Will I have to pay UK tax on my tax-exempt US income?

April 14, 2010 1:12 PM

I'm tax-exempt in the US as a visiting scholar. When I go back to the UK, will I have to pay UK tax on the income I earned in the US?

You are not a tax lawyer; you are not a tax accountant.

I've just discovered, belatedly, that I shouldn't be paying tax on my US income as a visiting scholar (postdoc, J1 visa): I will be leaving before the end of the two-year 'exemption period' for tax under the UK-US tax treaty. Will I have to pay tax on this income when I return to the UK (for a job, in September)? If so, how will the rate be calculated?

Any MeFites who have had experience of this situation, I'd be very grateful for your advice.

Thank you!

Disclaimer: I fully intend to pay any tax that is due. I was already planning to pay voluntary NI contributions for my time away. This question is intended to help me make whatever plans are necessary (such as saving it instead of spending it!), not to help me avoid taxes.

posted by lapsangsouchong to Work & Money (8 answers total)

I was in a similar position and didn't pay tax on my return. I was under the impression that you didn't have to. I can't remember what information I based that impression on though.

Be careful if you overstay your two years or return to the US without an appropriate gap. The IRS be waiting...
posted by Fiery Jack at 1:25 PM on April 14, 2010

Response by poster: Yes, and they're pretty scary--the forms alone can paralyze a healthy adult in seconds. However, since I'm leaving after less than a year, and for a permanent job in Britain, I should be alright. And at the moment, I'm in the agreeable situation of them owing me money.
posted by lapsangsouchong at 1:50 PM on April 14, 2010

If the UK is like Canada, and I think in this respect that it is, then as long as you made the money while residing in the US, those moneys are only subject to the tax regime extant where they were earned. In other words, you were exempt in the US, then you're exempt, period.

Hilariously enough the same does not apply to Americans who are working abroad.
posted by ethnomethodologist at 1:56 PM on April 14, 2010

OK. Consult an accountant, but here's the rough rule: you pay UK income tax if you're resident in the UK during the tax year. You're resident if (a) you're in the UK for 183 days, ignoring days of arrival and departure (unless you're an EU national who commutes to work in the UK) or (b) if you leave the UK for permanent residence abroad, you're resident here if you stay 91 days and similarly a regular visitor to the UK becomes resident after four years if his visits during those years average to at least 91 days a year.

Sept-Apr looks like 7 months to me. You're resident and therefore liable to tax in that year.

But seek a tax accountant. I'm only half-remembering this stuff from a decade ago.
posted by I_pity_the_fool at 2:13 PM on April 14, 2010

Response by poster: I_pity_the_fool, I know I'll be liable for tax on my UK income after I return. But what about on the US income I earn between now and September--i.e. in the first five months of the tax year 10-11--before I go back to Britain? That's the bit of information I'm missing. Though from the other answers it sounds like I won't have to pay tax on that. Thanks, nonetheless.
posted by lapsangsouchong at 4:17 PM on April 14, 2010

I think I_pity_the_fool answered your question. Your US income is considered to be income by HMRC, no matter where you got it from. Since you are a UK resident for the tax year of 2010 to 2011 and presumably domiciled in the UK, you will be taxed on any income earned in the tax year of 2010 to 2011, including any earned when you were in the US. But, I am not your tax accountant.
posted by moiraine at 2:35 AM on April 15, 2010

Best answer: lapsangsouchong:

In general, an individual who is resident for any part of the tax year is treated as being resident for that whole year. As a matter of practice however, by way of what's known as an 'extra-statutory concession' (that is, a rule made up by the Inland Revenue to make your life easier and which cannot be relied on for tax avoidance), you can split the tax year if you leave for permanent residence abroad and likewise when an individual comes to the UK for permanent residence.

Link
posted by I_pity_the_fool at 2:46 PM on April 18, 2010

Response by poster: Very useful to know--thanks. I certainly filled in the relevant 'leaving the country' forms when I left; it might be, though, that my earlier-than-expected return (in January, it turns out, rather than September) means I have to rescind those, so to speak.

What all of this suggests very clearly, though, is that (i) I should set aside the money I'm saving in the US under my exemption until I'm absolutely sure that I don't need to give it to HMRC, and (ii) I should speak to a tax lawyer when I get back to Britain!

Thanks to all for your advice.
posted by lapsangsouchong at 3:58 PM on April 18, 2010