# Splitting time between US and UK = Taxation issues.



## MrToad (Jan 7, 2009)

Hi All,
I'm hoping there's a tax specialist in the crowd, or that someone can recommend one. Here's the situation. My British wife and I (US citizen) currently live in the US. We've been married for 4.5 years. We were married in the UK and lived there for an additional 1.5 years until I took a job back here in the US. We had a baby girl last month.
As many of you probably do, we are having difficulty balancing out family life. My family want us here, her family want us in the UK. Fortunately, I work for a international company that fully supports teleworking. I can work from home anytime, anywhere. 
Thus, I'm hoping that at some point in the near future we can start spending significant amounts of time in the UK and the US every year. At least until our daughter is old enough for school. 
My main concern is the tax implications. Will I need to pay income tax in both the US and the UK? Is there a specific maximum or minimum amount of time I need to stay in each country to avoid double taxation? 
I'm not trying to dodge paying taxes in either country, but like most folks, I'd prefer to pay as little as possible. Based on the tax rates, it seems I'd be better served by paying income tax in the US rather than the UK. However, I don't want to run into trouble with Inland Revenue. Any advice out there? I realize I'll need to employ a competent tax advisor at some point, but any general thoughts?


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## Bevdeforges (Nov 16, 2007)

Hi and welcome to the forum.

Tax residence is based on a number of factors, no one of them "determinant" - each situation is judged on its own circumstances and merits. Which means no one can tell you for sure how each side is going to handle the situation.

The usual determinant is where you spend the "most" time in a given tax year, tempered by where you maintain your "center of interest" (i.e. your usual home base, judged by all the factors of day to day life). Normally 183 days present during a tax year will do it - though you're in a tough situation given that the UK tax year is different from the US tax year.

You're covered by income tax treaties between the US and UK, so you shouldn't have to pay double taxes, but you have to be careful how you position yourself as to "primary residence." The other complication is that if you're resident in the US, things just continue as you're used to. (I.e. you pay US income taxes.) If you're resident in the UK, you pay UK income taxes, but you (as a US citizen) still have to file US taxes, but you may have trouble meeting the qualifications for the overseas earned income exclusion (which is the easiest way to avoid the double taxation issue) if you're bouncing back and forth between two "homes."

You'll probably find it easier to maintain your US residence for the 183 days per year (UK tax year) that will allow you to be considered non-resident in the UK for tax purposes. 
Cheers,
Bev


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## Fatbrit (May 8, 2008)

MrToad said:


> Hi All,
> I'm hoping there's a tax specialist in the crowd, or that someone can recommend one. Here's the situation. My British wife and I (US citizen) currently live in the US. We've been married for 4.5 years. We were married in the UK and lived there for an additional 1.5 years until I took a job back here in the US. We had a baby girl last month.
> As many of you probably do, we are having difficulty balancing out family life. My family want us here, her family want us in the UK. Fortunately, I work for a international company that fully supports teleworking. I can work from home anytime, anywhere.
> Thus, I'm hoping that at some point in the near future we can start spending significant amounts of time in the UK and the US every year. At least until our daughter is old enough for school.
> ...


You have not only the tax situation to worry about but also your immigration status, I suspect.

Some ideas

You're on the hook for life to Uncle Sam. If you're not resident in the US, the first $85k is tax free, and after that the dual US-UK tax treaty will cut in and save you much of the time -- investments and pensions are tricky, though. If your wife is or becomes a US permanent resident, she's also on the hook to Uncle Sam until she relinquishes it.

On the UK tax front, UKCs do not pay tax if they're not resident. However,
"A person who is currently not resident in the UK will always be treated as resident in the UK if they spend 183 days or more in the UK in a tax year. If they visit the UK on a regular basis and spend, on average, 91 days or more in the UK in a tax year (taken over a period of four years), they will be treated as resident in the UK.
If they know that they are going to visit regularly and that the time spent in the UK in that and the next three tax years will average 91 days or more in the UK, they will be resident from the beginning of the tax year in which they make the first visit."
Source: HM Revenue & Customs: FAQ: Residence and domicile - day counting

It's all looking v. complicated to me. And I'm sure I've hardly scratched the surface.


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## Fatbrit (May 8, 2008)

Bevdeforges said:


> You'll probably find it easier to maintain your US residence for the 183 days per year (UK tax year) that will allow you to be considered non-resident in the UK for tax purposes.


What about the "91 days average over 4 year" trap?


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## Bevdeforges (Nov 16, 2007)

Fatbrit said:


> What about the "91 days average over 4 year" trap?


There have been some recent changes to the tax law in the UK (ok, recent means in the last few years) that may well trip the OP up. I've heard something about that one, but don't really have much detail.

