Moving to UK... Brand New to Taxes

Hi,

My family and I will be moving to UK this July/August. Currently, here in the US both my wife and I work and earn a decent living 130K+ combined. Not rich but decent. I am a US citizen while my wife is a British Citizen.

When we move to UK, only I will be working while my wife plans to stay at home with kids. I am expecting to be making 50K+ pounds from my job (and pay UK taxes). We have two homes here in the US which we will be putting on rent until realestate market gets better and we can sell them without losing an arm and a leg. Now that the background stuff is over, here are my questions;

1. Does it matter what time of the year we move? Is there a better time than other when talking about taxes?
2. When I file my US taxes, do I show my UK income?
3. Will I be taxed on my UK income on my US taxes?
4. I have read that the allowance is about 85K for foreign income. What will happen next year? Will I be paying taxes in both UK and US?
5. Do I show my US rental income on my UK returns?
6. Will I be paying income tax in both US and UK on my rental income?
7. Can  still decuct my mortgage interest and management fees etc?
8. Is there a particular time when I should stop filing my US tax returns? We do not plan to renounce any citizenships.

Thank you for any help you can provide. (Sorry about too many questions)

Hi,

I hope you enjoy your trip time in the UK. I'll try to answer some of your questions:

1. The timing is not so important for taxes as far as I know. The only thing you should be aware of is that the UK fiscal year runs from 6th April - 5th April not 1st Jan - 31st Dec.

2, 3 & 4. You will have to declare your UK income on your US tax return each year using a form 2555 along with a 1040. You have an allowance of $85k but remember that you can make deductions for a number of things including taxes paid to the UK government and mortgage interest.

5. The rules on UK tax for income generated abroad are a little more opaque, presuming that you do not import the rental income into the UK by transferring the money here, there is no tax to pay on it (I think). That doesn't mean you can't spend it here with the likes of a visa card though. So I'd keep that cash in a US account. The exception to that is that you could claim and you would be eligable for Non-domiciled tax status but that is complicated.

6. No I don't think so unless you are bringing in the profits to the UK.

7. Yes

8. US citizens are always required to file a return if they have income above a small amount no matter where the income is derived.

That's my understanding anyway, I could be wrong there are no doubt people more knowledgeable than me here who'll correct me if I'm wrong.

Thank you Joe for your answers.

Just to clarify on your answer to (2,3,4), Does IRS look my Gross income or Net? If it is Gross, then do I simply show them the taxes I paid on the income above 85K and get deductions?I am still a bit fuzzy on the income above 85K.

For example, if I make 100K (Round #) and pay 40% tax (again, round number), do I show to IRS that I paid 40% tax on the 15K above 85K that is allowed?

On # 5, it is actually other way around for me. My rents will not cover the mortgages so I will have to send money from the UK to make up for the remaining money. :-) When I do sell them in a few years, I will be bringing in any money that I make. Will I have to pay taxes on that money?

Thanks for all your help.

I hope you get an answer to that questions (about the rent not covering the mortgage) as I am in the same situation.  For example, can we treat the rental  unit like a business interest that is running at a loss?

Also, I was under the impression that the UK does not allow you to write-off mortgage interest and etc, is that wrong? Or are you asking about writing it off on your US taxes?

Thank you Joe for your answers.

Just to clarify on your answer to (2,3,4), Does IRS look my Gross income or Net? If it is Gross, then do I simply show them the taxes I paid on the income above 85K and get deductions?I am still a bit fuzzy on the income above 85K.

For example, if I make 100K (Round #) and pay 40% tax (again, round number), do I show to IRS that I paid 40% tax on the 15K above 85K that is allowed?

On # 5, it is actually other way around for me. My rents will not cover the mortgages so I will have to send money from the UK to make up for the remaining money. :-) When I do sell them in a few years, I will be bringing in any money that I make. Will I have to pay taxes on that money?

Thanks for all your help.

The IRS looks at your Net income so you'd have to earn $85k after all your deductions before they started charging extra tax.

As far as number 7 goes, mortgage interest is tax deductable in the US so you can use it as a deduction on your IRS returns, but mortgage interest is not tax deductable in the UK so if your self assessment you can't use it to reduce your UK tax bill.

The other questions that I've not answered I don't know the answers to, but someone else will i'm sure.

Thank you Joe for your help.