Whether it be for education, business or simply a life-style choice, a move to the US has been a popular decision for many northerners over the years.
If advising an individual or a business, the way in which the US imposes tax can differ significantly from the UK. They may speak a similar language, but it is, after all, a foreign country. For a start, it is a federal system and both the federal as well as state authorities may tax you, even some local areas like New York City can do so. As a result, sometimes, attractive headline rates of individual or corporate tax may appear to be not so appealing after all, particularly in states like California or New York. Of course, the real issue is not just what US taxes there may be but rather how the UK and US tax positions may overlap or offset. It is crucial therefore to take clear, helpful advice on how the systems interact if there is exposure in both counties. This generally needs specialist advice with an awareness of both systems.
Non-US residents can be taxed on US sources of income, while a US tax resident is taxable on worldwide income or gains and remember that this is determined in accord with US tax rules and in US Dollars. Generally, US federal tax residence is determined under a day count test, but a US citizen or a greencard holder are actually considered US tax resident even if living outside the US. State Tax residence will be determined under different rules that may vary by state.
Someone moving to the US needs to be aware that the US has special rules applying to certain non-US investments, e.g. UK unit trusts, ISAs and insurance backed products, as well as their being additional reporting obligations in respect of non-US bank, financial accounts and investments.
Entrepreneurs and Business owners’
The good news is that the applicable rate of US federal corporation tax has recently fallen from an average rate of 35% down to 21%. However, for business owners’ complex rules can apply if they or their business becomes US tax resident. In the past the US exposure on overseas corporations owned by US residents was more limited but in December 2017, US tax reform imposed swathing changes to the way in which taxes are applied in respect of US controlled non-US companies. Business owners and entrepreneurs looking to move to the US must be aware of these issues prior to any move. Planning opportunities do exist but only with forward looking advice.
Similarly, any northern business looking to set up in the US has to consider the tax position of any staff that will be working or living there and have to consider carefully the most appropriate entities to operate through. Navigating these complex tax systems and understanding how the UK and US may or may not work together may determine the success or failure of any expansion into this biggest of markets.
Frank Hirth is an award-winning firm of international tax specialists with a comprehensive knowledge of both the UK and US tax systems developed over 40 years.
We understand the enormous task of relocation as well as setting up & running a business in a new jurisdiction. At Frank Hirth we can provide clear advice that can guide you through the two systems and help you set up and run your business successfully.
If you are interested in learning more about this topic, join us at our next event in Manchester on Friday 1 March 2019 where we will be discussing:
If you would like to join please contact us.