EXPAT TAXES – FREQUENTLY ASKED QUESTIONS

• As a U.S. Expat Living in the the UK, Do I Need to Complete a U.S. Tax Return?

If you are a U.S. citizen or hold a green card, you are required file a U.S. income tax return (Form 1040) on an annual basis to report your worldwide income (over certain threshold amounts). This is true even if you live outside and work outside the United States. This is also true whether or not you owe tax to the U.S. government.

Optimizing your U.S. tax return is important to ensure that your U.S. federal tax liability is minimized by virtue of the various exclusions and credits you can take – and this is where we can help!

• Am I required to file any forms besides my federal income tax return (Form 1040)?

The answer depends on your situation. The most typical form required outside the IRS Form 1040 is the FBAR, since most expats hold non-US bank or pension accounts by virtue of living abroad.

In addition to the Form 1040 and FBAR, expat taxpayers may be required to file certain other federal tax forms depending on their activities and income amounts. These include forms to report a non-US corporation, partnership, trust, gift, and other non-US assets and activities.

We prepare any and all forms that an expat taxpayer may need to file.

• Do my activities in the UK have U.S. tax implications?

With each item of income that an expat earns and with each foreign asset that is owned or acquired, special considerations need to be addressed. The following are examples of common activities in the UK and their potential U.S. tax implications:

• UK Limited Companies

UK Limited Companies, a popular business vehicle, raise potential issues from a US tax perspective. For instance, these entities may be considered controlled foreign corporations (“CFCs”) for U.S. federal income tax purposes, a classification that can potentially have significant US tax implications. For instance, a 10% or more U.S. shareholder of a CFC must include currently in his or her gross income the CFC’s so-called “subpart F income,” which generally includes passive-type income, such as interest, dividends and rental income (meaning, for tax purposes, a CFC’s subpart F income is considered to be earned directly by the shareholder prior to an actual distribution to the shareholder). Active income will also be required to be included currently at the shareholder level under the new so-called “GILTI” rules.

• UK Investment Products

Also, a number of UK investment products may be classified as passive foreign investment companies (“PFICs”) for U.S. federal tax purposes. PFIC status can result in very onerous tax implications if not dealt with sufficiently. Examples of common UK investment products that may trigger adverse PFIC implications include UK corporate bond funds as well as certain insurance products with significant investment components (e.g., Scottish Widows). Additionally, most foreign mutual funds fall within the definition of a PFIC. This can be the case even if such funds are held through a tax-deferred savings account, such as a UK individual savings account (“ISA”).

• UK Pension Plans

Another common activity in the UK with important U.S. tax implications is participation in a UK pension plan. In general, non-US pension plans do not qualify for the beneficial tax-deferral treatment afforded to certain US pension plans under Section 401 of the U.S. Internal Revenue Code (e.g., a 401(k) plan). Fortunately, the US-UK income tax treaty may exempt certain UK pension plan contributions and earnings, assuming that the plan qualifies for beneficial treatment under the treaty.

Aside from the substantive tax consequences associated with UK pension plans, plan participation can also have important tax reporting implications. In some instances, a self-funded plan, such as a self-invested personal pension (“SIPP”), may be viewed as a “foreign grantor trust” for U.S. tax purposes, which may trigger additional reporting obligations, such as the requirement to file a foreign trust form (IRS Form 3520).

• How Can Expat Tax Professionals Help Me File U.S. Taxes?

Our U.S. tax return filing service is tailor made for the U.S. expat. Our process is fast, easy, and intuitive, and our tax return deliverable is rigorous, accurate and complete. Our in-house tax professionals are the core of our offer and of what makes us unique. We provide expert support from U.S. CPAs, EAs and tax attorneys at every step to tax compliance, providing the resources, knowledge and understanding of our clients’ needs to deliver the highest level of service and optimized outcomes.

Yes, we prepare tax returns. But we do so much more for U.S. expats around the globe. We strategically optimize your opportunities at every turn. It’s a story built on trust, on commitment and on serving our clients like we want to be served – with insight, care and a focus on supporting both short and longer-term goals. We offer fair and affordable fees and customize our solutions to meet the unique needs of each unique client we serve.

Contact us today to start the process!