# Is a dual US-UK citizen legally required to file a US tax return?



## underation

No. (Challenges, citing UK law, would be welcomed.)

Some dual US-UK citizens might have no reason or desire to file US tax returns.

Some dual US-UK citizens might have very good reason to file US tax returns, or might feel an obligation to file US tax returns.

While other dual US-UK citizens might prefer to renounce - with or without notifying the IRS.

All perfectly legal options when executed honestly with no deception.


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## underation

*Is a UK resident required to certify tax-residencies?*

Second question: Is a UK-resident US-UK dual citizen legally required to answer a bank’s questions about tax-residency?

Answer: Yes; under CRS, the banks are legally required to ask and accountholders (regardless of citizenship) are legally required to answer; though failing to answer probably won’t have consequences beyond the account being treated as reportable.


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## Nononymous

underation said:


> Second question: Is a UK-resident US-UK dual citizen legally required to answer a bank’s questions about tax-residency?
> 
> Answer: Yes; under CRS, the banks are legally required to ask and accountholders (regardless of citizenship) are legally required to answer; though failing to answer probably won’t have consequences beyond the account being treated as reportable.


The consequence of failing to answer correctly would be to have the account be treated as not reportable.


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## underation

Nononymous said:


> The consequence of failing to answer correctly would be to have the account be treated as not reportable.


Not responding gets the account treated as refractory, under the UK legislation. 

The consequences of responding untruthfully don’t seem to me very interesting. What’s interesting is what’s actually required, under UK law, and what’s not.


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## Nononymous

The consequences of responding untruthfully are very interesting to US citizens who do not file US tax returns and who do not wish for their account information to be shared with the IRS, nor for certain banking and investment services to be denied them, as happens in some countries.


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## underation

Nononymous said:


> The consequences of responding untruthfully are very interesting to US citizens ...


To some, no doubt.


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## underation

*Is a dual US-UK citizen legally required to file FBARs?*

Question No. 3: Is a dual US-UK citizen legally required to file FBARs?

Answer: No.


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## underation

*Might HMG collect US tax debts from a dual US-UK citizen*

Fourth and last question: Might HMG collect US tax from a UK-resident dual US-UK citizen?

Answer: Yes. UK-US DTA Article 27(5):



> Each of the Contracting States shall endeavour to collect on behalf of the other Contracting State such amounts as may be necessary to ensure that relief granted by this Convention from taxation imposed by that other State does not inure to the benefit of persons not entitled thereto. This paragraph shall not impose upon either of the Contracting States the obligation to carry out administrative measures that would be contrary to its sovereignty, security, or public policy.


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## Bevdeforges

Just a note to anyone lurking on this thread. This is an online public forum. The views expressed are those of the posters and should not be taken as authoritative "advice."


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## underation

Bevdeforges said:


> The views expressed are those of the poster...


Indeed. As stated above - challenges would be welcomed.

UK-resident dual US-UK citizens often mention having been told by tax advisers (“authoritatively” but incorrectly  ) that they’ve been breaking the law if they haven’t filed a US tax return, or haven’t filed a US form every year accepting liability to pay US tax on the profits of their UK corporation, or haven’t reported their UK bank accounts to the US Financial Crime authorities. 

Some US-UK dual citizens accept the finger-wagging as “authoritative advice”, and sometimes find themselves saddled with large, unfair, unnecessary US tax liabilities as a result.

Happily, most don’t.


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## NickZ

underation said:


> No. (Challenges, citing UK law, would be welcomed.)
> 
> 
> 
> .


UK law can't exempt you from US requirements.


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## underation

NickZ said:


> UK law can't exempt you from US requirements.


I agree. If a UK-resident dual is receiving income for which the US has taxing rights, not paying the tax due would be tax evasion - a criminal offence under UK law.


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## underation

Does the US have the taxing rights on the income from a cash ISA owned by a UK-resident dual?

No.

But if the owner signs and files a US tax return, reporting the ISA income as US-taxable, s/he makes himself/herself liable for the resulting tax.

Or, if the owner signs and files a US tax return and _doesn’t_ report the ISA income as US-taxable - that’s perjury, a much more serious offence under UK law.

While the dual next door (who has a cash ISA but has no US-taxable income and never files US tax returns) has no US liability and is perfectly OK under UK law.


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## Bevdeforges

underation said:


> Or, if the owner signs and files a US tax return and _doesn’t_ report the ISA income as US-taxable - that’s perjury, a much more serious offence under UK law.
> 
> While the dual next door (who has a cash ISA but has no US-taxable income and never files US tax returns) has no US liability and is perfectly OK under UK law.


