UK Tax help please

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UK Tax help please


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Old 15th November 2019, 12:32 AM
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Lightbulb UK Tax help please

Hi,
I'm a US and UK dual citizen.
My wife is US citizen with UK visa to live and work in UK.
We moved from US to UK in 2018, to retire and be closer to UK family.
100% of our income is from US social security, pension and investments - all US foreign in USD.
75% of this income belongs to my wife - US citizen
We sold our US home and bought a UK home.
Our primary and full-time residence is now in UK.
I believe we are therefore both "resident" and "domicile".
We have already filed joint 2018 US taxes plus FBAR etc. using US TurboTax
Currently, I'm trying to figure out how to file 18/19 UK taxes knowing that:
The tax years are different
We need a part-year UK 18/19 filing
My wife and I need to file separately
We need to report foreign income - at present we have zero UK income
And we need to understand:
In which country to file first - i.e. where to pay the tax?
How and in which country to claim tax credit for taxes paid in the other country?
I can imagine the UK would like to collect the revenue as we live here but I'm concerned that this will make our US tax return much more complicated and beyond my TurboTax abilities...is there a choice?
We have registered for HMRC Self-Assessment tax filing.
I've been quoted some eye-watering prices for professional filing of our UK and US tax.
I'd appreciate some advice of where to get reliable help at a reasonable price?
And of course this needs to happen soon as the UK tax clock is ticking!
Thanks for any help.

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Old 26th November 2019, 12:38 PM
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I'm sorry if my request was too complicated for this forum.
I've been told that UK has "first taxing rights" on our income - i.e. we pay tax to UK because we live here and must claim tax credit from US.
My latest quote for filing UK taxes is around 500 gbp each.
(I've had much higher quotes!)
Does that sound about right for figuring out part-year, foreign income, capital gains etc?
I'm hoping that once I understand the mechanics, I may be able to do subsequent years for myself.

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Old 26th November 2019, 02:29 PM
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Originally Posted by Bernie523 View Post
I've been told that UK has "first taxing rights" on our income - i.e. we pay tax to UK because we live here and must claim tax credit from US.
Lots of people use that terminology, but it's not exactly how the tax law (per the treaties) works. Basically, you are "tax resident" where you live.

It's because of the US and their "citizenship based taxation" that these things get so confusing. The US considers you "tax resident" no matter where in the world you live, as long as you are a citizen of the US. There are some specific provisions in the tax treaty (like the Foreign Earned Income Exclusion, if you are working in your country of residence) that allow you to exclude certain types of income from your taxable US base. And if you're drawing US Social Security while living in the UK, it's the UK that taxes your benefits. (Though in that case, you simply don't report your SS benefits on your US tax forms.)

For most other sorts of income ("unearned" income - like interest and investment income) the US allows you to claim a tax credit in the amount of the tax you paid to your country of residence using the form 1116 (Foreign Tax Credit).

I don't know enough about UK taxes to tell you how the UK taxes either partial years or if and how they give you credit for any taxes paid to the US, though my impression is that the UK tends to tax all your income once you're considered resident there. That leaves you taking the FTC against any tax obligation you run up on your US forms.

It's not easy doing two-country taxes, and most US expats can tell you horror stories of how much they have been charged for doing double sets of tax forms. The tax preparers also tend to be very conservative in their approaches. They almost have to be because the IRS does tend to look at who your tax preparer is - and if it's someone they feel they have had "problems" with in the past, it could result in greater scrutiny just because of the preparer.
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Old 26th November 2019, 03:29 PM
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Thanks for your input - much appreciated!

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Old 27th November 2019, 04:10 AM
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Quote:
Originally Posted by Bernie523 View Post
Hi,
Currently, I'm trying to figure out how to file 18/19 UK taxes knowing that:
The tax years are different
Its not too difficult really. Basically use a cash basis of accounting for any income/deductions. On the US side if occurred during the calendar year then it would appear in the US tax return for that calendar year.

If you are the equivalent of a normal wage/salary, that did not vary through the year you could just use the average rate for the year, but if it is variable you are meant to use the spot rate.

For US foreign tax credits you have the option of going down the accrual or cash basis. You may want to do a bit of modelling on what those two approaches would look like for your first tax year abroad.

Personally I go down the cash basis, as much because it is simpler and I do not need to do an amended return every year to align the acrual vs actuals.

So in my case, as an example, a pay-cheque from today, would end up as income for this US tax year, but the income tax paid on it would end up in my 2020 tax return as our tax year is July to June.

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