Nicola Dunn, Senior Tax Advisor, and resident US/UK Tax Specialist at LK & Associates, outlines the TOP 5 COMMON MISCONCEPTIONS about US Tax.
“I am a US citizen and have left the US, so I don’t need to file US tax returns anymore”
False – all US citizens who have a certain level of income still need to file a US return, regardless of where they are living. There may not be any US tax to pay if all your income is taxed in the UK, but there is still a requirement to report all income and claim credit for the UK tax paid. Some of the reporting forms such as form 8938, Statement of Specified Foreign Financial Assets, carry a minimum $10,000 penalty for failure to file.
“I was born in the US, but my parents are British, so I don’t have to worry about US tax”
False – anyone born in the US is a US citizen and may have US tax return filing obligations.
“I have an accountant in Florida preparing my US returns so I am confident they are correct”
Not necessarily – dealing with foreign sourced income on a US return to claim the correct foreign credits and avoid double tax is a specialist area, and many US tax preparers just don’t see this on a day-to-day basis. Ideally you need the same team preparing the US and UK tax return, to look at the overall picture and check that nothing has been doubly taxed.
“My UK financial advisor does not need to worry about my US tax status because I pay all my tax on investment income in the UK now that I have been here several years”
False – certain UK investments can have adverse US tax consequences. For example, UK unit trusts fall under the US Passive Foreign Income Company (PFIC) rules and can lead to additional unexpected US tax and reporting.
“I don’t need to report UK tax advantageous accounts such as ISAs on my US tax return”
False – the US does not respect the UK tax-free status of an ISA, so all the income is taxable on the US return, subject to being able to use other foreign tax credits to offset.
How we can help
At LK & Associates we understand the complex interaction between the US and UK tax systems so that your worldwide position is optimised, and you won’t pay more tax than you need to.
Based in Thames Ditton, our highly qualified and experienced advisors prepare US and UK tax returns in the same team so you can be sure everything has been considered. We pride ourselves on the personal, cost-effective service we can offer you as a small, local firm.