Tax Issues for US Nationals Staying and Working in the UK

As mentioned in our previous article, US nationals intending on working for extended periods of time in the UK will encounter both tax traps and opportunities.

This article focuses on US nationals once they have arrived in the UK, including scenarios they may face such as buying property, updating wills and creating powers of attorney, and reporting obligations under the US Internal Revenue Service.

Purchasing Property

First, it’s important to note there are no restrictions on who can and cannot purchase UK property. However, the method for purchasing in Northern Ireland and Scotland differs from the process for purchasing in England and Wales. For the purposes of this article, we focus on purchasing in England and Wales.

The process for purchasing is not too dissimilar from the US, although there are key differences that we outline below.

If you’re looking to raise a mortgage for the purchase, it’s the norm to understand how much you can borrow first so that you’re confident you can finance the purchase. Most people either instruct a mortgage adviser, who has access to multiple lenders, or approach their bank. It may be a good idea to get appropriate financial advice from a reputable mortgage adviser.

In England and Wales, most estate agents, unlike US realtors, are not professionally qualified. The estate agent only acts for the seller, although they will liaise with buyers and their lawyers—solicitors—too. The seller will pay the estate agent’s commission once the property is sold. There are multiple methods of finding a property, such as online property listing websites, visiting an estate agent’s office, or instructing a specialist property search company to source a suitable property.

Once you’ve found a property and had an offer accepted, the agents will ask for the details of your solicitors and the seller’s solicitors so they can introduce all parties. Your lender, should you have one, will also wish to send its own surveyor to survey the property before finalizing your mortgage offer. You may also wish to instruct a surveyor to carry out a more comprehensive survey for you.

The legal process for purchasing or selling property is known as conveyancing. Your solicitor will guide you through the process fully; we highlight the key points below.

The solicitor will check that the legal title to the property is clear, or alert you to any issues, and conduct searches on the property from the local authority and any other searches that may be relevant (such as a contaminated land search). Once the information is collated, they will raise inquiries with the seller’s solicitors and report back to you with all the information so that you can make an informed decision.

If you’re purchasing jointly with one or more other persons you will also need to decide whether to purchase as “joint tenants” or “tenants in common.” If you purchase as joint tenants, the property will automatically pass to the joint owner(s) should you pass away, whereas if you purchase as tenants in common the property will pass in accordance with your will. It’s best to seek estate planning advice if you’re uncertain how you should structure the purchase.

If you’re happy to proceed, you sign a contract to purchase the property and pay a deposit to your solicitor. The solicitor, with your authority, then exchanges contracts with the seller’s solicitor, and they fix a date for completion (agreed with you in advance). Once contracts are exchanged, you cannot cancel the transaction without losing your deposit (and you could be subject to other claims if you fail to complete). On or before completion day, you will be asked to transfer the remaining purchase monies to your solicitor and your lender will also do the same. The monies are transferred to the seller’s solicitors and on them confirming receipt, the estate agent will allow you to collect the keys to the property. Your solicitor will then apply to the Land Registry to ensure your ownership is reflected in an updated title deed.

Purchasers are subject to stamp duty land tax (SDLT) on the purchase of property. The amount of SDLT payable is dependent on the purchase price, whether you’re a first-time buyer, or whether the purchase will be classed as an additional property. If you already own a property (anywhere in the world) you may be subject to higher rate SDLT, which is 3% on top of the applicable rate. Furthermore, if you are not UK tax resident, an additional 2% surcharge is applied.

Wills

If you have assets in the UK, it is vital that you have a will that deals with those assets. The law that applies to your assets is determined by a number of factors, including where the asset is situated and your domicile status.

You may already have a will in the state from which you originate in the US dealing with any assets you have there. It’s important that any new will covering your UK assets does not accidentally revoke your US will. It is common for a will to have a revocation clause which revokes “all previous wills and testamentary dispositions”; this clause needs to be modified to avoid accidental revocation of your US will.

It is advisable that you consult a reputable solicitor who has cross-jurisdictional experience. Otherwise, you may inadvertently undo planning put in place previously and accidentally trigger a tax charge.

Your will deals with who is appointed to act for you in your estate (your executor), the distribution of your net assets including, should you wish, trusts to look after your estate, and appointing guardians for any minor children.

Finally, in the US it is common for wills to contain a revocable lifetime trust. If you become UK domiciled (refer to our previous article for more details), setting up a new revocable lifetime trust in the US (or anywhere else) could immediately incur significant inheritance tax consequences.

Lasting Powers of Attorney

In England and Wales, lasting powers of attorney (LPAs) allow you to appoint a person or persons to act for you in the event you lose capacity to act for yourself or, in respect of finances, for a person to act for you with your permission while you retain capacity. They must be registered with the Office of the Public Guardian, an organization that oversees the registration and use of LPAs, before they can be used.

Although LPAs are often incorrectly associated with older people, it’s quite possible for a younger person to have a need for an LPA, for example by having an accident and losing capacity, whether temporarily or permanently.

There are two types of LPA—one relating to property and finance, the other to health and care decisions.

The property and finance LPA allows your chosen attorney(s) to deal with all financial matters, which include running your bank and savings accounts, making or selling investments, paying your bills, and buying or selling property. Your attorney(s) may only act if you have lost capacity (or otherwise with your consent).

Meanwhile, the health and care decisions LPA allows your attorney(s) to make decisions such as the type of health and medical care you receive where you live, and day-to-day matters such as your diet and daily routine. Significantly, this also includes including life sustaining treatment. Unlike the property and finance LPA, your attorney(s) may only act under this type of LPA if you have lost capacity.

You can include replacement attorney(s) to act in your LPAs in the event your chosen attorney is unable or unwilling to act.

If you appoint more than one attorney, you are required to confirm how they should act—jointly, jointly and severally, or a combination of the two.

Acting jointly would mean that all decisions, however small, require the authority of all attorneys, and can be somewhat arduous for the attorneys although it offers you protection knowing there are “two pairs of eyes” reviewing all decisions.

Alternatively, if you choose to appoint your attorneys jointly and severally, they are able to make decisions jointly if they wish, but each attorney also has the power to make a decision independently of the others. This allows greater flexibility for the attorneys to “get the job done” but offers less protection to you.

Finally, you may wish for some decisions to be made jointly and others to be made by any individual attorney. For example, you could include an instruction in the LPA that any decision for purchasing residential property, or relating to life sustaining care, must be made jointly by all attorneys.

You should take appropriate legal advice to ensure you understand the consequences of an LPA and that it is drafted correctly to reflect your wishes. Furthermore, the instructions must be drafted perfectly, or the LPA will be rejected upon registering it.

FBAR

While you may be in the UK, you will still be under certain reporting obligations to the IRS. This will include your usual tax reporting but will also extend to the “Report of Foreign Bank and Financial Accounts.”

If you are a US citizen or resident, you are required to report any financial interest in or signature or other authority over any financial account located outside the US, provided the aggregate value of the accounts exceeds $10,000 (although there are some exemptions).

Therefore, if you come to the UK as a US citizen to work and open an account in the UK with a bank, if the account(s) exceeds an aggregate value of $10,000 at any given point in the year, you will be required to file an FBAR report. It is an annual filing, and the deadline for filing is April 15 following the calendar year reported.

The above FBAR reporting obligations also extend to acting as executor, trustee, or attorney, and therefore you should be alert to taking on such responsibilities and your additional reporting obligations.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Amish Patel is a senior associate and Rod Smith is a partner in the private client team at RWK Goodman.

The authors may be contacted at: amish.patel@rwkgoodman.com; rod.smith@rwkgoodman.com