UK - What US expats in UK must know before April tax year end


The US tax year has ended but for US citizens living in the UK, April 5 is an important deadline, This is Money reports.

This is Money consulted financial experts at London & Capital for advice. So US expats can successfully navigate the UK tax year end.

ISA and pension allowances

The first thing is to take care of basic UK tax planning – contributions to Individual Savings Accounts and pensions. Not everyone remembers to use these allowances each year, Robert Paul a partner in the US Team at London & Capital, says. He offers the following tips:

Americans living in the UK can contribute to a pension but they must choose the right products and know how personal and employer contributions are taxed, from the US perspective. And how to use foreign tax credits on their income.

  • Unused contributions can be carried forward from the 3 previous tax years

  • By carrying forward unused pension contributions you may reduce tax liability

  • Unlike the UK, US tax authorities see ISAs as investment accounts, not tax-free vehicles

  • Assets held within ISAs must be US tax compliant, capital gains tax will be due to IRS

Offset investment gains and losses

US expats living in the UK pay tax to HMRC on all worldwide income and gains, regardless of location so all investment accounts must be considered, whether held in the US or elsewhere.

Keep track of any assets that were bought and sold during the year and view gains or losses from a sterling perspective. Be aware that efforts to reduce tax liability in one jurisdiction could lead to an unwanted tax bill in the other.

Remember that a UK investment portfolio is not managed to minimise dollar-based gains and losses at US tax year end. This can incur capital gains taxes for a client’s US tax return. For a US investment manager, the same is true in reverse.

Gifting and charitable donations

The US is more generous than the UK regarding gifting assets to family or friends. Any gifts must be factored into a UK wealth plan or they should be dual-compliant.

US citizens have an $11,180,000 lifetime gift and estate tax allowance. They can gift up to $15,000 to any individuals, each year. They can also gift $152,000 to a non-American spouse, annually, without impacting the $11.18million.

These allowances are not recognised in the UK. UK inheritance tax will be due if they die within seven years of the gift date.

Regarding charitable donations, tax breaks are only earned in both countries when donations are made into dual-qualifying charities – to charities registered in both the US and UK. Many US charities - including many college endowments - are not recognised as charities in the UK. They cannot be used to reduce a tax bill with HMRC. You must be conscious of this.