Planning ahead -- tax obligations for remote work in the US in 2017

Hi all.  I’m awaiting my spousal visa and expect to be moving to the UK very soon.  Filing my 2016 US taxes have prompted me to start thinking ahead to next year.   Guidance is much apprecated.

Context:  I’m a USC married to a UKC and expect to be moving to the UK any day now.  I will work remotely for a US company while in the UK.  I’m paid in US dollars to a US bank account, and contribute to a 403b (basically, a 401k for non-profits) and Roth IRA annually.  And I have some cash savings.  I may at some point open a UK bank account, for now, assume I won’t have one.  I don't own any property in the US.  At some point, my husband and I will move to the US but we have no immediate plans to do so.

Understood that I will need to continue filing US taxes while I’m abroad.  Very confused at what my UK tax obligations will be and what exclusions I’m allowed. 

1) Does the FEIE not apply to me, since I’m earning all of my income in the US?
2) Assuming no FEIE, I can claim a FTC on my US taxes, yes?
3) UK gov't website says I must report foreign income >2k GBP and I can either pay UK tax on it or claim the remittance basis, which means I only pay UK tax on income or gains I bring in to the UK.  If I never transfer my salary into a UK account, does this mean I can claim the remittance basis and avoid paying UK taxes altogether?  If so, I would be on the hook for US taxes?
5) Am I understanding correctly that after 7 years of claiming the remittance basis, I’d have a giant 30k GBP tax bill to pay annually?
6) Is there any tax benefit to increasing contributions to IRAs or other tax sheltered savings accounts?  I normally contribute money to a Roth IRA, so I’m taxed now but withdrawals should be tax free.  Should I consider switching to a traditional IRA to reduce UK tax obligations instead?
7) Lastly, I don’t think I have any dividend payouts from any of my investments.  All of my retirement savings are invested in stocks, bonds, index funds, etc.  So, nothing that would trigger additional UK tax reporting?

Thanks for any advice!

Experts will be along shortly, but this is going to be a big can of worms.  It's not as simple as you may think.  Your company will either need to issue you a UK work contract or you'll need to set up as self employed in the UK and bill them.

Oh great.  I was expecting a big tax bill, not a can of worms!  I'll await the experts.  Enjoy your weekend!

Nope, you're tax bill will only increase because you'll be paying UK tax and taking a credit for US tax (so will increase as UK taxes are higher).  But you won't owe the US government anything (on your salary anyways).

I'll try to dig up some old threads.

First off has your company complied with all the UK employment regulations so that they can employ you in the UK.....from your post my guess is they have not and if that's the case you won't be able to continue to work as an employee of that US company in the UK. Look into becoming a self employed contractor and make sure you do not pay US payroll taxes ie FICA. Here are some thoughts on your questions.

1) Does the FEIE not apply to me, since I’m earning all of my income in the US?

You are earning the money in the UK. Where you reside and do the work is key, not the location of the company you do the work for. So FEIE will apply to any work you do in the UK once you become a US non-resident.

2) Assuming no FEIE, I can claim a FTC on my US taxes, yes?

You can claim FEIE and/or FTC

3) UK gov't website says I must report foreign income >2k GBP and I can either pay UK tax on it or claim the remittance basis, which means I only pay UK tax on income or gains I bring in to the UK.  If I never transfer my salary into a UK account, does this mean I can claim the remittance basis and avoid paying UK taxes altogether?  If so, I would be on the hook for US taxes?

You are liable to UK income tax and must pay National Insurance on any work you perform in the UK. If you have investments in the US there are rules for determining the UK tax due which depend on you residence status and time in the UK. You will also still be liable to US tax on all your income and gains as you are a US citizen.

5) Am I understanding correctly that after 7 years of claiming the remittance basis, I’d have a giant 30k GBP tax bill to pay annually?

Yes the remittance basis is expensive, but regular folks don't need to worry about it because the UK has a generous capital gains tax free allowance of £11k.

6) Is there any tax benefit to increasing contributions to IRAs or other tax sheltered savings accounts?  I normally contribute money to a Roth IRA, so I’m taxed now but withdrawals should be tax free.  Should I consider switching to a traditional IRA to reduce UK tax obligations instead?

You can contribute to a US ROTH or IRA as long as you have earned income on your 1040. ie you use FTC and not the FEIE. The ROTH is more convenient as it is done after tax and there's no complicated UK or US tax filing. However, make sure your US ROTH provider will allow you to make contributions once you leave the US.

7) Lastly, I don’t think I have any dividend payouts from any of my investments.  All of my retirement savings are invested in stocks, bonds, index funds, etc.  So, nothing that would trigger additional UK tax reporting?

Thanks for any advice!

US retirement accounts generally grow UK tax free and will only be taxed when withdrawals are make.

As you will be employed in the UK you will have all of the benefits of English or Scottish employment law. This includes a contract of employment, paid holidays, auto-enrolled pension plan, paid maternity/paternity and other rights. Your employer will want to ensure it is compliant.  They may also have a corporate tax filing requirement in the UK and have to operate PAYE.  I'd ask the employer to share with you the advice they will have received from their accountants and lawyers.

The remittance basis is not relevant for employment income.

I'm honestly stunned by these responses.  I'm trying (and failing) to understand the rationale for why my employer must have the legal ability to employ me in the UK if all I'm doing is VPN'ing into their networks and doing the same job for the same people I've always done.   

My company does have a branch in the UK, though it's for a completely different department and I've always understood it to be a separate legal entity from the US company.  Perhaps that's to be compliant with UK law.  There are other employees who sit in the UK.  So, maybe we are already compliant and I just don't know it.

