Tax on Investments in the UK

The income generated from investments in the UK can be interest and dividends (and Capital Gains on the sale of these investments but will ignore this for now).

If you are investing in these through vehicles such as ISAs (Individual Savings Accounts) these are tax free in the UK.

If you are investing directly (or through portfolio) there are new tax rules that you would need to follow.

THE PERSONAL SAVINGS ALLOWANCE (PSA)

This applies to interest income and depends on what kind of taxpayer you are.

  1. Basic tax taxpayers are entitled to an allowance of £1,000 tax free
  2. High rate taxpayers are entitled to an allowance of £500 tax free
  3. Additional rate taxpayers do not get any allowances for this.

This means that if your total income is less than around £45,000 (around £43,000 in Scotland) you will pay no tax on the first £1,000 of interest that you receive.

THE STARTING SAVINGS RATE BAND (SRB)

This is where it gets a little tricky.

A starting rate of £5,000 is available to every taxpayer (in addition to the PSA).  This means that up to £5,000 of interest only can be taxed at 0%.

The downside is that the £5,000 is reduced £1 for every £1 of income that exceeds the personal allowance.  Therefore, for the year ended 5 April 2018, the Personal allowance is £11,500 and if your income exceeds £16,500 you will have no tax free amount available .

For example:  you have employment income of £13,000 and interest of £1,000 how much of the savings rate band would you be entitled to.

  1. Total income is £14,000
  2. Deducted personal allowance of £11,500
  3. Leaves £2,500 available for savings rate band
  4. As the interest received is below £2,500 tax will be at 0% meaning no tax due on this interest.

Please note that in this example the interest is only £1,000 and this would be covered by the personal savings allowance discussed earlier.

DIVIDENDS

The first £5,000 of dividends for the year ended 5 April 2018 is tax free.  This does not matter how much income that you have and is available to additional rate taxpayers.

Dividends are taxed as follows:

  1. 0% on the first £5,000 (and still covered by personal allowance)
  2. 7.5% on dividends up to the basic rate (about £45K in the UK & £43K in Scotland)
  3. 32.5% on income between the higher rate and the additional rate (up to £150K in income)
  4. 38.1% when you are an additional higher rate taxpayer.

IMPLICATIONS FOR US CITIZENS IN THE UK

A US Citizen of Green Card Holder living in the UK (or any country in the world) must continue to file US Federal Tax Returns no matter where they are living.  They must also report worldwide income.

Normally UK taxes are much higher in the UK than the US, but with the number of allowances against dividends and interest it’s likely that there may be tax bills due to the IRS (Internal Revenue Service).  This is because there may no foreign tax credit to set off against this income.

If you have any questions regarding this, please do not hesitate to contact EDA Professional Services at info@edaprof.co.uk.

Reporting the sale of your home when non-resident of the UK

Have you been living outside the UK for a number of years and continued to own property?

 

Before 2015 if you were not living in the UK you did not need to report any disposals of property.  However, from the April 6th 2015 if you have property you report the sale of any property that you own to HMRC within 30 days of the sale.  There are very tough penalties for non-compliance which are broadly in line with Self-assessment tax return penalties.

Details of this can be found at HMRC’s website by clicking this link.

If the property was your main home at one point when you were living in the UK, you can claim up to 18 months Principal Private Residence (PRR) Relief.   This would take effect from 6 April 2015 until 6th October 2016.  Any gain after that period may be subject to Capital Gains Tax in the UK.

HMRC also state that you can instead of using the acquisition cost of the property you can elect to use the Market Value of the property as of 5th April 2015 as the base cost of your property.  The gain would be calculated based on the sale value less any costs and the April 2015 value.  There may be reliefs available such as PPR.

If you have sold a property in the UK whilst living abroad, please do not hesitate to contact us at info@edaprof.co.uk and include “Sale of property when I was non-resident” in the subject heading.  We would be happy to assist you.

Scottish Flag

What Is The Effect of Scottish Independence on US Citizens

What would be the tax effect of Scottish Independence on US Citizens?

In order to claim Foreign Tax Credit on your US Federal Tax Return you must be paying taxes in a country that has a Double Taxation Agreement (DTA) with the United States.  Currently, the DTA is with the United Kingdom – not Scotland.  This means that should Scotland choose yes on 18th September, a new DTA would have to be agreed with Scotland.  It would have to be agreed in the interim period.

If no DTA is established until the actual day of independence, it would be possible that an American citizen living in Scotland could pay tax twice on the same income.

At the moment we can only speculate that may happen should the people of Scotland chose to be independent.

US Citizens are taxed on worldwide income no matter where they live.  If you have been living in Scotland and have been receiving income in Scotland (an no income from the USA) you may be required to prepare a US Tax Return.  You can claim the tax deducted from your salary as a Foreign Tax Credit to reduce your liabilities to the IRS.

If you are a US citizen living in Scotland and would like to discuss this, please do not hesitate to contact us at info@edaprof.co.uk.  We look forward to hearing from you.

US Citizens in the UK

Taxation of US Citizens in the United Kingdom

If you are a US Citizen (or a Green Card Holder) and that you are living in the United Kingdom, you may be required to still prepare a US tax return with the IRS.  This is because America taxes based on citizenship and not residence.  In addition, you will be required to declare worldwide income on Form 1040.

Depending on the level of tax that you may have to pay to the IRS, you could be have to prepare returns for a number of years if you have never prepared a return since leaving the USA.

If you are a US citizen living in the UK and would like to discuss this, please do not hesitate to contact us at info@edaprof.co.uk. We look forward to hearing from you.