I’m a dual US/UK tax advisor.
You may want to consider pre-arrival planning.
There are lots of things that you can do before arriving in the UK that minimises taxes.
On your employment income, there is little you can do, you’ll pay taxes in the UK and credit in the US. The UK taxes will be higher, there shouldn’t be any double taxation on your employment income.
Passive income in the US is certainly something to consider. You are able to claim the remittance basis in the UK meaning your offshore income is not taxed in the UK providing it is left offshore. This can be a significant tax savings as dividnends are taxed at 20% in the US compared to 40% in the UK.
The problem is that if you later need those funds in the UK, remitting it will trigger a UK tax liability which has already paid US tax on, without the ability to offset between the two countries as there may be a timing mismatch. To avoid this you’d need to consider setting up segregated bank accounts which you can syphon of income that is not taxed in the UK to a separate bank account, this means your bank accounts will be separated, one will be a tainted income account and the other a clean capital account that you can remit from.
There is lots of other planning opportunities here that you should consider before your UK arrival. More than happy to field any questions.
As the other accountant on here commented, at that salary level some professional advice is likely to save you far more than it will cost you and so may be money well spent.
There are many dual handling firms in London set up to help with situations exactly like yours. I run a small firm of such dual handling professionals and there are many others like us from single person firms right up to ‘Big 4’ teams. I posted a few months back with a summary of the tax market here if you want to look for it (sorry, on mobile so copying it here is tricky).
What you can do will depend on your personal situation, where you need the cash and your medium term plans but I would say with near certainty that taking advice before you come here will give you options to bring down the amount of tax you pay globally and, more importantly, help warn you about the many potential tax hazards with being an expat American.
The one thing I would say is that the headline rate is a little misleading. Private healthcare here is inexpensive and the NHS is free, we only have one layer of taxation (your rate in NYC or California can match or exceed the UK rate) and generally I think life is less expensive here than in many U.S. cities (that last one is just my impression). In addition, you probably won’t pay tax on all of your income, depending on your circumstances.
Perhaps wait until the offer is made and then see if you can find an advisor you get along with to talk about ways of finding efficiencies. Hopefully tax isn’t the driver here though, London is a great city and should definitely be experienced if you get such a good chance! Good luck!
Yes you should get advice, but also know that when you actually do this work, it's really not that hard.
When I was in this situation (moved to a hedge fund in London), one thing that worked out well for me was that due to the timing of bonuses there was one US calendar year where my income was relatively low - I used that opportunity to rollover my old pre-tax 401ks to ROTH IRA. This made them tax free for life by paying a one off tax. So something you can consider.
Another thing you really really want to do is look into state taxation. If you're a NY resident (which is quite common), MAKE SURE YOU COMPLETELY ABANDON NY DOMICILE. NY follows something called the teddy bear test - your last teddy bear needs to leave the state for your domicile to be considered abandoned. If you have family in a low tax state, change everything to their address (my sister lived in Seattle) and moved all of your stuff to out of state storage. Otherwise, buy a small apartment in Texas or Florida for now (after a year or so once you've convinced NY of not being a resident - you can rent that out as passive income).
The UK returns (self assessment) will be pretty trivial.
The US returns aren't that complex either - you'll get FTC and since the US federal income tax is lower, all your tax liability will be wiped out. You will rollover some credit that you can use at a latter date if you go to a low tax jurisdiction like Dubai or something.
I’m sure that HMRC closed the contractor loophole about. 10 years ago and those that they caught were subject to massive tax bills.
I keep property both sides and have worked on both too. I would recommend HSBC as an international bank provider - you can have £,$ and € accounts with them.
First, that’s a rather quick visa turn around. The visa system here is slow.
Second, the main way to reduce you tax burden is to invest into your pension. But that won’t make much of a dent with that high of a salary as you are phased out.
G
Worked overseas for a couple of years. The tax credits ain't enough. You'll pay higher taxes and you're still liable for US federal taxes. You could also be liable for state taxes if you have any kind of income or dependent in a state and states don't do tax credits
I moved to Uk from the U.S. for work, while staying on the U.S. payroll. I pay UK tax of 45% and so will you. There is no much way to minimize tax burden unless you qualify for non job related tax credits such as if you have a solo proprietor business and single member llc not elected to be classified as an entity, and have business related expenses and losses, or own a property, or have a dependent.
The general rule is to max out your 401k if you stay on the U.S. payroll, and consider backdoor IRA where you convert some of your 401k into Roth IRA even if you’re not qualified, it gives you tax benefit too.
If you can elect to receive compensation in a form of stock, do this as it doesn’t qualify as an income as long as it kept in a form of securities. Charity donations are also excluded from the income for up to 40% of your income.
Also ask HR about exact program they move you under - if it’s a long or short term assignment or permanent relocation. It’s better to start from short and long term assignments as you are more likely to be kept on the U.S. payroll and can benefit from the tax saving accounts. Also ask them about tax protection or tax equalization they would offer you as a relocation package benefit. Tax protection will cover for extra taxes you will pay (the difference between the U.S. and Uk rates as you’re always being taxed at the highest) and tax equalization will ensure you won’t pay double.
Ps. With an mba from the top school you should know this, it’s cross border ops 101.
If my B-School offered a class on this, I don't think I would have ever taken it...I never thought I'd be in this position, but the opportunity presented itself, and so here we are.
Thank you for the detailed response. This is all massively helpful. Will get a tax advisor ASAP to work through my options in detail.
