US/UK Tax Talk
Roland A. Sabates
Director of Operations
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Agenda
Brief Overview of H&R Block Expat Tax Services
Importance of U.S. tax compliance from both the expat and HR
professional
US / UK Tax Talk
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Largest Tax Preparer in the World
 680+ million returns worldwide since 1955…24.2 million in 2015
 ~12,000 offices globally, with over 80,000 tax professionals and associates worldwide1
 Well-established operations in the U.S., Canada and Australia
• Start-up operations in India and Brazil
 Files approximately 1 in every 7 U.S. tax returns
• 96% brand awareness
• Capable of serving clients anywhere, anyway and anytime they choose (Assisted and DIY)
 Offers complementary “Tax Plus” products to clients
• Emerald Card is the 3rd largest general purpose reloadable debit card in the U.S.
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1 Excludes
tax professionals and associates at franchise locations
Established & Growing International Presence
One of our fastest growing businesses is International
Canada
Completed 51st Tax Season
10% Segment Share
Australia
Completed 44th Tax Season
7% Segment Share
Emerging Markets
India
US Expat Tax Services
Brazil
Offices on/near 25 U.S. Military Bases
Evaluating other opportunities
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H&R Block Expat Tax Services
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H&R Block Expat Tax Services
Retail expat services available in Canada, Australia, and India
Expat Tax Services launched in May 2013
• Served thousands of clients in over 160 countries
• U.S. tax return preparation and filing, FBAR, consulting
• Highly specialized. Most advisors are CPA’s, tax attorneys, or
enrolled agents (EA’s)
• Virtual service using Skype, email, or phone with secure document
sharing and storage
1. Register @ hrblock.com/expats
2. Provide Tax Information
3. We Prepare Tax Return
4. Review & E-file
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Why is this important?
3,415
2015
American Taxpayer –
• Penalties
• Costly Compliance Fees
• Avoidable U.S. Tax Exposure
HR Professional –
• Associate Engagement and Retention
• Popularity of International Assignments
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Meet Irene…
Irene is high potential digital marketing manager with your
organization and accepts a two-year assignment working in
London.
She meets a British national, gets married, and requests to be
localized to the London office.
Irene contacts the accounting firm she had been working with
through her employer and is given a quote of several thousand
dollars. She decides to look for another option but misses the
filing deadline. By the time the next year’s filing deadline rolls
around, her first child is on the way and U.S. taxes falls down the
priority list.
She enrolled in the group personal pension offered through her
employment and begins making a monthly contribution to an
Individual Savings Account with a UK-based financial institution.
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U.S. Tax Filing Deadlines
April 18, 2016 – Deadline to pay 2015 U.S. tax
June 15, 2016 – Deadline to file for U.S. taxpayers overseas
(automatic extensions can be requested to October 15th)
June 30, 2016 – FBAR filing deadline (no extension)
October 15, 2016 – Extended filing deadline
December 15, 2016 – Additional extension for U.S. taxpayers
overseas
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Benefits to Reduce U.S. Taxation
Foreign Earned Income
Exclusion
$100,800 excluded from
taxable income
Qualifications
• Physical Presence Test
• Bona Fide Residence Test
Additional housing exclusion
amount - $85,300 (London)
Foreign Tax Credit
Dollar for dollar credit for tax
paid
Income Tax
Carryover of unused credits
for up to 10 Years
Different limitations for
passive and active income
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prohibited
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Comparative US / UK Tax Rates
U.S. Tax Rates
U.K. Tax Rates
Rate
Single
Married
Separate
Head of
Household
Rate
10%
$0 to $9,225
$0 to $9,225
$0 to $13,150
20%
Basic Rate
£0 - £31,785
40%
Higher Rate
£31,786 £150,000
45%
Additional
Rate
£150,000 +
15%
25%
28%
33%
35%
39.60%
$37,450 to
$90,750
$90,750 to
$189,300
$189,300 to
$411,500
$411,500 to
$413,200
$37,451 to
$75,600
$75,601 to
$115,225
$115,226 to
$250,750
$205,751 to
$232,425
$13,150 to
$50,200
$50,200 to
$129,600