You're talking about UK law. There is also US (tax) law to consider. And filing a return without declaring the ISA income can (under US law at least) be considered "taking a tax position." US (tax) law is always subject to interpretation and there are often many ways to interpret any specific transaction or source of income.


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## underation

Bevdeforges said:


> You're talking about UK law.


Yes. The law of the land, for UK-residents.



> There is also US (tax) law to consider.


Undoubtedly, for those who are filing US tax returns.



> And filing a return without declaring the ISA income can (under US law at least) be considered "taking a tax position." US (tax) law is always subject to interpretation and there are often many ways to interpret any specific transaction or source of income.


Right, thanks for the correction. I’ll rephrase:



> ...if the owner signs and files a US tax return, reporting the ISA income as US-taxable, s/he makes himself/herself liable for the resulting tax.
> 
> While the dual next door (who has a cash ISA but has no US-taxable income and never files US tax returns) has no US liability and is perfectly OK under UK law.


(As for possible arguments about the source, that’s not the reason for cash ISA income being vulnerable to US taxation; it’s because it’s not taxed by the UK, consequently no tax credits.)


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## NickZ

You also need to look at the treaty to see how that UK account is treated under the treaty.


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## underation

NickZ said:


> You also need to look at the treaty to see how that UK account is treated under the treaty.


That’s not actually necessary, for a dual with no US assets/income who isn’t filing a US tax return. There’s no need to claim a treaty benefit since tax credits are not needed.

While for a dual who does file a US tax return reporting the cash ISA income as US-taxable, tax credits aren’t available.


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## underation

Bevdeforges said:


> ...filing a return without declaring the ISA income can (under US law at least) be considered "taking a tax position." US (tax) law is always subject to interpretation and there are often many ways to interpret any specific transaction or source of income.


I question whether it would be possible to argue successfully that interest earned by ISA accounts held by a US citizen can be excluded from gross income as exempt from US taxation. The DTA doesn’t say that. The USC ISA owner could just not mention it, and very likely would never get caught, but as far as I can see, she’s kidding herself if she thinks she’s complying with US tax law. 

The ISA owner might be able to report the ISA and claim US foreign tax credits, if foreign tax had been paid; but for an ISA, no foreign tax has been paid. So no credit can be claimed. 

On the other hand, if an ISA owner doesn’t have any US income/assets (and therefore has no need to claim treaty benefits), s/he is clearly entitled to the same _UK_ tax breaks (such as paying no tax on the income from ISA accounts) other UK residents are entitled to; and is clearly not required under UK law or under the DTA to forego such benefits merely because of US citizenship.


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## NickZ

underation said:


> That’s not actually necessary, for a dual with no US assets/income who isn’t filing a US tax return. There’s no need to claim a treaty benefit since tax credits are not needed.
> 
> .


It's not a question of benefits. 

https://library.croneri.co.uk/cch_uk/stt/14-250



> Although, as a rule, persons who are residents of a contracting state are entitled to treaty benefits, exceptionally, a contracting state may reserve the right to tax its own residents despite the terms of a treaty. The US-UK Treaty (2001) reserves this right on the following terms:
> 
> ‘1(4) Notwithstanding any provision of this Convention except paragraph 5 of this Article, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if this Convention had not come into effect.’


The lack of an UK tax doesn't help you. If anything it might hurt you.

https://fixthetaxtreaty.org/2017/01/19/explaining-the-saving-clause-ii/

That's from the Aussie viewpoint but the concepts are the same.

Then there is the end of article 18 here

https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf



> Accordingly, a U.S. citizen
> who is a resident of the United Kingdom will not be subject to tax in the United States on the
> earnings and accretions of a U.K. pension fund with respect to that U.S. citizen


Somebody else can figure out if an ISA fits.


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## underation

NickZ said:


> It's not a question of benefits.
> 
> https://library.croneri.co.uk/cch_uk/stt/14-250


It’s a question of whether treaty benefits are or are not claimed. Treaties are elective.

If a USC UK resident doesn’t have US income/assets, and doesn’t file US tax returns, s/he doesn’t need to know the DTA even exists. Believe me. Been there, done that, since long before cash ISAs were created. 



> The lack of an UK tax doesn't help you. If anything it might hurt you.


Not being taxed on cash ISA accounts is a benefit that’s available to eligible UK residents. The income from cash ISA accounts isn’t tax-free in the US, so if you file a US tax return you get taxed on it.



> Then there is the end of article 18 here
> 
> https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf


(Slight correction: that’s not the treaty, it’s the US Tecnical Explanation.)



