UK & USA Tax Liabilities
The Mayor of London, Boris Johnson, made the news over the weekend regarding a tax demand issued for the sale of his home. In the UK, the sale of your own residence is free from Capital Gains Tax, however Mr Johnson is a dual UK and US citizen. US tax rules apply to all US citizens on their worldwide income and the sale of your own home is not tax free in the US.
The US rules can surprise people who assume it does not apply to them. Mr Johnson left the US when he was a child, but he is still caught by their rules.
USA Rules Okay
The US tax regime applies to US citizens wherever they are in the world. By contrast, the tax rules for most countries are based on residency. The new FATCA law referred to below means that the US authorities have more information than ever to chase expatriates for US tax liabilities.
Broadly, US taxes can apply to you if:
- you are a US citizen;
- you were resident in the US;
- you are a green card holder (even if it’s expired);
- you were born in the US;
- you have one US parent.
- US taxes also apply to US created trusts, estates, companies and partnerships.
Even if you have no US tax liabilities you will still be required to file US tax returns. It is possible to renounce citizenship, although exit taxes may apply.
Trusts and FATCA
More intrusive legislation will apply with effect from 1 January 2015 under the Foreign Account Tax Compliance Act (“FATCA”) to cover intermediaries such as Trusts. Again disclosures are required even if there is no tax liability.
The above information highlights the importance of reviewing your Tax status. For information about trusts and UK tax generally, please contact our Tax Director, Jenny Marks.