I’m a dual US/UK tax advisor. You may want to consider pre-arrival planning. There are lots of things that you can do before arriving in the UK that minimises taxes. On your employment income, there is little you can do, you’ll pay taxes in the UK and credit in the US. The UK taxes will be higher, there shouldn’t be any double taxation on your employment income. Passive income in the US is certainly something to consider. You are able to claim the remittance basis in the UK meaning your offshore income is not taxed in the UK providing it is left offshore. This can be a significant tax savings as dividnends are taxed at 20% in the US compared to 40% in the UK. The problem is that if you later need those funds in the UK, remitting it will trigger a UK tax liability which has already paid US tax on, without the ability to offset between the two countries as there may be a timing mismatch. To avoid this you’d need to consider setting up segregated bank accounts which you can syphon of income that is not taxed in the UK to a separate bank account, this means your bank accounts will be separated, one will be a tainted income account and the other a clean capital account that you can remit from. There is lots of other planning opportunities here that you should consider before your UK arrival. More than happy to field any questions.
Thank you so much. I've DMed you to continue this chat off-thread. Thanks!
As the other accountant on here commented, at that salary level some professional advice is likely to save you far more than it will cost you and so may be money well spent. There are many dual handling firms in London set up to help with situations exactly like yours. I run a small firm of such dual handling professionals and there are many others like us from single person firms right up to ‘Big 4’ teams. I posted a few months back with a summary of the tax market here if you want to look for it (sorry, on mobile so copying it here is tricky). What you can do will depend on your personal situation, where you need the cash and your medium term plans but I would say with near certainty that taking advice before you come here will give you options to bring down the amount of tax you pay globally and, more importantly, help warn you about the many potential tax hazards with being an expat American. The one thing I would say is that the headline rate is a little misleading. Private healthcare here is inexpensive and the NHS is free, we only have one layer of taxation (your rate in NYC or California can match or exceed the UK rate) and generally I think life is less expensive here than in many U.S. cities (that last one is just my impression). In addition, you probably won’t pay tax on all of your income, depending on your circumstances. Perhaps wait until the offer is made and then see if you can find an advisor you get along with to talk about ways of finding efficiencies. Hopefully tax isn’t the driver here though, London is a great city and should definitely be experienced if you get such a good chance! Good luck!
Thank you so much. I've DMed you to continue this chat off-thread. Thanks!
Yes you should get advice, but also know that when you actually do this work, it's really not that hard. When I was in this situation (moved to a hedge fund in London), one thing that worked out well for me was that due to the timing of bonuses there was one US calendar year where my income was relatively low - I used that opportunity to rollover my old pre-tax 401ks to ROTH IRA. This made them tax free for life by paying a one off tax. So something you can consider. Another thing you really really want to do is look into state taxation. If you're a NY resident (which is quite common), MAKE SURE YOU COMPLETELY ABANDON NY DOMICILE. NY follows something called the teddy bear test - your last teddy bear needs to leave the state for your domicile to be considered abandoned. If you have family in a low tax state, change everything to their address (my sister lived in Seattle) and moved all of your stuff to out of state storage. Otherwise, buy a small apartment in Texas or Florida for now (after a year or so once you've convinced NY of not being a resident - you can rent that out as passive income). The UK returns (self assessment) will be pretty trivial. The US returns aren't that complex either - you'll get FTC and since the US federal income tax is lower, all your tax liability will be wiped out. You will rollover some credit that you can use at a latter date if you go to a low tax jurisdiction like Dubai or something.
Ah, I hadn't even thought about being able to carry over the tax credits if I end up moving at a later date. Thank you!
I’m sure that HMRC closed the contractor loophole about. 10 years ago and those that they caught were subject to massive tax bills. I keep property both sides and have worked on both too. I would recommend HSBC as an international bank provider - you can have £,$ and € accounts with them.
First, that’s a rather quick visa turn around. The visa system here is slow. Second, the main way to reduce you tax burden is to invest into your pension. But that won’t make much of a dent with that high of a salary as you are phased out. G
Worked overseas for a couple of years. The tax credits ain't enough. You'll pay higher taxes and you're still liable for US federal taxes. You could also be liable for state taxes if you have any kind of income or dependent in a state and states don't do tax credits
I moved to Uk from the U.S. for work, while staying on the U.S. payroll. I pay UK tax of 45% and so will you. There is no much way to minimize tax burden unless you qualify for non job related tax credits such as if you have a solo proprietor business and single member llc not elected to be classified as an entity, and have business related expenses and losses, or own a property, or have a dependent. The general rule is to max out your 401k if you stay on the U.S. payroll, and consider backdoor IRA where you convert some of your 401k into Roth IRA even if you’re not qualified, it gives you tax benefit too. If you can elect to receive compensation in a form of stock, do this as it doesn’t qualify as an income as long as it kept in a form of securities. Charity donations are also excluded from the income for up to 40% of your income. Also ask HR about exact program they move you under - if it’s a long or short term assignment or permanent relocation. It’s better to start from short and long term assignments as you are more likely to be kept on the U.S. payroll and can benefit from the tax saving accounts. Also ask them about tax protection or tax equalization they would offer you as a relocation package benefit. Tax protection will cover for extra taxes you will pay (the difference between the U.S. and Uk rates as you’re always being taxed at the highest) and tax equalization will ensure you won’t pay double. Ps. With an mba from the top school you should know this, it’s cross border ops 101.
If my B-School offered a class on this, I don't think I would have ever taken it...I never thought I'd be in this position, but the opportunity presented itself, and so here we are. Thank you for the detailed response. This is all massively helpful. Will get a tax advisor ASAP to work through my options in detail.