Now we’re living in the UK, how do we sort our US & UK Taxes..?

Now the FUN starts..!!  A question on TAXES..!!

I’m a UK citizen, (born in the UK),  and a US Citizen. My wife is a US Citizen who has now got Entry and Leave to Remain in the UK.

We left the US on October 15th 2020, arriving in the UK on October 16th.

To prevent double taxation, I have, (and still have), exemption from paying Taxes in the UK on my two UK pensions, as for the passed 10 years I have been declaring this income in the US, together with my wife’s US earnings, and paying Taxes in the US.

We have sold our house in the US, which was our primary place of residence, and are in the process of buying our new primary place of residence in the UK.  At the moment we are renting while this is going on.

We are both resident and domicile now in the UK.

For 10.5 months during the year 2020, my wife had income coming in from work and benefits in the US, while my income was the aforementioned two UK pensions.

What we are wanting to do, in layman’s terms, is pay what we owe in taxes for the 10.5 months we remained living in the US from January 1st to mid October in 2020, and then commence paying what we will owe in taxes from mid October to April 2021 in the UK.

My wife’s future income will be US sourced only, while mine will be UK sourced only.

I will need to reverse my double taxation exemption from being paid in the US only to being paid in the UK only, and my wife will need to set up an exemption for herself that lets taxes be paid in the UK only and non in the US.

As we are both pensioners, our total income will be less than the equivalent of $50,000.

Can anyone help or point us in the right direction..?

From a UK perspective you'll both register for self-assessment with HMRC. You'll both want to make payments to HMRC no later than 31 December 2021 so that you have adequate credits to claim for 2021 on your 2021 US return. It appears you overlooked paying any tax to HMRC by31 December 2020, so you'll have to file an amended 2020 US return during 2022 carrying back excess foreign tax credits from the 2021 US return.

A US income tax return for 2020 is required to be filed with the IRS by US taxpayers if worldwide income and gains exceed just $5 (!) (married filing separately), $400 (self-employed), $12,400 (single) or $24,800 (married filing jointly) (there are exceptions for some kinds of income, such as disability).

If needed, a US income tax return for 2020 for taxpayers outside the United States is due to be filed by 15 June 2021; but might easily be extended until 15 December 2021 by filing an IRS Form 4868 by 15 June 2021 - followed by writing a letter to the IRS by 15 October 2021.  An FBAR for 2020 must, however, if needed be filed with the US Treasury by 15 October 2021. https://www.irs.gov/individuals/international-taxpayers/taxpayers-living-abroad

Hi Guya,

Many thanks for your response to my query on Taxes.

I can see I have a lot of research to do to phathom out the processors on either side of the pond.

The first thing I’ve noticed in your reply is that you have not made any reference to our entry date into the UK, which we personally are taking as the date we started living here. (Oct 16th 2020). Although I’m guessing the Tax people might have a different date in mind..? So as far as the US is concerned how do I let them know I’m no longer a US resident..? 

Do we simply put in another full year’s income disclosure to the US IRS, (up to Dec 31st 2020 for last year), of our total earnings both from my UK side pensions, and my wife’s US side income..?

We’ve used the Turbo Tax software over the passed 10 years to do our Tax returns on a 1040 form.  I must admit I never noticed any questions about UK Tax Credits. I probably wasn’t paying much attention to this as I was exempt from paying any UK taxes on my UK pensions, after filling out an 8802 form.

Will we continue to submit our US earnings to the IRS on a 1040 form..? Or will it be a different form, as I hope we can continue to use the Turbo Tax software..?

As we did live in the US for the best part of 2020 (10.5 months to mid October), I’m not altogether surprised if the US want us to declare all earnings up to Dec 31st 2020, but what about the UK side..?  Will they want us to declare all earnings from April 6th 2020 to April 5th 2021, when we declare our earnings here, as the US will have already taxed us for earnings for the whole year of 2020, including between April 5th and December 31st 2020..!!

My head hurts..!!  🤪

On the UK side, you’re right in that I’ve not yet contacted the UK Tax Office of our new UK address, although I have contacted both my private and state pensions that we are now living here. I assumed the tax office would be informed by the pension people.??

You recommend we each register for self-assessment. In our case my wife’s earnings may well be zero for then next 2 years until her US pension starts, so will there be any way I can claim some of what would otherwise be her tax allowance..?

I suppose we should start registering for self-assessment right away..?

It’s mainly this transition year that feels more complicated, I would imagine that on future years it gets simpler..?

You recommend we each register for self-assessment. In our case my wife’s earnings may well be zero for then next 2 years until her US pension starts, so will there be any way I can claim some of what would otherwise be her tax allowance..?

I suppose we should start registering for self-assessment right away..?