> Somebody else can figure out if an ISA fits.


A cash ISA is just a savings account, not a pension.


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## underation

NickZ said:


> The lack of an UK tax doesn't help you. If anything it might hurt you.
> 
> https://fixthetaxtreaty.org/2017/01/19/explaining-the-saving-clause-ii/
> 
> That's from the Aussie viewpoint but the concepts are the same.


Sticking with the UK context, since that’s where I live: it’s not the Saving Clause that enables the US to tax the income from a cash ISA held by a UK-resident; it’s filing a US tax return.

The cash ISA income is UK-taxable (though as a matter of policy the UK doesn’t tax it). If a US citizen files a US tax return, reporting their ISA income as US-taxable, they’re accepting liability for paying US tax on that income. By reporting it as US-taxable, they make it US-taxable.

If however the USC has no US income/assets, and has only UK income/assets, and doesn’t file a US tax return, they’ll owe tax only to the UK - not to the US. They have no need of tax treaty benefits, so the Saving Clause doesn’t have any effect on their tax affairs at all.


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## Nononymous

I kind of like this theory, even though I'm not certain the US government agrees with it.

Currently there is no enforcement directed against non-compliant US persons outside the US with no US assets or income (or past tax debts per recent example of passport revocation) so it's really difficult to test the proposition one way or another.

The test case will likely be this: if a person never in the US tax system but subject to FATCA reporting receives a notice from the IRS telling them to declare some sort of interest income from an account in their country of residence, then we can safely say that the US considers *all* worldwide income potentially taxable, not just that which a person chooses to report, or believes to be exempt because of tax treaty provisions.

Until that happens, however, the non-compliant may safely assume that their non-compliance is in fact compliance!


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## underation

“Compliant” is a sick-making word, IMO. Not a characteristic that has ever seemed admirable, to me. A 1984 kind of word.

If you don’t owe US tax, there’s nothing you need to report. The function of all (well - many) of the reporting requirements (for an expat with no US income/assets) is to make sure you *do* owe US tax by getting you to say so in writing.


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## Nononymous

underation said:


> The function of all (well - many) of the reporting requirements (for an expat with no US income/assets) is to make sure you *do* owe US tax by getting you to say so in writing.


Yes, but that's rather my point. If one day in the future, based on FATCA reporting, the IRS does tell a non-resident US person who is not currently filing US tax returns (and who has no US assets, income or past history of filing) that they are expected to declare income earned entirely outside the US, then we've established that the IRS does not share your view of the matter.

Whether the IRS has any ability to enforce that request is a different question entirely.


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## underation

Nononymous said:


> Yes, but that's rather my point. If one day in the future, based on FATCA reporting, the IRS does tell a non-resident US person (with no US assets, income or past history of filing) that they are expected to declare income earned entirely outside the US, then we've established that the IRS does not share your view of the matter.
> 
> Whether the IRS has any ability to enforce that request is a different question entirely.


But what the IRS thinks doesn’t matter to a UK-resident dual with no US income/assets, unless they have a desire to comply with US tax law. If no tax is owed, no tax is owed. End of story.

Obviously, if a UK-resident dual _does_ care what the IRS thinks, they’ll probably be filing US tax returns, so the IRS will more than likely never need to waste their 2nd-class stamp writing them a letter.


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## Bevdeforges

Nononymous said:


> Yes, but that's rather my point. If one day in the future, based on FATCA reporting, the IRS does tell a non-resident US person who is not currently filing US tax returns (and who has no US assets, income or past history of filing) that they are expected to declare income earned entirely outside the US, then we've established that the IRS does not share your view of the matter.
> 
> Whether the IRS has any ability to enforce that request is a different question entirely.


The complicating issue here is that, IRS staff resources being what they are, they have no time nor inclination to go after someone for not filing if there is no indication that they actually owe any taxes.

What some governments do is to make the tax assessment document something that is used for other administrative purposes. (Then again, other governments don't claim the right to tax non-resident citizens either.) Here in France, your tax assessment document is used for all sorts of identification purposes - including things like registering a new car, or applying for a national i.d. card. Even if the tax owed for the year is 0. 

And, in some cases in the US, if you owe 0 taxes year after year, the IRS even sends out a letter asking you NOT to file unless your situation changes. Some might consider that "talking out of both sides of your mouth."


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## underation

Bevdeforges said:


> And, in some cases in the US, if you owe 0 taxes year after year, the IRS even sends out a letter asking you NOT to file unless your situation changes. Some might consider that "talking out of both sides of your mouth."


