# UK and US treaty



## Citizen 2017 (Jul 24, 2016)

Please could someone help me to understand how the UK/US tax treaty works if you're a US citizen who decides to move to the UK to live and work but you continue to be paid in USD by your US company. From what I have understood, I would continue to pay my US taxes as I do now and I would also complete a UK self assessment tax return. Then once I pay the necessary UK taxes I indicate what I have paid on my US tax return and receive a rebate. Is this correct, and if so, is the rebate approximately the same as what I would pay in UK taxes? 

Thanks for any help or guidance on further reading.


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## nyclon (Apr 3, 2011)

I've moved your question to the Tax Forum where you should get more input.


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## Bevdeforges (Nov 16, 2007)

Not quite. For international taxation purposes, it doesn't matter where and how you are being paid. What matters is where you are located (and/or resident) while you are doing the work. So, if you move to the UK and continue to work there, you will be "working in the UK" and thus subject to UK tax and social insurance obligations.

As a US citizen, you will always be subject to US filings - but while you are living overseas, you'll be eligible for the Foreign Earned Income Exclusion (FEIE), whereby you can "exclude" your income earned while resident overseas if you meet a few fairly simple requirements. (IRS Publication 54 has the details on this.)

There is also the Foreign Tax Credit, which you can take to offset your US tax for income taxes paid to the UK (or any other foreign government). (Also explained in detail in Publication 54)

What gets tricky is that most US employers continue to withhold State income tax and US Social Security - which you probably don't owe but will have a very hard time to get back (if you can at all). By rights, if you're living in the UK, you should be paying UK social insurances (or social charges) rather than US Social Security. And many states either won't recognize the FEIE or simply won't refund state taxes if you claim them back due to not being resident in that state any longer.

Be careful here because US companies like to just assume that the tax side of things is your problem and yours alone whereas they probably ought to be either paying you on a proper UK payroll (with UK withholdings) or paying you as a contractor, which involves you setting yourself up as "self-employed" in the UK, with all the social charges and taxes falling to you to sort out. (There are also issues in the UK regarding being a "contractor" if you have only one customer.)
Cheers,
Bev


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## Citizen 2017 (Jul 24, 2016)

Thank you for your helpful response! Just one last question, in the year that I move, is it possible I end up paying double taxes or is it calculated pro-rata on my move date or does it depend on whether I move before or after the new UK tax year (April 6th)?


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## Bevdeforges (Nov 16, 2007)

The different tax years does kind of complicate things - but mostly how you calculate what you report on each side.

If you work it all correctly, you shouldn't wind up paying double taxes. It may get even more complicated if you continue on the US payroll and get paid into your US bank account - but it ultimately works itself out.

Assuming you move mid-year for both tax jurisdictions (let's say October), you wind up taking an extension on the time to file your US returns until the following October - because you can't claim the FEIE until you have completed a full 12 consecutive months outside the US. But of course you'd only claim the FEIE against your salary earned while in the UK, so October through December. This of course means you can't claim back any US Federal tax withheld from your paycheck until the following October.

Not sure how the UK does these things, but in our hypothetical, you would file your first UK tax return in April for the period from October (when you arrived in the UK) to April 5th (which is the end of the UK tax year). Before your arrival, you have no UK tax liability.
Cheers,
Bev


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## Citizen 2017 (Jul 24, 2016)

Thank you Bev!


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## Dunedin (Aug 12, 2013)

*UK tax aspects*

The following comments may be of assistance in terms of UK tax.

There are statutory residence rules that apply to determine whether you are resident in the UK for tax purposes. They are detailed but for the most part accord with a common sense view of matters.

Within these rules, there are special provisions relating to split year treatment. Again while the details are lengthy, it is likely that you would be treated as being resident when you move to the UK.

In your UK return, you would claim the split year treatment and be liable to UK from the date that your residence started.

On a practical level you will need a National Insurance number and a Unique tax Reference number. You should allow some time to obtain the NI and UTRs.


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