Tax planning strategies

I'm a US citizen working in the UK.  I just started working this year in 2020.  Frankly, I don't make a ton of money - something like 40,000 pounds.

I believe I understand the basics of FEIE, Tax credits, etc.  I'm a nerd who likes to know the details and I know from working in the US for several years that understanding taxes can save a bunch.

Here are a couple of varied questions that I'm interested in advice (opinions too).

1) I'm lucky in that my parents are big believers in the Roth IRA (and have money) and have sometimes contributed some Roth IRA money for me (I know this may sound strange, but as long as I'm making the earned income they are allowed to make this contribution for me).  I know from reading a lot about FEIE and tax credits that the only way for me to contribute to a Roth IRA is if I take the Foreign tax credit.  For anyone who has done this, are there cons of doing this? i.e., I assume I will be working in the UK for a number of years before returning to the US making < 100k and I would like to contribute (or my parents contribute) to a Roth IRA. Are there any negatives anyone can see taking the credit vs. the FEIE?

2) I have been told by several people in the UK that I don't need to file anything in the UK because it's all taken care of for me. My tax is already being withheld in my UK paycheck and somehow the UK government figures it all out.  Is this true?  Note that I don't own anything right now, I rent and I don't even have a UK bank account.

3) As I work more I do want to save and open a UK bank account. I have heard that if I have more than $10k (equivalent) in a UK bank I need to report that to the US as part of my tax return. I also might be interested in investing in the UK, but I'm concerned about the reporting. What advice do you have related to UK bank accounts, properties (in case I buy something), and investments?

4) It sounds like with either FEIE or tax credits I won't be paying US social security - which I guess is both good and bad. Bad in the sense that if/when I return to the US I won't have contributed to Social security for these years and my eventual payment (assuming there is one) will be less. Thoughts on this?

5) In my line of work I could potentially start a business (self-employed). I have yet to read up on why this may be good or bad for taxes overall. Any thoughts on this?

I'll tell you what little I know in bold below.

I'm a US citizen working in the UK.  I just started working this year in 2020.  Frankly, I don't make a ton of money - something like 40,000 pounds.

I believe I understand the basics of FEIE, Tax credits, etc.  I'm a nerd who likes to know the details and I know from working in the US for several years that understanding taxes can save a bunch.

Here are a couple of varied questions that I'm interested in advice (opinions too).

1) I'm lucky in that my parents are big believers in the Roth IRA (and have money) and have sometimes contributed some Roth IRA money for me (I know this may sound strange, but as long as I'm making the earned income they are allowed to make this contribution for me).  I know from reading a lot about FEIE and tax credits that the only way for me to contribute to a Roth IRA is if I take the Foreign tax credit.  For anyone who has done this, are there cons of doing this? i.e., I assume I will be working in the UK for a number of years before returning to the US making < 100k and I would like to contribute (or my parents contribute) to a Roth IRA. Are there any negatives anyone can see taking the credit vs. the FEIE?  Tax pros will usually advise that taking FTCs is better than FEIE even though it is a little more complicated. I take FTCs every year because I receive US pensions and other US income from dividends so FEIE is not an option.

2) I have been told by several people in the UK that I don't need to file anything in the UK because it's all taken care of for me. My tax is already being withheld in my UK paycheck and somehow the UK government figures it all out.  Is this true?  Note that I don't own anything right now, I rent and I don't even have a UK bank account.If you have no US income then that is correct.  (The UK taxes on worldwide income.)  For example our USC son works here in England and has done so since 2017 and has no US income so he does not need to do HMRC self assessments

3) As I work more I do want to save and open a UK bank account. I have heard that if I have more than $10k (equivalent) in a UK bank I need to report that to the US as part of my tax return. I also might be interested in investing in the UK, but I'm concerned about the reporting. What advice do you have related to UK bank accounts, properties (in case I buy something), and investments?If the aggregate of all your foreign accounts exceeds $10k at any time then you need to file a FBAR online and this is quite separate to the IRS tax return.  You will need to report your foreign bank accounts with the IRS on your tax filing using IRS form 8938 which has much higher limits ($150k? for a single person residing abroad). Google "Form 8938" for more info.

4) It sounds like with either FEIE or tax credits I won't be paying US social security - which I guess is both good and bad. Bad in the sense that if/when I return to the US I won't have contributed to Social security for these years and my eventual payment (assuming there is one) will be less. Thoughts on this?I'm afraid you are stuck with this, unlike the UK equivalent, National Insurance, you can't make voluntary contributions to add to your record

5) In my line of work I could potentially start a business (self-employed). I have yet to read up on why this may be good or bad for taxes overall. Any thoughts on this?I have no experience with this at all. However I will point out that you should avoid investing in the UK equivalent of ETFs or Mutual Funds as the IRS will treat them as PFICs and tax them heavily.

