Tax liability for non resident alien wife

Hi,

I am a US citizen have been living for 11 years and recently married my wife who is not a US citizen nor a permanent resident (she never lived or worked in the US). We live in the UK and have no intention of moving to the US for foreseeable future. I believe she is considered a nonresident alien.

1. Does she need to file US taxes?
2. Is she liable for capital gains tax for any UK based tax-free investment vehicles, e.g. ISA or LISA that are under her name?

Thanks

1. Does she need to file US taxes?
2. Is she liable for capital gains tax for any UK based tax-free investment vehicles, e.g. ISA or LISA that are under her name?

Thanks

1. No

2 No

Just be sure to continue to file your US taxes as married filing separately so you never get any US tax benefit for her being your wife, and be sure to not own any joint accounts with her other than checking and savings accounts. (Half of any interest from a joint savings account is taxable by the IRS on your return)

ETA
Married Filing Jointly will mean reporting all income from both of you I think

1. No

2 No

Just be sure to continue to file your US taxes as married filing separately so you never get any US tax benefit for her being your wife, and be sure to not own any joint accounts with her other than checking and savings accounts. (Half of any interest from a joint savings account is taxable by the IRS on your return)

ETA
Married Filing Jointly will mean reporting all income from both of you I think

Thank you. A couple of more ex-pat questions.

1. Are we able to setup a junior ISA (stock) for our newborn or will the newborn have to pay taxes (as a child of a US citizen)? What are other parents doing to create a tax optimised saving for children?
2. I have some stock from my previous employer (US listed). When I sell the stock is there a way to avoid paying a double capital gains tax (UK and US), what is the best way to do that?
3. I also have a LISA, I now regrettably understand that any tax benefits of a LISA will disappear as I will have to pay capital gains tax on any funds I withdrawn for retirement?

 

Thank you. A couple of more ex-pat questions.

1. Are we able to setup a junior ISA (stock) for our newborn or will the newborn have to pay taxes (as a child of a US citizen)? What are other parents doing to create a tax optimised saving for children?
2. I have some stock from my previous employer (US listed). When I sell the stock is there a way to avoid paying a double capital gains tax (UK and US), what is the best way to do that?
3. I also have a LISA, I now regrettably understand that any tax benefits of a LISA will disappear as I will have to pay capital gains tax on any funds I withdrawn for retirement?

1. Not sure but I think the child is a USC as being born to a USC so subject to the same tax rules of being taxed wherever they live.
2. Sell it slowly over time so you don't hit the limits for capital gains.  In the US one pays 15% on Cap Gains if your taxable income is over $40k.  In the UK the first £10,500 of capital income gain is tax free.  This has been our approach except some years when we really needed the money so on filing our US return we used foreign tax credits (Form 1116) to reduce our US taxes - our combined income always means we pay US taxes on capital gains but in the UK my wife's personal tax free allowance plus the £10.5k cap gain allowance means that we can actually sell a fair amount of shares without paying any UK cap gain taxes.
3. I don't know the rules around LISAs but what you say is probably true.  I know that the interest on our cash ISAs is tax free in the UK but we have to declare it and pay US taxes on it.

3. I also have a LISA, I now regrettably understand that any tax benefits of a LISA will disappear as I will have to pay capital gains tax on any funds I withdrawn for retirement?

If you are over the age of 60 (or buying your first home) when you withdraw the funds, you'll be able to receive the UK government 25% bonus without UK penalty.  As I understand it, that 25% bonus would be considered a capital gain in the US (since it isn't regular interest), and would be taxed by the US at the 30% capital gains tax rate...  but that still effectively leaves you with about 17% top up...?  Am I approaching this wrong?  Meanwhile, any other interest from the account would be treated as ordinary income and taxed at your progressive rate, which is the case for all of our foreign (non-US) interest.  Yes?  No?  Others?

1. No

2 No

Just be sure to continue to file your US taxes as married filing separately so you never get any US tax benefit for her being your wife, and be sure to not own any joint accounts with her other than checking and savings accounts. (Half of any interest from a joint savings account is taxable by the IRS on your return)

ETA
Married Filing Jointly will mean reporting all income from both of you I think

Right, you don't want to file as Married Filing Jointly unless you want to make your NRA spouse also subject to US taxation. There are rules about reversing this election that you will want to understand before making it.

Before filing as Married Filing Separately, however, check to see if you qualify to file as Head of Household.  IRS instruction says you are treated as unmarried for this purpose and can claim HoH status if you have another qualifying dependent such as a stepchild (as I do) whom you support at least 50%.