Hi from Mr. B - Need help on "expatriate" taxes

[theOAP]

From time to time, I've thought about returning to the UK, but this thread has put a stop to that idea!

Hello Peter.

I'm in the UK, and I do my tax returns for both the US and UK on my own. Do I do the US return absolutely 100% correctly? Well...that's doubtful. I think they're correct, but who knows. In regards to foreign pensions, even the IRS has a great deal of problems deciding what is right and what is wrong (and tax treaties aren't always clear). I've been filing from abroad for over 30 years and only once has the IRS questioned a return. That was to do with an AMT debacle, and the US Code was changed for the following tax year and the problem went away. I've been quoted $4,000 by a highly qualified firm in the UK (not one of the Big 4) to do the work. Would they do them correctly? Well....that's also questionable.

I'm in the worst position. 90%+ of my income is sourced from the UK and Europe. That makes the US return a challenge. If the majority of your income is sourced from the US, things become easier.

Remember, the rest of the world (and I don't count Eritrea) has resident based taxation, not citizenship based taxation. The US is alone in that respect. When you're resident in a foreign country, you normally have to consider US source income that is remitted to that country. Some do have a tax on worldwide income for residents. A challenge?....yes. But most other countries' tax laws are much simpler than those of the US. I'll spend weeks on my US return, but only a few hours on my UK return.

Take heart from the fact that 'Americans and their tax problems' provide constant entertainment for the foreigners on expat sites. There are 6 million US expats in the world, and not all of us are tax evaders. There's a lot of folk out there who manage to file those US returns (albeit with a bit of confusion and frustration) and still live a happy life abroad.

We need to get over the current FATCA nonsense, and the resulting problem in some areas of the availability of bank/investment accounts for 'US Persons', but once that's settled, hopefully, things will ease up a bit. As nun says, once you've done it for several years, the logic (or illogic) behind completing a US return becomes clearer, and the task becomes somewhat easier. It's a matter of enlarging your tax knowledge base (essential), and then staying on top of a constantly changing tax code.

I don't intend to start a discussion on this, but the sentiment expressed in your comment (the reason I'm replying) and the current impact of US legislation on Americans looking to live abroad is causing concern on the expat sites. Sadly, it's a situation that is very much ignored within the US.

 

[Peter]

Thanks nun, Michael, and OAP.

My comment was somewhat tongue in cheek; there are, of course, many other factors, for and against. However, the tax situation does seem to be getting more complicated, rather than less.

I'm keeping an open mind, anyway!

 

[Texas Proud]

When I worked at NIKE a fringe benefit of expat status was having your personal taxes done by specialists in that field. Corporate wouldn't go near that stuff.

Well, I worked for a major accounting firm when I first graduated and did expat returns... I did not know what I was doing... they were assigned to me... I think that I filled all of them out correctly, but who knows....


I was on an expat assignment and had a major accounting firm do MY taxes... I found errors in every return they did...


The only good thing with them doing it is that they had to defend it if there was an audit.... but they did fix all errors I pointed out...


As for the UK... I never did file a return... I got a LOT of credit from my company paying my taxes.... but I never signed anything.... so I do not know if it was done properly or not... I did get a letter from her majesty's tax collectors when I had already returned to the states... I forget what they were after, but when I wrote them when I had returned to the US etc. they went away...

 

[nun]

I was on an expat assignment and had a major accounting firm do MY taxes... I found errors in every return they did...


The only good thing with them doing it is that they had to defend it if there was an audit.... but they did fix all errors I pointed out...

Interpretation is an unsettling aspect of cross border taxation. Most people believe that the tax code is "black and white", but when you get into international taxes the "grey" nature of taxation is exposed.

The uncertainties inherent in applying concepts and the financial structures common in one country to income and investments from another country lead to many arguments that are not necessarily resolved by a tax treaty. Tax professionals and tax authorities can get things wrong, leaving the tax payer in a state of unease and frustration. So you can either shift the risk to a professional or educate yourself enough to avoid the major pitfalls, the the biggest one being to simply ignoring your tax obligations.

A classic area of disagreement is the treatment of UK personal defined contribution pension plans where some professionals insist that they must be treated as foreign grantor trusts and others saying that they are covered by the pension treaty exemptions. Another area of confusion is the taxation of UK state pension payments made to US citizens in the UK. Every IRS agent I've spoken to about this believes that the payments are only taxable in the UK. However, the wording of the treaty allows them to be taxed by the UK and the US and certain tax experts who's opinions I value agree that they are US taxable. Practically speaking it usually makes no difference because the UK taxes paid result in zero US tax anyway, But if you claim a treaty US tax exemption the IRS will probably allow it because that's what everyone understands as the spirit of the law and very few people actually read the treaty.

It's interesting to observe that most of the issues arise on the US side of things. It's far easier to deal with US income for UK tax purposes than with UK income on US taxes.

 

[Alan]

You shouldn't let taxes dictate your actions. It is fairly involved, but there are ways to simplify the issues and once you have a couple of returns done it becomes a lot easier. Most returns are well within the scope of companies like Home - Greenback Expat Tax Services who will file both US and UK taxes for about $1000 and once you have the template, and as long as the law and your circumstances don't change too much, you can file on your own.

I'm planning on doing something very similar in about 3 years and am grateful to yourself, theOAP and others on expat sites for giving me the confidence that this isn't as daunting as it seems.

We intend to become dual residents in the US and UK, spending approx equal time in each country. No earned income to worry about, and only UK pensions and interest from bank savings as UK income.