It’s mainly this transition year that feels more complicated, I would imagine that on future years it gets simpler..?

You can claim the marriage allowance if you meet the criteria, this allows her to pass some of her unused personal allowance to you.

https://www.gov.uk/marriage-allowance

Yes, register now.

It does get easier as you get the hang of it.

I can tell you our experience on returning to the UK in May of 2016. We are both USCs.

The IRS is going to continue to tax on worldwide income although some income is only taxed in the country of residence, for example US SS and UK OAP is only taxed in the UK for USCs residing in the UK.

Once resident in the UK then HMRC are going to tax on worldwide income including US source income from the day you become resident, in our case we chose to become resident on the day we arrived and signed up with the NHS etc, so US and UK income prior to May was not taxable. While living in the USA I was receiving 2 UK private pensions which were taxable only in the USA but became taxable in both countries once we had returned. FTCs when filed with the IRS are used to recover taxes paid to HMRC.

To record income for IRS purposes I keep a spreadsheet to know how much UK income we have received in the calendar year. A P60 doesn’t work so well. With HMRC then from the very first year we stated that the US income would be reported on a calendar year basis, which means 1099s etc are directly used ongoing. For the first “split” year we had to calculate how much US income we had received UK and US between May and December 31st.

TurboTax does support FTCs and you were probably unaware of this because you have never had taxable foreign income before. If, like me, you have US income that is now taxed in the US and UK you can still use FTCs to recover the UK tax paid on your US income.

Although not a tax return - just as when you lived in the States - you'll need to file FBARs by 15 October 2021. If the balances in bank and financial accounts were high enough, you'd also naturally file Form 8938 with the IRS.

Thankyou larrabee and durhamlad for your responses.  🙂

To durhamlad I have a few questions..   

You mention that... “Income prior to May was not taxable”  in the UK.

How did you let the UK tax people know that you arrived and became resident in the UK in May 2016, and let them know you weren’t liable for UK taxes before then..?

Am I right in thinking that between your May 2016 arrival in the UK and April 5th of the following year 2017, you wouldn’t have actually paid any UK tax until you got a Bill for Tax after April 5th 2017..?  OR... Was UK tax being deducted from your pensions every month from May 2016 onwards, after your arrival..?

If it was the former, where NO tax was paid initially, how did you declare to the IRS any UK taxes you were liable to pay in the UK between May and December 31st 2016..?

Am I right in assuming you can only claim Foreign Tax Credits in the US, ‘after’ they have been physically paid in the UK..?

I find this bit above very confusing..?

I too use an Excel Spreadsheet to calculate UK income between Jan 1st to Dec 31st, each year, for US tax filing purposes. I guess I will know find myself using a Spreadsheet to calculate US income between April 6th and April 5th of the following year, for UK tax filing purposes..?

You state you let HMRC know that US Income would be reported on a Calendar year basis, how does the HMRC calculate your tax liability from this information..?

I see you refer to a 1099 form in the US. Do you make your returns on this form every year, of was it just for the first split year..? Can the Turbo Tax Software help you use one of these forms instead of, (or as well as), a 1040 form..?

Do you use Turbo tax now for doing your US returns..?

If I find myself struggling, can you recommend a good US/UK tax lawyer who might help in the first year at least..? HR Block Expats for example..?

I’m grateful for any help that can be given.. 🤔

Thankyou guya for your FBAR reminder. 

I send in my FBAR every year and will be doing so again this coming week.

As for the Form 8938, we’ve never been aquatinted with this form, unless TURBO TAX asked me a question on our foreign assets which meant we didn’t need to submit one..?

Googling this form, from a page from HR BLOCK, it states you need to submit this form if....

Qualified taxpayers living outside the US:
   •   Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
   •   Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year

As the only bank account we have in the UK is a joint account and my wife and myself file our tax returns jointly, then we fall short of the $400,000 and $600,000 figures quoted above and so I guess we don’t need to submit this 8398 form..? 🤔

How did you let the UK tax people know that you arrived and became resident in the UK in May 2016, and let them know you weren’t liable for UK taxes before then..?

HMRC already knew I was tax resident in the USA prior to May 2016 and had not been doing PAYE on my 2 UK private pensions.  I didn't specifically tell them I was resident after May 2016, but I did register for Self Assessment (SA) on the HMRC portal (I already had an account with them on the portal for monitoring my National Insurance contributions).  When I did do my SA filing for tax year 2016 I did all the calculations from when I became resident and explained why in the "white space" on the SA.

Am I right in thinking that between your May 2016 arrival in the UK and April 5th of the following year 2017, you wouldn’t have actually paid any UK tax until you got a Bill for Tax after April 5th 2017..?  OR... Was UK tax being deducted from your pensions every month from May 2016 onwards, after your arrival..?

