An increasing number of UK citizens are choosing to relocate to the United States for new work and family or simply for a clean slate. However, the appeal of a new life across the Atlantic comes with some complex tax and legal obligations in both jurisdictions. Without careful planning, you can face everything from double cross-border tax to major estate complications and onerous reporting requirements.
Understanding Your Tax Status in Both Countries
UK tax residency rules hinge on the Statutory Residence Test, which considers days spent in the UK, ties to UK property and family connections. Once you pass the US “substantial presence test” (generally 183 days in a calendar year) you become a US tax resident and must report worldwide income to the IRS.
- Split-Year Treatment: In the UK, you may qualify for split-year treatment in your first or final year abroad, limiting UK taxation to income arising in the UK.
- Double Taxation Relief: The US-UK Double Taxation Agreement allows credits for tax paid in one country against liabilities in the other, but careful filing of Form 1116 (Foreign Tax Credit) in the US and claims under the Foreign Tax Credit Relief in the UK are vital to avoid gaps.
- State Taxes: Beyond federal obligations, US state income taxes vary widely. Some have no income tax (Florida) while others exceed 10% (California).
Estate Planning That Works in Both Jurisdictions
A UK-only will may not govern your US-situated assets effectively. US estate tax thresholds are much lower than the UK’s nil-rate band, and probate processes differ significantly.
- Dual Wills: Many expats execute a UK will for UK-situated assets and a streamlined US will for property or investments in the United States.
- Trust Structures: Trusts may offer both UK inheritance tax mitigation and US estate tax planning benefits. However, trust classification (grantor vs non-grantor) must align with both UK and US law.
- Domicile Considerations: UK domicile status affects inheritance tax indefinitely, even after emigration. Taking professional advice on domicile planning can reduce long-term exposure to UK IHT.
Structuring Assets for Cross-Border Compliance
- Property Ownership: Holding US real estate through entities such as an LLC can limit personal liability and streamline probate but may trigger US corporate or state-level taxes.
- Financial Accounts: The US requires disclosure of overseas accounts under FBAR (FinCEN Form 114) and FATCA (Form 8938), while the UK mandates reporting of foreign income and gains via the Self-Assessment return.
- Pension and Retirement Plans: UK pensions may be subject to US tax unless a suitable exemption applies under the double tax treaty. Transferring to a QROPS (overseas pension scheme) must be carefully structured to avoid punitive taxes.
Professional Support for a Smooth Transition
Navigating two tax systems and two estate regimes is challenging. Legal advisors that specialize in US-UK cross-border tax and planning can:
- Perform detailed residency and domicile analyses.
- Draft dual wills and advise on trust formation.
- Structure property and investments for optimal reporting.
- Coordinate with accountants on treaty relief claims and filings.
Early engagement with cross-border experts ensures compliance from day one, mitigates risk of double taxation and provides peace of mind as you embark on your exciting US adventure.
