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US National - do I need to submit a tax return?

17 Dec 2015

2 minute read

Christmas is over and the New Year is here and for some of us the realisation that, for those of us that have not yet got around to it, we need to deal with our annual Tax Return soon to avoid late filing penalties comes into focus.

However for those who are both a UK resident and US National or were born in the US or who hold a ‘Green Card’, there are also the US tax filing requirements that need to be considered, even if no UK Tax Return is currently required. For US tax purposes, the end of the calendar year also signals the end of the US tax year.

Quite unusually, the US taxes a person based primarily on their Nationality or birth rather than whether they are also US resident. This principle applies whether they have been non US resident for 5 years or 50 years.

The US has very few tax return filing exemptions-most US Nationals/people born in the US will have to submit an annual US Tax Return by June 15th following the calendar year end (an automatic 2 month extension applies). Any US tax due needs to be paid by April 15th-there is no additional credit period!

Where a US National has set up a non-US trust and/or the trust contains US beneficiaries, the trustees may also be obliged to make an annual return to the IRS. Such trusts include life interest trusts, discretionary trusts, loan trusts, gift trusts and discounted gift trusts.

In addition, for all individuals with a relevant US connection as outlined above, a return of foreign financial accounts [the ‘FBAR’], must be filed with the relevant US Government agency by June 30th following the year end where combined highest balances exceed $10,000.

Where all of a US National’s income derives from the UK or outside the US and it has had UK tax paid on that income, there can still be an additional tax liability in the US.

The US does give relief for foreign tax paid on non US income. This relief has to be claimed and is often restricted, with any unrelieved foreign tax carried forward for upto 10 years.

As the tax rules differ in the US to the UK, there can often be US tax on income and capital gains that are exempt or covered by reliefs in the UK. In addition, the US taxes some income & all capital gains from non US mutual funds on an averaged basis, levying highest rate tax and interest on any such income & gains averaged over earlier US tax years, with no relief for any capital losses.

Shaw Gibbs has assisted a number of US Nationals with their US tax compliance obligations. The penalties for non-compliance are potentially very large. The FATCA rules will ensure free flow of information on US Nationals from HMRC to the IRS from next year. Now is the time to act!

Please contact our Head of Personal Tax, David Rickwood at david.rickwood@shawgibbs.com or call 01865 292200 for more information US tax.

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