Seems quite consistent to me. The IRS says, citing the relevant statutes, that taxpayers must file a return for any tax they’re liable for. (1040 instructions p. 109)


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## underation

underation said:


> Seems quite consistent to me. The IRS says, citing the relevant statutes, that taxpayers must file a return for any tax they’re liable for. (1040 instructions p. 109)


And that, in turn, is consistent with the fact that the penalty for not filing a return is a percentage of tax owed: they presumably have no statutory authority to penalise a taxpayer for not filing a return, if the taxpayer’s not liable to pay tax.

An expat in the UK, who has no US income/assets but nevertheless files a US tax return, makes himself liable to pay US tax on any UK income that hasn’t been fully taxed by the UK.

While an expat in the UK who has no US income and _doesn’t_ file a US tax return, isn’t liable to pay US tax.

Q.E.D.


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## NickZ

I know I should be sleeping but how exactly is not filing changing your tax liability? Tax evaders rarely file.


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## underation

NickZ said:


> I know I should be sleeping but how exactly is not filing changing your tax liability?


It’s the other way around; it’s filing the US tax return that creates a (pseudo) liability to pay US tax on non-US income. (“pseudo”, because under the DTA, taxpayers shouldn’t be taxed twice on the same income.)

The UK generally has the taxing rights over income that arises in the UK, unless the treaty says otherwise; the US generally has the taxing rights over income that arises in the US, unless the treaty says otherwise.. A dual in the UK therefore is taxed by the UK on his/her UK-source income.

But if s/he files a US tax return, reporting UK-source income as if it were taxable by the US, s/he creates a liability to pay US tax on the same UK-source income that’s already been taxed by the UK.

To avoid being double-taxed on the same income, s/he then needs to cancel out this secondary tax liability, by claiming credit from the US for the tax already paid to the UK. 

Often, that’s the end of it: just a pointless paper exercise, generating a US tax liability and then wiping it out. US tax due = zero.

But if some of the UK-source income hasn’t been fully taxed by the UK (a UK tax break), the taxpayer won’t be able to cancel out entirely the US tax liability s/he has which s/he created when s/he filed the US tax return. S/he’ll have created a real US tax liability for herself/himself and will have a real US tax bill to pay.

In contrast, if s/he _doesn’t_ file a US tax return, and doesn’t have any US income or assets, s/he won’t have a US tax liability. 

Some of us left America a long time ago and never filed a US tax return again. - because just like most of our fellow Brits, we had no US income and it never crossed our minds to file a US tax return. Then FATCA came along, and to our surprise, banks broke the news to us that US tax law deemed us all to be living in Washington DC and “hiding” our UK income from US taxation. 

Bizarre, no? 

Interesting, though, in a psycho-taxer kind of way. 



> Tax evaders rarely file.


You think? How does that work? How could a UK/US dual who is fully taxed on his/her income by the UK, and never files a US tax return, possibly be evading US tax?


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## underation

> How could a UK/US dual who is fully taxed on his/her income by the UK, and never files a US tax return, possibly be evading US tax?


On the other hand, if a UK-resident dual does file a US tax return; reporting their UK earned income; claiming US tax credits (perhaps including “refundable” US tax credits); but excluding the interest earned by their tax-free UK ISA - _that_ would be tax evasion.

As per the treaty:



> Each of the Contracting States shall endeavour to collect on behalf of the other Contracting State such amounts as may be necessary to ensure that relief granted by this Convention from taxation imposed by that other State does not inure to the benefit of persons not entitled thereto.


A UK resident with US citizenship is legally entitled (not obliged) to file US tax returns - provided they don’t abuse that privilege in order to claim tax breaks (in this case, treating the ISA interest as exempt by treaty) which they’re not entitled to.

If their income is entirely UK-source, they don’t need to file US tax returns; but if they have income from both countries, they need to report their worldwide income to both tax agencies, so that the tax due to each country can be correctly calculated and assessed.


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## underation

Correction:



> ...if...[a UK-resident dual] files a US tax return, reporting UK-source income as if it were taxable by the US, s/he creates a liability to pay US tax on the same UK-source income that’s already been taxed by the UK.
> 
> To avoid being double-taxed on the same income, s/he then needs to cancel out this secondary tax liability, by claiming credit from the US for the tax already paid to the UK.


Or by claiming the US Foreign Earned Income Exclusion tax break to exclude UK-source earned income from gross US-taxable income.

This would work better than claiming US tax credits, for many US-filing UK-resident USCs, as the UK Personal Allowance means some of the taxpayer’s earned income is not taxed by the UK.

But high earners might be better off claiming tax credits.


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