Split tax year & domicile question

We now have our dates set and will be leaving the USA waters on April 21 on a re-positioning cruise, arriving Southampton May 8th. We are both dual citizens US/UK, both born and brought up in the UK, moving to the USA in 1987 where we have lived and worked since.

For finances, I currently have a small UK private pension plus 2 US pensions which put me into the 20% UK bracket. My wife owns HMRC Reporting ETF funds with dividends and capital gains which will also put her into the 20% bracket so we will both be doing UK self assessment. We'll also both have US SS in due course plus I'll have a UK OAP.

My initial questions are as follows:

1. Should I inform the IRS of the date we left/are leaving and new address in the UK even though we will still maintain a US address registered with our US banks and brokerages.
2. I've assumed the NHS and other benefits come based on us choosing to be domiciled in the UK so is there anything I need do prior to filing US taxes in 2017 for the 2016 tax year? How do I choose to be domiciled in the UK (Form 8833 article 4.2)
3. I just booked our passage back for November, and we will be returning to the UK early February so for US tax year 2016 we will have a spent a total of 6 months in the US and 6 months in the UK.  For HMRC tax year 2016/17 we will have spent 8 months in the UK, 4 in the US.

I wouldn't confuse the IRS by giving then two addresses.

You get the NHS access by being resident in the UK, which is different from being domiciled. I think you will need to spend at least 184 days ( check this) and maintain a home in the UK to be resident


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This may be more hindrance than help, but one of those 'helpful' flowcharts:

http://www.blplaw.com/media/how-can-we-help-you/private-client/BLP%20Summary%20flowchart.PDF

 

The following comments relate only to the NHS aspect.

Free NHS treatment depends on ordinary residence. Once you return to the UK you will re-establish this. See paragraph 5 of the following guide
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496967/lawfully-resident-uk.pdf

The US form is not relevant; nor is domicile.   

I wouldn't confuse the IRS by giving then two addresses.

So, when I file in the US next year, which will be for tax year 2016, I should file under my US address.  How about the fact that in 2016 we will have lived for 6 months in the UK? Is this a "split" year and I pay UK tax (with FTC to reduce US taxes) for the 6 months we lived in the UK?

This may be more hindrance than help, but one of those 'helpful' flowcharts:

http://www.blplaw.com/media/how-can-we-help-you/private-client/BLP%20Summary%20flowchart.PDF

Very useful.  We will definitely be resident in the UK for 2016 as we will have established a home (3 bed rented unfurnished house) from day 1 and will have spent >183 days in the UK.

The following comments relate only to the NHS aspect.

Free NHS treatment depends on ordinary residence. Once you return to the UK you will re-establish this. See paragraph 5 of the following guide
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496967/lawfully-resident-uk.pdf

The US form is not relevant; nor is domicile.

Thanks for this, we should have access to the NHS from day 1.

It really is just the taxes paid to the US and UK that I'm not sure about. For US 2016 (6 months in each country) and UK 2016/17 (8 months in UK, 4 in US).

Also, when does country of domicile become an issue or do I have to do "split" year taxation every year going forward as we intend to winter in the USA where our children live?

Thanks for this, we should have access to the NHS from day 1.

It really is just the taxes paid to the US and UK that I'm not sure about. For US 2016 (6 months in each country) and UK 2016/17 (8 months in UK, 4 in US).

Also, when does country of domicile become an issue or do I have to do "split" year taxation every year going forward as we intend to winter in the USA where our children live?

If you are a US citizen you are taxed on your worldwide income, if you are a UK resident and domiciled you will also be taxed on your worldwide income. So I don't see the need to file any split tax years. You are liable to tax in the US and the UK on all your income. So file the usual 1040 and a UK self assessment as a full time UK resident. Watch out for US state taxes.

If you are a US citizen you are taxed on your worldwide income, if you are a UK resident and domiciled you will also be taxed on your worldwide income. So I don't see the need to file any split tax years. You are liable to tax in the US and the UK on all your income. So file the usual 1040 and a UK self assessment as a full time UK resident. Watch out for US state taxes.

