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Tax Considerations for UK Expats Moving to Maryland
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Tax Considerations for UK Expats Moving to Maryland
So, you're moving from the UK to Maryland! That's pretty exciting, right? A fresh start, new opportunities, maybe a change of pace, and, let's not forget, new tax obligations. While this isn't exactly the most thrilling topic to talk about, it's super important to get your head around the tax situation before you make the big move. The US and UK have quite different tax systems, and as a UK expat, you'll need to understand the differences. Otherwise, you might find yourself in a confusing situation, perhaps even paying more tax than necessary or missing out on some key benefits. In this blog, I'll walk you through the basics of tax considerations for UK expats moving to Maryland, breaking it down so it's easy to follow (because, let's face it, taxes can get complicated).
First things first, the US tax system works quite differently from what you're used to in the UK. In the UK, tax is based on residency – you pay UK taxes on your worldwide income if you're a resident. The US, on the other hand, is one of the few countries that taxes you based on citizenship and residency. This means that if you're moving for work and earning income there, you're subject to US taxes. But it also means that even if you're just a temporary resident, you may be responsible for US taxes.
Oh, and there's another catch: US citizens and green card holders have to pay taxes on their worldwide income, no matter where they live. So, if you're planning to become a US citizen or obtain a green card later down the line, you'll need to be aware of that.
Here’s the good news: The UK and US have a tax treaty in place, which helps to prevent double taxation (because paying tax on the same income twice would be the worst). Essentially, this treaty allows you to avoid paying taxes in both countries on the same income. However, that doesn't mean you're off the hook for good. You'll need to file tax returns in both the US and the UK, but the treaty provides certain exemptions and credits to ensure you don’t get taxed twice.
Another layer to the US tax system is that you’ll deal with more than one type of tax. In the UK, you pay Income Tax and National Insurance Contributions. In Maryland, you'll be paying federal taxes, Maryland state taxes, and potentially local taxes as well, depending on where you live.
As one of the UK expats moving to Maryland, you’ll need to figure out whether you’re filing taxes as a resident or a non-resident of the US. This depends largely on the Substantial Presence Test (SPT), which is how the IRS determines if you're considered a US resident for tax purposes.
The Substantial Presence Test takes into account how many days you’ve spent in the US over the past three years. It’s a bit of a formula, but generally speaking, if you spend 183 days or more in the US in a year, for tax purposes, you’re a resident.
If you’re a resident, you'll be taxed on your worldwide income. If you're a non-resident, you’ll only pay taxes on US-sourced income. Again, this is where things can get a bit tricky, so it's a good idea to consult a tax advisor before the move to ease the stress ahead of time and see how your specific situation fits in.
Another tool that can help you avoid being taxed twice is the Foreign Earned Income Exclusion (FEIE). If you’re still earning income in the UK or from abroad, this allows you to exclude a portion of that income from US taxes. For 2023, you can exclude up to $120,000 of foreign-earned income, which is quite significant.
But there’s a catch: you need to qualify for the exclusion by either passing the Physical Presence Test (spending at least 330 full days outside the US in a 12-month period) or if you are a bona fide resident of another country. It might be tricky to qualify for this if you’re moving permanently to Maryland, but if you’re spending part of your time in the UK or travelling back frequently, it’s worth considering.
If you have savings, investments, or pensions in the UK, when it comes to tax considerations for UK expats moving to Maryland, you might have additional reporting requirements. The US requires you to disclose foreign accounts and financial assets over certain thresholds. For example, if you hold more than $10,000 in foreign bank accounts at any point during the year, you’ll need to file a Foreign Bank Account Report (FBAR). Failure to do so can result in some hefty penalties.
There’s also the Foreign Account Tax Compliance Act (FATCA), which requires expats to report foreign financial assets if they exceed certain values. If you're single, the threshold is $200,000 at the end of the year or $300,000 at any time during the year. Again, the penalties for not reporting can be severe, so don’t skip this step.
When moving from the UK to Maryland, hiring professional movers is essential to ensure everything goes smoothly. Look for a company experienced in international relocations, and make sure they have a trustworthy Maryland crew to handle things on the US side. A reliable team will help with customs regulations, logistics, and the safe delivery of your belongings, making your transition much easier and stress-free
Moving to Maryland from the UK is a big step, and while navigating the US tax system may seem like a daunting task, it’s definitely manageable if you take the time to plan ahead. Our best piece of advice? There are too many tax considerations for UK expats moving to Maryland to consider. To make sure you remember them all, get yourself a good tax advisor who understands both UK and US tax laws. They can save you a lot of headaches and possibly a lot of money. Good luck with your move, and don’t forget to enjoy the crab cakes!
