When you are in the planning stages of your relocation to London you’ll want to give some thought to your taxes. Even if you only ever start thinking about tax in early April each year, you will have to start planning for your tax services well before you purchase air tickets for your relocation to London.
One of the perks of being an American moving to London is that the IRS will never let you go…
One of a few countries in the world that taxes their citizens twice (they’d probably do it three times if they could get away with it) means that you will have to consult with a good tax attorney before you leave. There are a number of ways that Americans moving to London can minimize their tax burden, but you can’t get away from the IRS forever.
You’ll have to file TWO tax returns each year after your relocation but there is a tax advantage if you qualify for the ‘Foreign Earned Income Exclusion’. It’s not quite a tax credit, but you can make it work to your advantage.
If you make the grade, you will be exempted from paying tax on the first $91,400 of your income. If you are an employee US government you do not qualify for this exemption. Military personnel get a certain amount of tax relief under the ‘Military Families Tax relief Act’. Your partner or spouse may still be eligible even if you’re not so make sure you get professional advice on this exemption.
To qualify for the exemption you will have to pass a Bona Fide Residence Test to prove that you are a US citizen who has been resident in a foreign country for an entire year. No trips back home to see family or you’re out!
You may also just be able to sneak through if you pass a Physical Presence Test which means you have been physically present in a foreign country for 330 uninterrupted days of any tax year. So you just may be able to make it home for Christmas and still not be crippled by the IRS.
Tax planning and tax preparation takes on new meaning if you are planning an international relocation. Your employer is not responsible for your taxes, so don’t leave things like this to chance after your relocation.