But the US requirements for being "resident overseas" (for tax purposes) are much harder to meet. Before you're eligible for the overseas earned income exclusion you have to establish either bona fide residence for an entire calendar year, or physical presence for 330 days within a period of 12 consecutive months. 

And even at that, you have to report the number of days each year when you are in the US "on business" and apportion your earned income accordingly.

One other thought - though I know it's not what you (the OP) want: You may want to consider sending your wife and child back to visit her parents and family on a more regular basis. (Face it, it's probably the baby they're most anxious to see.  ) If you can arrange to go over for true "vacations" (i.e. non-working holidays) it will leave your tax situation considerably less complicated.
Cheers,
Bev


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## MrToad (Jan 7, 2009)

Thanks to both of you for the information. So, based on the 91 day average over 4 years rule, as long as I am in the UK for no more than 90 days per tax year, I won't be on the hook for UK income taxes? Also Fatbrit mentioned immigration issues. I was planning on sitting the KOL on my next visit, then applying for ILR. However, since I can stay for up to six months at a time on a visitor's visa, it seems like this would be a waste of money, especially if I'm limited to a stay of <91 days per year due to tax reasons. 
So in a nutshell, I could ship the wife and sprog back to the UK on a more regular and lengthy basis, and as long as I join them for less than <91 days per UK tax year, we should be all right on both the tax and immigration fronts?
Again, thanks for your help. I realize it is a complicated issue that will probably require legal counsel.


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## Bevdeforges (Nov 16, 2007)

Just a quick clarification - most of what we've been telling you here assumes that the wife isn't doing the "work anywhere" and "telecommuting" thing while she's traveling back and forth between the US and UK. I suspect that would complicate the situation a bit - but it sounds like she's making the most of being a new mom.
Cheers,
Bev


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## MrToad (Jan 7, 2009)

Correct. The wife is on maternity leave, and depending on what we end up doing, may or may not go back to work. She doesn't have the same flexibility that I have regarding work, so if we were to spend significant time in both countries it's likely she'd be a full-time mom for that time.


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## Fatbrit (May 8, 2008)

MrToad said:


> Correct. The wife is on maternity leave, and depending on what we end up doing, may or may not go back to work. She doesn't have the same flexibility that I have regarding work, so if we were to spend significant time in both countries it's likely she'd be a full-time mom for that time.


Is the wife a US permanent resident?


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## MrToad (Jan 7, 2009)

Yes she is.


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## Fatbrit (May 8, 2008)

MrToad said:


> Yes she is.


So she's stuck with a US tax return, anyway. Also, if she spends long periods outside the US, she puts her status in jeopardy.


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## MrToad (Jan 7, 2009)

Fatbrit said:


> So she's stuck with a US tax return, anyway.


Yep. But I always have to file, so it's no big deal with the joint return.



Fatbrit said:


> Also, if she spends long periods outside the US, she puts her status in jeopardy.


My understanding of the regs is more than a year without a reentry permit, or two years with a permit. Is that not the case?


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## Fatbrit (May 8, 2008)

MrToad said:


> My understanding of the regs is more than a year without a reentry permit, or two years with a permit. Is that not the case?


Nope -- abandonment of permanent residency is a lot more complicated than that! Firstly, she'll need a reason to apply for a reentry permit. Hanging out in the UK is not a reason. Secondly, she'll start to build up a pattern of long periods out of the US and CBP officers will eventually throw their spanners in the works, usually at the most inopportune moment. 

In many ways for a dual-national couple, it's just easier for both sides to get the others citizenship and then you can knock immigration issues out of the complex equation..


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## MrToad (Jan 7, 2009)

Fatbrit said:


> Nope -- abandonment of permanent residency is a lot more complicated than that! Firstly, she'll need a reason to apply for a reentry permit. Hanging out in the UK is not a reason. Secondly, she'll start to build up a pattern of long periods out of the US and CBP officers will eventually throw their spanners in the works, usually at the most inopportune moment.
> 
> In many ways for a dual-national couple, it's just easier for both sides to get the others citizenship and then you can knock immigration issues out of the complex equation..


Thanks, that's some very helpful information. It looks like dual-citizenship is the way to go. Thanks!


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## Fatbrit (May 8, 2008)

MrToad said:


> Thanks, that's some very helpful information. It looks like dual-citizenship is the way to go. Thanks!


She should be good to go 90 days before her 3rd anniversary of becoming a PR if she qualifies on all other counts. If you had to file an I-751, don't bother waiting for adjudication before submitting the N-400. It's taking round about 6 months from submission to the oath ceremony in most places at the moment.


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## chiguy (Mar 9, 2009)

_I can work from home anytime, anywhere._ 

Mr. Toad, I was just curious, what sort of work do you do that allows you this much flexibility? Its very handy for someone considering a move between countries.

Thanks in advance.


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