U.S. TAX GUIDE IN THE UK
Do you need to report UK pensions if self-employed?
Yes, if you’re self-employed and living in the UK, you must report your UK pensions as a foreign trust because your contributions exceed any employer contributions. This involves filing foreign trust forms.
Can you avoid reporting a UK pension as a foreign trust?
No, you must file the forms since your personal contributions are greater than zero employer contributions.
Does reporting affect US tax liability?
Generally, reporting your UK pension doesn’t affect your US tax liability, as the earnings within the pension are not taxable until withdrawal. Ensure you file on time to avoid penalties, with the deadline being March 15, extendable to September 15. Missing these deadlines incurs a $10,000 penalty.
What must self-employed US citizens or Green Card Holders in the UK file?
You need to report income and expenses on Schedule C, attached to your US tax return, and offset your US tax liability with UK income taxes paid to HMRC.
Is self-employment income subject to additional taxes?
Yes, net self-employment income is subject to self-employment tax, covering Medicare and Social Security. However, the US-UK Totalization Agreement exempts you from US Social Security and Medicare taxes if you state that your business is in the UK.
Can you use the Foreign Earned Income Exclusion?
Yes, the Foreign Earned Income Exclusion (FEIE) allows excluding a certain amount of self-employment income if the Foreign Tax Credit isn’t sufficient.
What is Form 8858?
Form 8858 is required for self-employed individuals from the 2019 tax year onwards and is due with your 1040 income tax return. It provides information about your foreign branch, akin to Schedule C with extra details.
Why file Form 8858?
A self-employed business is a foreign branch, thus requiring Form 8858. Failure to file can lead to penalties, including a $10,000 fine every 30 days.
Don’t forget your FBARs
You must file an FBAR if you have financial interest or authority over foreign accounts exceeding $10,000 at any time during the year. Not filing can lead to severe penalties.
Can self-employed individuals claim a Child Tax Credit refund?
Yes, if you’ve contributed to the equivalent of social security in your residence country, like National Insurance in the UK.