Thank you! That helps a lot. I've added some follow-up questions in bold below.

I'm a US citizen working in the UK.  I just started working this year in 2020.  Frankly, I don't make a ton of money - something like 40,000 pounds.

I believe I understand the basics of FEIE, Tax credits, etc.  I'm a nerd who likes to know the details and I know from working in the US for several years that understanding taxes can save a bunch.

Here are a couple of varied questions that I'm interested in advice (opinions too).

1) I'm lucky in that my parents are big believers in the Roth IRA (and have money) and have sometimes contributed some Roth IRA money for me (I know this may sound strange, but as long as I'm making the earned income they are allowed to make this contribution for me).  I know from reading a lot about FEIE and tax credits that the only way for me to contribute to a Roth IRA is if I take the Foreign tax credit.  For anyone who has done this, are there cons of doing this? i.e., I assume I will be working in the UK for a number of years before returning to the US making < 100k and I would like to contribute (or my parents contribute) to a Roth IRA. Are there any negatives anyone can see taking the credit vs. the FEIE?  Tax pros will usually advise that taking FTCs is better than FEIE even though it is a little more complicated. I take FTCs every year because I receive US pensions and other US income from dividends so FEIE is not an option. Thank you

2) I have been told by several people in the UK that I don't need to file anything in the UK because it's all taken care of for me. My tax is already being withheld in my UK paycheck and somehow the UK government figures it all out.  Is this true?  Note that I don't own anything right now, I rent and I don't even have a UK bank account.If you have no US income then that is correct.  (The UK taxes on worldwide income.)  For example our USC son works here in England and has done so since 2017 and has no US income so he does not need to do HMRC self assessments.  If I have some dividend income (some small amounts of mutual fund investments in the US) will those be taxed in the UK? 

3) As I work more I do want to save and open a UK bank account. I have heard that if I have more than $10k (equivalent) in a UK bank I need to report that to the US as part of my tax return. I also might be interested in investing in the UK, but I'm concerned about the reporting. What advice do you have related to UK bank accounts, properties (in case I buy something), and investments?If the aggregate of all your foreign accounts exceeds $10k at any time then you need to file a FBAR online and this is quite separate to the IRS tax return.  You will need to report your foreign bank accounts with the IRS on your tax filing using IRS form 8938 which has much higher limits ($150k? for a single person residing abroad). Google "Form 8938" for more info.  So, is it advised to just get a UK bank account just for some savings of my salary and report it if over $10k and the rest of my money I just keep in the US for simplicity? ...As you mentioned in #5 try not to invest in the UK.

4) It sounds like with either FEIE or tax credits I won't be paying US social security - which I guess is both good and bad. Bad in the sense that if/when I return to the US I won't have contributed to Social security for these years and my eventual payment (assuming there is one) will be less. Thoughts on this?I'm afraid you are stuck with this, unlike the UK equivalent, National Insurance, you can't make voluntary contributions to add to your record.  What happens to the money that's currently taken out of my UK paycheck for National Insurance - assuming I go back to the US?  Is it just "lost"?

5) In my line of work I could potentially start a business (self-employed). I have yet to read up on why this may be good or bad for taxes overall. Any thoughts on this?I have no experience with this at all. However I will point out that you should avoid investing in the UK equivalent of ETFs or Mutual Funds as the IRS will treat them as PFICs and tax them heavily. Thanks. Good to know!

5) In my line of work I could potentially start a business (self-employed). I have yet to read up on why this may be good or bad for taxes overall. Any thoughts on this?

  The answer to this depends on  lot of factors, one of which is about whether you would be inside or outside of a tax regulation called IR35.  IR35 exists to separate people who are genuinely operating their own business from people who are essentially employees pretending to run their own business .  The short answer is that if you are really the latter, probably not.         More information on contracting in the UK can be found here:
https://www.contractoruk.com/forums/
Good Luck!

Dividends from US funds are taxable in the UK, in which case you would need to file a self assessment in most cases. If the fund is an ETF that reports into HMRC then the dividends will get favorable tax treatment with first £2k tax free then taxed at 10% for basic rate tax payers.  Google “HMRC Reporting funds”

FBAR reporting is easy and the convenience of having a UK bank account for salary to be paid into is worth it in my opinion.

NI insurance payments go towards the UK equivalent of SS, (called OAP), and you need 10 years of contributions to get OAP.  I think the tax treaty has some equalization agreement between SS and OAP contributions that you would have to research if you have less than 10 years of contributions.  I will be receiving OAP and SS as I have lots of years credits in both systems.

Thank you @durhamlad and @jimbocz for these answers.

I guess it makes sense that the UK will tax dividends (and capital gains) from US investments, but I suppose I never thought of that. I definitely need to look into this. I have a Vanguard mutual fund (that I believe I can convert to an ETF pretty easily if need be). Again I need to research this more and see how it plays out on my taxes for 2020.