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UK/US Dual Citizens Tax Guidance

Being a dual citizen of the UK and the US can have significant tax implications. Ensure you know the requirements and how you can avoid potential penalties

Last updated 22 April 2020

Being a dual citizen of the UK/US can bring about some exceptional benefits, such as easy access to both countries and ease of access to work in either countries.

However, being a dual citizen of the UK and the US can also have significant tax implications, including any investments that you hold (including ISAs), any inheritance that you receive from a US citizen (such as pensions), have sold or remortgaged a UK property or simply if your income is over $100,000.

The unfortunate aspect of this potential tax minefield is that many US/UK dual citizens are completely unaware that they have this responsibility – and only realise when a huge tax bill is owed to the IRS.

This article identifies potential tax obligations that UK based US/UK dual citizens have with the US Government, however it is intended as a guide only and must not be used in isolation to make any decisions. You must always seek professional advice from someone qualified to assist with your tax affairs, especially when it relates to UK/US dual citizenship.

Do you have a dual citizenship with the US?

While US citizens are typically aware of their US tax obligations, those with US passports who have only fleeting visited the US – or in some cases, never visited at all – are generally unaware of any obligation at all.

Often these US citizens are called “Accidental Americans” because it is their circumstances in life, of which they have no control over, which have created the dual citizenship. For example, you may have been born in the UK to a parent who is a US citizen, obtained a US passport and never actually set foot in the US. If you are concerned about whether you are an Accidental American, please read our article: Accidental Americans and the streamlining process

Ultimately, if you are reading this article then it is likely that you are concerned about your tax obligations and it is possible that you have never filed a tax return in the US. However, you may once have worked in the US, or maybe you are related to someone who is a US citizen (or was previously) – and this may make you liable and you should seek advice.

If you have been previously unaware of any tax obligation, you are likely to be termed as a ‘delinquent filer’ which means that you have are likely to escape any penalties for not filing or paying a US tax return – however, it is vital that you seek advice to get your US tax affairs in order to avoid future potential penalties. Once you recognise that you may have tax obligations in the US, your opportunity to “claim ignorance” significantly diminishes and the chances of paying a penalty increases substantially.

Getting your US tax affairs up to date

As a UK/US dual citizen, your worldwide income, inheritances, capital gains, investment income, savings and more. For example, you may have inherited a pension from a US citizen, have ISA’s in the UK, have sold or remortgaged a UK property and earn over $100,000 from your job in the UK.

Each of these sources of income and gains are subject to US tax, although there are some exceptions and opportunities to reduce the tax liability through the double tax agreement between the UK and the US.

The first step to getting your US tax affairs up to date is overcoming the initial fear of approaching the IRS. It can be daunting, and the fear of potential penalties can lead to inaction. However, this is not an acceptable approach and may end up costing more. Thankfully, the IRS is also aware that creating fear around penalties means that fewer people are likely to willingly step forward to get their tax affairs in order, so created the Streamlined Foreign Offshore Procedure which is a scheme aimed and tax payers who did not intend to not file their tax – i.e. ‘non-wilful’ - and have not spent time in the US recently.

While there is no official guidance on determining who is ‘non-wilful’, the IRS confirmed that this may include “negligence, inadvertence, mistake or a good faith misunderstanding of your legal requirements”. Most delinquent filers will easily fall into one of these categories, and to be accepted into the programme you simply have to declare that you were non-wilful in your non-filing.

Using this programme won’t meant that you are exempt from tax payments, but it will ensure that you do not receive penalties as a result of coming forward.

If you are reading this article, you probably need to consider whether you can genuinely consider yourself non-wilful going forward. Our recommendation is to request a free consultation to ensure you are aware what your tax obligations are in both the UK and the US.

What are the tax implications for tax compliance as a dual citizen of the US/UK?

Once you have brought your tax filings up to date, you will be subject to the same tax rules as other US citizens living abroad – which includes income tax exemptions as well as requirements to file details of foreign accounts and income.

It also means that you will be subject to any double tax treaties between the US and your countries of residence (the US and UK have a double tax treaty).

We have created a guide which covers the main tax obligations you are likely to be subject to as a US citizen living abroad.

However, if you are ever in any doubt about what tax you are subject to, you should always seek professional advice from someone who understands the intricacies of the UK/US tax systems for people living abroad.

How can a free introduction via Experts for Expats help US/UK dual citizens?

We have partnered with US tax specialists in the UK who have extensive experience and understanding of the US tax system for dual citizens of the US and UK who do not live in the US. The as part of our introductory service you will receive a free initial consultation that is designed to answer general questions you may have, the accountants will ultimately be able to assist any US/UK dual citizen who needs to:

  • Establish whether they are subject to US tax and whether they qualify as being ‘non-wilful’
  • Get their US tax filing up-to-date
  • Prepare and complete US Federal and State tax returns
  • Manage the timing of UK and US tax payments and other foreign tax credit planning
  • Plan any cross-border pension schemes
  • Understand how to apply rights and opportunities under the UK/US double tax agreements
  • Tax efficiently manage estates with regards to UK inheritance and US gift & estate tax regimes

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