Trump’s tax changes could benefit US expats in the UK

by Ray Clancy on June 9, 2017

While many expats from Europe may be considering leaving the UK due to Brexit, Americans could be set to find living in Britain is more tax effective.

London already has a large number of wealthier American expats and tax plans by US President Donald Trump is set to end the practice of having to pay income tax to both London and Washington.

(Yastremska/Bigstock.com)

According to Bambridge Accountants, which specialises in handling the tax affairs of US citizens living in Britain, up to 15% of the 225,000 US expats in the UK could benefit from the scrapping of the Net Investment Income Tax, also known as the Medicare tax.

Since January 2013, high earning US citizens have been subject to a 3.8% surtax on investments when their net income is above $200,000 for individuals and $250,000 for married couples.

This additional charge is one of the main reasons some UK based American expats end up having to pay US income tax in addition to UK tax because US citizens cannot offset their UK tax credits against the additional tax charge.

The repeal of the Medicare tax is one of a raft of tax reforms announced by President Trump, which in typically understated style he has described as the biggest in a generation. The plan was approved in May by the US House of Representatives but still needs the green light from the Senate before to become law.

If it gets through then the chartered accountants reckon that the repeal of the tax is likely to save wealthier US expats between $500 and $1,000 each.

‘Tax cuts are a big priority for President Trump and while it’s unlikely he set out specifically to help Britain’s US expat community, they will emerge as big winners if the Senate gives this plan the nod,’ said Alistair Bambridge, senior partner at Bambridge Accountants.

‘While the status of EU citizens in a post-Brexit Britain remains unclear, life for many in Britain’s US expat community could be about to get a little easier. The repeal of this surtax will spare thousands of Americans living here the bizarre and costly experience of having to pay income tax to both London and Washington,’ he explained.

‘With most of the wealthiest US expats in Britain living and working in London, it’s likely the capital will receive the biggest windfall, both in tax dollar terms and in London’s improved prospects of retaining US high fliers,’ he added.

The US is the only country in the world apart from Eritrea which taxes expats on the income they earn overseas. What is paid depends on the tax agreements with individual countries. For example in the UK Americans get a credit for income tax paid to avoid double taxation but they must fill in a tax return for the Internal Revenue Service (IRS).

However, the Foreign Account Tax Compliant Act (Fatca) requires British banks, brokers and other financial firms to report customer details to the IRS.

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