Dual citizen tax UK/US help please!

queryy

Dear Sir/Madam,

I am 27 years old, and was born in USA so have dual UK/US citizenship. I have been a student until now, but have just got a job (in the UK). My annual salary is £38k, and I was wondering whether I need to be paying tax in the US as well as in the UK? I have tried to look this up, and it seems like the US has an overseas spending tax free threshold, but I am confused as to what I have to do!

Thanks, and best wishes,
Robin

gingercordial

As a dual citizen you absolutely MUST file a US tax return even if you live in the UK. If you don't, the fines can be huge and the IRS will be alerted when you next renew your passport if not before, or if you travel there. The only way around this would be to renounce your US citizenship.

However whether you will pay any US tax is a difficult question. You will get credit against your US tax bill for the tax you pay in the UK. If you've paid more tax here than your US tax bill, there'll be nothing further to pay. But remember different things are taxable in the US than in the UK (eg different rules on house sales and pension contributions) and you get different deductions so it isn't as easy as just seeing which rate is higher.

For your first year I strongly advise you get an accountant to do your US tax return to get it right, then see afterwards if you can do it yourself.

Spidernick

Gingercordial is correct that you do need to file a US federal tax return each year (there are plenty of options in the UK for someone to prepare these - try a smaller firm, as these will be cheaper). However, you will not have to pay any US tax on your earnings at present due to the foreign earned income exclusion (currently just over $100K):

https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion

Even if you exceeded this (and the housing exemption), you would get a credit for UK tax due on your earnings, so you'd have to be earning a lot before a residual US liability may arise.

Much will depend on your investment income, if you have much of that. If you have UK investment income then the same rules should apply around tax credits, etc. However, beware of ISAs, as they do not have the same exempt status in the US and do any interest, dividends or gains from these would be taxable in the US.

Beware of capital gains in the UK, as the IRS will also want to tax these and exchange rates fluctuations between purchase and sale may mean that you have a loss for UK purposes, but a gain in the US when converted to dollars at the different rates at purchase and then sale (of course the reverse may also be true).

Also, if you ever win big on the lottery you wouldn't have to pay tax on this in the UK, but you would in the US, I'm afraid, as the US taxes gambling winnings!

queryy

Thank you!

Cook_County

As a US citizen you are required to file annual American Tax Returns for any year that your income exceeds the filing threshold. Similarly, you may also be required to file annual FBARs.


It is unlikely you would owe tax unless you have any kind of income or gains on which the UK chooses not to charge tax.

EdSwippet

Cook_County wrote: »

It is unlikely you would owe tax unless you have any kind of income or gains on which the UK chooses not to charge tax.

...such as: ISA interest, dividends, and/or capital gains; your first £500/£1,000 of interest income; your first £5,000 of dividend income; capital gains over $250k on your primary residence; your first £11,100 of unsheltered capital gains; lottery winnings; premium bond winnings; and more.