfortunately for 2008-09 you will not get the refunds that mbmasters is thinking about because the personal allowance will not be available either because you will not be UK resident or if you are because you won't want to pay the £30,000 charge that is being introduced from 6 April...

Thanks for the correction Guya, helpful for me to know when I move back home.

So is that £30,000 a done deal?  How is that supposed to go after the super-rich I'm not sure since £30,000 to Roman Abramovich wont be enough to bother him.  Instead it will just be a nuisance to people like me who have to pay UK taxes on the small amount I make in the US on rent and interest.

my husband is an EEA citizen so I think he gets the personal allowance regardless of resident status right? What is the 30,000 charge? I know that my PAYE is allowing for a personal allowance. In April should I call and have them change that?

A £30,000 charge is being introduced from 6 April for anyone claiming the remittance basis.  There do not appear to be any exceptions allowing personal allowances under domestic UK law or treaties.

If your husband does not want to pay the £30,000 charge he would not be able to use the RNOR basis and would have to declare his worldwide income and gains in the UK.

can you talk to me like a kindergartner and explain this 30K thing? I'm not sure what the remittance basis is. Is there really a charge of 30,000 GBP for something?

This thread is getting scarier and scarier... :/

I'll put in my simple man's terms and let the experts correct me!

Currently expats only pay tax on foreign income they bring into the country.  So if you earn interest on an account in the US you don't have to pay tax on it in the UK as long as you don't bring the money into the UK.

In 2008-09 tax year you will no longer get this benefit for free.  If you want to avoid paying tax on foreign income you can choose to pay a £30,000 flat tax.  Hence, extremely rich people still get away with paying less tax (percentage-wise) while those with small amounts of foreign income get hit.

Not as bad as it sounds though, as you wont have to pay the full UK tax on foreign income but rather the UK tax less the tax you paid in the US.

mb- i thought this only kicked in if you have been resident in the UK for 7+ years. (ie- i moved to the UK in 2003.  this rule will kick in for me in 2010)