I think the starting point is with my employer and I'll contact them on Monday.

BTW, to further complicate matters, I'm pregnant and due in July. 

One other question... for calendar year 2017, I'll have lived in the US for four months.  I'm planning to visit later this year once the baby is born.  It's possible (though not ideal) that I could spend less than 183 days in the UK during the calendar year.  Does that matter for tax purposes?  In other words, is my UK presence, and therefore resident status for tax purposes, dependent on how many days I'm present in the UK in a calendar year or a tax year? 

I'm honestly stunned by these responses.  I'm trying (and failing) to understand the rationale for why my employer must have the legal ability to employ me in the UK if all I'm doing is VPN'ing into their networks and doing the same job for the same people I've always done.   

My company does have a branch in the UK, though it's for a completely different department and I've always understood it to be a separate legal entity from the US company.  Perhaps that's to be compliant with UK law.  There are other employees who sit in the UK.  So, maybe we are already compliant and I just don't know it.

I think the starting point is with my employer and I'll contact them on Monday.

BTW, to further complicate matters, I'm pregnant and due in July. 

If you are employed in one of the countries of the United Kingdom, the laws of that country are the primary laws that apply to that employment. 

Your employer will be obliged to operate PAYE.  The penalties to them for failure to comply would be a larger risk than they would presumably wish to take.

You will want to see your employer's UK maternity policy as soon as possible, as you have numerous entitlements under law.

It gets complicated as you will no longer be a resident of the US.  You are/will now be a resident in the UK and therefore your tax home is the UK (and both the IRS and HMRC will tell you that).

Congrats on the pregnancy.  I'm due in May! 

For that reason alone - PUSH HARD for a UK employment contract.  UK maternity leave is INCREDIBLE compared to US maternity leave.

One other question... for calendar year 2017, I'll have lived in the US for four months.  I'm planning to visit later this year once the baby is born.  It's possible (though not ideal) that I could spend less than 183 days in the UK during the calendar year.  Does that matter for tax purposes?  In other words, is my UK presence, and therefore resident status for tax purposes, dependent on how many days I'm present in the UK in a calendar year or a tax year?

This has no effect that I can think of; except if you wanted to elect to claim the foreign earned income exclusion for 2017; you might have to extend the filing of your 2017 return until January 2019 by when you will have met the bona fide residence test.

One other question... for calendar year 2017, I'll have lived in the US for four months.  I'm planning to visit later this year once the baby is born.  It's possible (though not ideal) that I could spend less than 183 days in the UK during the calendar year.  Does that matter for tax purposes?  In other words, is my UK presence, and therefore resident status for tax purposes, dependent on how many days I'm present in the UK in a calendar year or a tax year?

The UK tax year starts 6th April. Also you connections to the UK appear to be strong; family, home and work so you won't need to spend much time to be classified as tax resident.

It gets complicated as you will no longer be a resident of the US.  You are/will now be a resident in the UK and therefore your tax home is the UK (and both the IRS and HMRC will tell you that).

Congrats on the pregnancy.  I'm due in May! 

For that reason alone - PUSH HARD for a UK employment contract.  UK maternity leave is INCREDIBLE compared to US maternity leave.

Well, except that my Chicago office isn't likely to suddenly give me a year of maternity leave.  The London office may be required to do so, but I don't have a job with our London office; I have a job with our Chicago office.  I would have been entitled to use accrued sick time for maternity leave and was looking at 4-5 months paid time off.  But if I'm forced to quit my job, I'll lose that accrued time and pay. 

Surely there are UK residents who work abroad, no?  Are you saying that in all of those scenarios those employers have legally registered with the UK to allow those employees to work abroad?  Am I missing something here?

TBH, I'm feeling pretty hopeless at the moment that I will be forced into quitting my job, losing my salary, 403b benefits, etc etc etc.  In any case, I've emailed our foreign affairs office to get the conversation started.

Thanks for initial responses.

Lots of people do still do it.

They become self-employed in the U.K. and bill their time to their US offices.

You wouldn't be investing in the US social security or pensions anymore, but your office wouldn't have to comply with UK employment law either.

I think it's a common misconception that you can continue to work as you are, just remotely.  Unfortunately, thats not possible.

Surely there are UK residents who work abroad, no?  Are you saying that in all of those scenarios those employers have legally registered with the UK to allow those employees to work abroad?  Am I missing something here?

TBH, I'm feeling pretty hopeless at the moment that I will be forced into quitting my job, losing my salary, 403b benefits, etc etc etc.  In any case, I've emailed our foreign affairs office to get the conversation started.

Thanks for initial responses.

Good, you need to ask your company the exact terms of your "employment". You will be able to keep your 403b, but won't be able to make any contributions while you are in the UK unless you are doing some sort of short term intra company transfer.

You must understand it's where you live and work that principally matters as far as income tax is concerned. Being a US citizen you will also be liable to US tax on your UK earned income, but FEIE and/or FTC will probably make your US tax bill little to zero.

If you are a British resident and work in the UK then that income is UK taxable and you must also pay UK National Insurance on it. To employ someone in the UK a company must comply with UK employment law and tax regulations; so holidays; maternity leave; correct tax withholding etc etc. If you want to do work for a non-UK company the usual route is to do it on a contract basis by either registering as self-employed or by going through an agency in the UK that charges you a fee to do all the administration for you.

If a British citizen moves overseas and works there then obviously there is no UK tax to pay on that earned income, but you'd pay it in the country where you live.