If it was the former, where NO tax was paid initially, how did you declare to the IRS any UK taxes you were liable to pay in the UK between May and December 31st 2016..?
Am I right in assuming you can only claim Foreign Tax Credits in the US, ‘after’ they have been physically paid in the UK..?

I find this bit above very confusing..?

Correct, I made no payments to HMRC before I filed an SA tax return. From that point on I have made estimated tax payments to HMRC every January and July and I do so through the HMRC portal.

I had a good idea how much I was going to pay in HMRC taxes so on the FTC (Form 1116) I checked the "Accrued" box when claiming the credit.  In future years I made sure I filed my SA and paid the taxes due before Dec 31st .

I too use an Excel Spreadsheet to calculate UK income between Jan 1st to Dec 31st, each year, for US tax filing purposes. I guess I will know find myself using a Spreadsheet to calculate US income between April 6th and April 5th of the following year, for UK tax filing purposes..?

You state you let HMRC know that US Income would be reported on a Calendar year basis, how does the HMRC calculate your tax liability from this information..?

I don't use a spreadsheet to calculate US income I simply use the income reported on the 1099s which is for the calendar year.  In the white space on the SA I explain that. The actual wording I use is:
"My wife and I returned to the UK on 8 May 2016, having lived in the USA since 1987. In
this return, the 2017 calendar year has been regarded as co-terminus with the 2017/2018
UK tax year since all income will be declared year on year and this method makes the
foreign tax credit computation more accurate with UK taxes credited on the US Return in
respect of doubly taxed income only."

I see you refer to a 1099 form in the US. Do you make your returns on this form every year, of was it just for the first split year..? Can the Turbo Tax Software help you use one of these forms instead of, (or as well as), a 1040 form..?

Wages (which I don't have ) are reported on a W-2 but most income is reported on 1099-Rs From the USA I receive pensions, which are reported on a 1099-R, interest, which is reported on a 1099-INT, dividends, reported on a 1099-DIV etc. 

My US taxes are reported on a 1040 just like they always have been, and yes I still use TurboTax

If I find myself struggling, can you recommend a good US/UK tax lawyer who might help in the first year at least..? HR Block Expats for example..?

It may be a good idea to use a tax pro for your first tax return. I did just that and I used TurboTax  as well to validate and help understand the return.
https://talk.uk-yankee.com/index.php?topic=97064.0

The only time I needed to file forms 8938 with my US return was the year we bought a house here and the bank balances exceeded the limits thus triggering the need.  No extra taxes just a form 8938 for every bank account.

Guya, I saw in one of the other threads you're US/UK qualified tax accountant. Would you be willing to share your contact details with me? Sorry for posting in the thread but I don't think my account has the necessarily privileges to privately message someone. Thanks! -Alex

Fallen at he first fence..

I’ve just tried setting up an online self assessment tax account, whereby I gave my name, email address, created a password and gave a ‘recovery word’..

I then got a User ID sent to me.

When I then logged into this account, all the questions I can see are Business  Related, with no reference to sources of funds from my UK pensions or funds from  foreign sources..?

Have I created an incorrect account which is leading me down a rabbit hole..?

Fallen at he first fence..

I’ve just tried setting up an online self assessment tax account, whereby I gave my name, email address, created a password and gave a ‘recovery word’..

I then got a User ID sent to me.

When I then logged into this account, all the questions I can see are Business  Related, with no reference to sources of funds from my UK pensions or funds from  foreign sources..?

Have I created an incorrect account which is leading me down a rabbit hole..?

I had no problem registering when  my wife and I returned in 2016 but we may have just been lucky when we registered because 2 years later my recently widowed sister in law needed to register for SA but it took her multiple attempts including at least one call to HMRC to get set up. She had never lived anywhere else so it should have been very straightforward. According to the BBC Moneybox podcasts I listen to a big mistake many folks make when having to file  a SA return for the first time is leaving it too late to file in time because  there are often issues getting registered.

Good luck!!

Did you register as self employed instead of not self employed perhaps?

.Overview

You must register for Self Assessment if you have to send a tax return and did not send one last year.

There are different ways to register if you’re:

self-employed
not self-employed
registering a partner or partnership

https://www.gov.uk/register-for-self-assessment

If you're stuck, don't be afraid to give them a call, they're very helpful.
Telephone: 0300 200 3310

Did you register as self employed instead of not self employed perhaps?

https://www.gov.uk/register-for-self-assessment

If you're stuck, don't be afraid to give them a call, they're very helpful.
Telephone: 0300 200 3310

Good thinking. Being retired, employment wasn’t even an option I considered. I registered because I had foreign income.