Whilst dual citizenship can be beneficial in ways such as ease of access to work in either country, being a dual citizen can make other aspects such as tax more complicated. If you are a dual citizen of the UK and the US, dual citizenship can have significant tax implications on income, investments and ISAs, inheritance and property.
There are many people who do not understand their tax obligations as a dual citizen and so fall foul of IRS and HMRC guidelines resulting in a huge tax bill. We however are here to help you navigate the potential tax minefield that many US and UK citizens face and identify how to stay on the right side of the law.
Are you a dual citizen in the US?
The most important thing to remember before we go into any detail is that regardless of where you live, as a US citizen you must file expat taxes in the US. If you have a US passport, regardless of how frequently you visit the US, you will be obliged to file a tax return and pay potential taxes.
There are circumstances in which some US citizens do not realise that they are indeed a dual citizen. Often called “accidental Americans”, this refers to people who have been born in the UK to American parents, obtained a US passport but have never actually stepped foot in the US. In most cases, accidental Americans don’t actually owe any taxes to the IRS, they are however, obliged to file.
Whilst not an exhaustive list, non-resident citizens need to file:
- Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
- Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.
- Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations
UK Citizens
If you live in the UK and another country and both countries tax your income, you’re a dual resident according to HMRC. A Double Taxation Agreement exists between the UK and US to make sure that you do not pay tax twice on the same income. In this instance, you can claim full or partial relief on UK tax on your UK income – more information on Double Taxation Treaties can be found on the gov.uk.
Filing Taxes for Dual Citizens
If you were previously unaware of your tax obligations as a dual citizen, it is likely that you have become a delinquent filer and so it is imperative that you get your tax affairs up to date. For ‘non-wilful’ delinquent filers, the Streamlined Foreign Offshore Procedure provides support for taxpayers who do not intend not to file their tax return.
As a US/UK dual citizen, you may have to pay taxes on your worldwide income, inheritance, capital gains, savings and more. In the US, all sources of income and gains are subject to tax. For dual citizens, the aforementioned Double Taxation treaty reduces your liability and ensures you do not pay twice.
If you are unsure about your status and/or obligations, we would recommend that you speak to one of our expert tax advisors. We can help you to identify you tax obligations and submit the required returns to ensure you’re compliant. Call today on 0207 183 2251 or email info@ingletonpartners.com.