$129,600 to
$209,850
$209,850 to
$411,500
$411,500 to
$439,000
$413,200 +
$232,426 +
$439,000 +
$9,225 to $37,450 $9,226 to $37,450
Standard
Deduction
Personal
Exemption
All Taxpayers
Personal Allowance
£10,600
$6,300
$4,000
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British Pension Schemes
Favorable Treatment Under U.S.-U.K. Income Tax
Treaty
• Elective deferrals and tax-deferred earnings available for most
American participants
Employer v. Personal Pension Schemes
Strategy and Grey Area
Watch Outs
• QROPS – early access
• Contribution limitation differences
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British Investments
Individual Savings Accounts (ISAs)
• Cash ISAs
• Stock and Shares ISAs
Passive Foreign Investment Company
•
•
•
•
No capital gains rates
Losses do not offset gains
Punitive tax and interest charges
Costly compliance
Net Investment Income Tax (NIIT)
• 3.8% tax on investment income
− $125,000, $250,000
• Problems with foreign tax credit
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Foreign Account and Entity
Information Reporting
Foreign Accounts
• FBAR – Foreign accounts valued in excess of $10,000
− Ownership or Signature Authority
− Penalties –
>
>
Non-Willful - $10,000
Willful – Greater of $100,000 or 50% of the highest balance of the account
• Form 8938 – FATCA – Foreign accounts and assets valued in
excess of $200,000/$300,000
Foreign Trusts
• Non-employer pensions
• Flat Penalties - $10,000
Foreign Limited Companies
• Forms 5471, 8865, 8858, 926
• Flat Penalties - $10,000
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International Family Issues
Nonresident Spouse
•
•
•
•
Filing Status
Election to file jointly with foreign spouse
Transfers of assets between spouses
Divorce
Children born overseas
• U.S. citizenship for children born overseas
• Child tax credit
• Dependent care credit
Affordable Care Act - Health insurance coverage
Constructive ownership rules for foreign businesses
Signature authority over accounts maintained for relatives
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UK Home Ownership
Mortgage Interest Deduction
• Offset Mortgages
Sale of Home Exclusion
• $250,000 ($500,000 – MFJ)
• Foreign Currency Fluctuations
Rental Activities
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Additional Child Tax Credit
$1,000 per U.S. citizen child claimed as a dependent
•
•
•
•
Under age 17
Claimed as a dependent
No foreign earned income exclusion
Social security number required by filing deadline
FILING STATUS
PHASEOUT
Single, HOH
$75,000
MFS
$55,000
MFJ
$110,000
$20,000/child
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Miscellaneous Issues
State Taxes
• Continued state residency status
Equity Compensation
• Source of Income from RSUs and stock options
Social Security Taxes
Business Ownership
• Sole Trader v. Limited Entity
• Changes to UK dividend taxation – U.S. implications
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Options Available to Non-Filers
Delinquent Information Reports
• For taxpayers who have filed all income tax returns and paid all
tax but neglected to file certain information reports.
Streamlined Compliance Program
• Nonwillful filers – definition of “nonwillful” not entirely clear
• 3 years of delinquent tax returns and 6 years of delinquent
Offshore Voluntary Disclosure Program
• Structured penalty exposure
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Tax Savings Strategies
Foreign Earned Income Exclusion and cash ISAs
Child Tax Credit for certain taxpayers
Excess UK taxes paid
• 10-Year Carryover
• Subsequent move to low tax country
• Pension planning
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Let’s Check in With Irene
Irene receives a letter in the mail from her financial advisor requesting
that she provide them with a Form W-9 and sign a waiver allowing them
to disclose her information to the U.S. Department of Treasury. They
explain that signing the documents is a condition of maintaining an
investment account.
In addition, the notification that her financial advisor sends her includes a
three-page letter describing in detail her obligations to report non-U.S.
accounts. She immediately contacts an accountant in the United States.
•
•
•
•
Filing status – MFS or Head of Household
Likely phased out of child tax credit
Individual Savings Account reporting
UK pension plan likely exempt from U.S. tax
•
Streamlined Foreign Offshore Procedures
− Exposure to penalties?
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