Do you foresee any problems filing my US taxes with my US address while claiming to be UK resident, so I can have the much larger FATCA allowances as a non-resident, plus I'll need to resource pension income etc to the UK to live on and get the FTC.

I very much agree with nun on this.

You will be a UK resident in the UK, paying tax on your worldwide income.

You're also a US citizen, and therefore you pay (file) tax on your worldwide income.

If you spend 4 or 5 months in the US each year, plus maybe 2 months in Australia or travelling, you're still a UK resident if that is your only 'home'. You become a UK 'snowbird'. There's nothing unusual about this as many Brits spend the winters in Florida.

You may handle this as you decide, but the easiest way is to pay all tax to the UK, then take a credit on the US return (treaty provisions aside). You qualify for all the usual US treatment of citizens resident abroad, including higher 8938 limits, but 8938 only concerns accounts that are 'foreign' to the US, not US accounts.

Therefore, my advice would be not to file the US return with a US address. Your proper address is in the UK. The US address only an 'address of convenience' for US accounts.

I very much agree with nun on this.

You will be a UK resident in the UK, paying tax on your worldwide income.

You're also a US citizen, and therefore you pay (file) tax on your worldwide income.

If you spend 4 or 5 months in the US each year, plus maybe 2 months in Australia or travelling, you're still a UK resident if that is your only 'home'. You become a UK 'snowbird'. There's nothing unusual about this as many Brits spend the winters in Florida.

You may handle this as you decide, but the easiest way is to pay all tax to the UK, then take a credit on the US return (treaty provisions aside). You qualify for all the usual US treatment of citizens resident abroad, including higher 8938 limits, but 8938 only concerns accounts that are 'foreign' to the US, not US accounts.

Therefore, my advice would be not to file the US return with a US address. Your proper address is in the UK. The US address only an 'address of convenience' for US accounts.

Thanks again, sounds good.

We plan on buying a house so for at least one year we will have accounts around £200,000 in the UK.  I know form 8938 is just a form and triggers no extra tax but the first year it was implemented the limits were much lower and it was a real pain to complete with TurboTax and I had to file by mail. (I know, 1st world problems....)

Do you foresee any problems filing my US taxes with my US address while claiming to be UK resident, so I can have the much larger FATCA allowances as a non-resident, plus I'll need to resource pension income etc to the UK to live on and get the FTC.

Yes, I see problems using the US address as you are a UK resident. One issue I see is your status as a bona fide foreign resident or complying with the "physical presence test" which requires 330 days spent outside the US, not so much as it applies to taxation as I assume you'll be use FTCs but so that you are exempted from the ACA. How will you deal with medical insurance for your extended stays outside the UK?

Yes, I see problems using the US address as you are a UK resident. One issue I see is your status as a bona fide foreign resident or complying with the "physical presence test" which requires 330 days spent outside the US, not so much as it applies to taxation as I assume you'll be use FTCs but so that you are exempted from the ACA. How will you deal with medical insurance for your extended stays outside the UK?

I have a PPO plan for health insurance from my ex employer (retiree insurance) and unless they drop it in 2017 I'll have it again. The company provides the required IRS proof of insurance should I be audited.

Back to address the question where I asked if I should change my address with the IRS to my UK address. Sounds like I should and I can also change the address with my former employer but I think it would be easier to maintain a US address with my bank, credit card companies and brokerage (Vanguard).

I have a PPO plan for health insurance from my ex employer (retiree insurance) and unless they drop it in 2017 I'll have it again. The company provides the required IRS proof of insurance should I be audited.

Back to address the question where I asked if I should change my address with the IRS to my UK address. Sounds like I should and I can also change the address with my former employer but I think it would be easier to maintain a US address with my bank, credit card companies and brokerage (Vanguard).

You should look at the state residency issues with maintaining your US address.

You should look at the state residency issues with maintaining your US address.

Texas has no State income tax, or estate tax, what other issues are you thinking may be an issue?