Moving from US to UK? Key consideration to think about

 The huge and turbulent Atlantic Ocean separates the United States and the United Kingdom. People having ties to both nations will frequently find themselves struggling to maintain their position between two intricately diverse and powerful administrations. They may safely negotiate the cross-border obstacles and take full use of the planning possibilities if they receive the appropriate expert help.

Relocating to the United Kingdom

The top law firms in London discuss some of the most important factors to take into account for US residents who are relocating to the UK for the first time in this instalment.

How to handle double taxation

People will be liable to UK taxation on their international income and gains after they become tax residents in the UK (subject to the remittance basis of taxation, detailed below). Unlike individuals relocating from most other jurisdictions, US citizens are subject to US income tax on their global income and profits. There is a chance of double taxation as a result.

Income tax treaty and the associated relief

Relief from double taxation is intended to be provided by the US-UK double taxation agreement, sometimes referred to as the "income tax treaty." In general, the treaty works by dividing up the taxation powers between the two nations and, to the degree that each has the authority to tax, by establishing a system of credits that permits taxes paid in one nation to be deducted from obligations incurred in the other.

The dual exposure can have a substantial impact on the tax-efficiency of some investment types, even though double taxation can generally be avoided by using the treaty. For instance, an asset may be treated favourably for US tax purposes but be subject to higher tax rates in the UK. US mutual funds that lack "reporting" status in the UK are a prime example1. Profits from those investments will normally be subject to income tax rates in the UK (currently up to 45%), but capital gains rates in the US (now 20%). Because of this, US citizens may still find value in the UK's remittance basis of taxation.

Seeking advantage from the “non-dom” tax system

Remittance basis of taxation should be available to US citizens residing in the UK as long as they maintain a non-UK domicile for UK tax purposes. If they do this and the income and profits are not "remitted" to the UK—that is, transferred into or utilised within the country—they can avoid paying UK tax on their capital gains and income from various law firms in London.

When it is free, a lot of Americans will use the remittance basis for the first seven years of their UK residency. Compared to making a claim for treaty relief, this offers some administrative convenience. The taxpayer will need to do an annual mathematical exercise to determine the remittance basis beyond the seven-year mark, at which point an annual fee becomes due.

When the residual exposure to US taxes is considered, the worldwide tax savings may be insignificant, making it unfeasible for US citizens to pay to access the remittance basis in many circumstances. If taxpayers can afford not to remit the income or profits deriving from such assets to the UK, it may be advantageous for them to keep holdings in investments that are not tax-efficient in the UK.

To guarantee that tax credits are accessible, US citizens who want to claim the remittance basis will need to be more careful about when they make their tax payments and remittances. Due to the complexity of this accounting issue, users of US remittance bases will need professional counsel.