The Tax Implications of Moving from the UK to the US for Relocating Corporate Employees
Relocating corporate employees moving from the UK to the US face unique tax challenges.
With over 1.3 million UK nationals estimated to live in the United States and a rising trend of corporate transfers, the tax implications of moving from the UK to the US have become a hot topic for expatriates and their employers. According to the Office for National Statistics, the number of UK nationals relocating to the US has grown by 10% annually over the past five years, with major financial, tech, and consulting firms leading the charge in transatlantic relocations.
These challenges include navigating dual tax liabilities, understanding how to use tax credits effectively, and preparing for income and capital gains tax on both sides of the Atlantic. Here’s a comprehensive guide to help UK expatriates handle tax requirements and other legal aspects when moving to the US.
A corporate relocation provides excitement & adventure for Brits wishing to go across the Atlantic. For employers, it allows their staff to share ideas across the pond. Employees and their family members can experience life in a new environment that they may not have achieved via another method.
Read this page if you are an American corporate employee relocating to the United Kingdom (UK). You may be a recruitment agency based in the UK that wishes to expand into the United States.
Why Relocating Corporate Employees Are Moving to the US
Large companies, particularly in sectors like finance, tech, and consulting, are increasingly moving UK-based employees to the US for roles requiring international expertise. Examples of these companies include:
Goldman Sachs – Financial Analysts, Investment Bankers
Google – Software Engineers, Product Managers
Deloitte – Management Consultants, Senior Project Managers
BP – Energy Policy Analysts, Project Engineers
Pfizer – Regulatory Affairs Specialists, Clinical Research Managers
These companies often provide relocation packages for relocating corporate employees, including visa assistance and tax planning. However, employees must still understand their tax obligations when transitioning to the US.
Critical Tax Implications for UK Expats Moving to the US
Moving from the UK to the US involves various tax-related considerations, as expats must pay attention to residency rules, income tax obligations, and capital gains tax requirements.
US Tax Residency and Worldwide Income
When UK employees take up residency in the US, they become liable for US taxes on their worldwide income. According to the IRS, any individual who stays in the US for 183 days or more during a tax year is generally considered a US tax resident. As a result, expats need to file US tax returns and report all global income.
Dual Tax Liability and Foreign Tax Credits
The US and UK tax authorities have a tax treaty to avoid double taxation. The treaty allows UK nationals to claim a Foreign Tax Credit (FTC) on their US taxes for taxes paid in the UK. This is especially important for individuals receiving salary, rental income, or dividends from UK sources. Expats should work with tax professionals to calculate allowable credits and deductions accurately.
Social Security and Payroll Taxes
Employees working in the US must pay Social Security and Medicare taxes unless their assignment is short-term (under five years), in which case the Totalization Agreement between the UK and the US may exempt them. This agreement prevents UK nationals from paying Social Security taxes in both countries.
State Tax Considerations (New York, California, Illinois)
Many states impose income taxes in addition to federal taxes. For instance, New York, California, and Illinois have high state income tax rates. Expats should verify the tax rules in their new state to ensure compliance and optimize tax planning.
Capital Gains and Investment Income
If UK expats own property or investments in the UK, they may need to report capital gains in both countries. The US generally taxes worldwide capital gains, while the UK provides exemptions under certain conditions for property disposals. Knowing when and how to report these gains is crucial to avoid double taxation.
Relocating from London to Chicago with Deloitte
Scenario: Emma, a Senior Project Manager at Deloitte, is transferred from London to Chicago for a two-year assignment.
Visa and Immigration Requirements: Emma applies for an L1 visa specifically for employees transferring within the same company. She must submit proof of her UK employment with Deloitte.
Tax Implications:
US Tax Residency: Emma becomes a US tax resident since she will be in the country for over 183 days.
Foreign Tax Credits: She qualifies for FTCs for any taxes paid to the UK on income earned there. She should maintain careful records to maximize these credits.
Social Security: Emma remains on the UK National Insurance system since she’s on a temporary assignment, using the Totalization Agreement exemption.
Actionable Steps:
Work with a tax specialist to ensure accurate filing in both countries.
File an FBAR (Foreign Bank Account Report) for UK-based accounts exceeding $10,000.
Relocating from London to New York with Goldman Sachs
Scenario: James, a Vice President at Goldman Sachs in London, relocates to the New York office for an indefinite role.
Visa and Immigration Requirements: James secures an H1-B visa, suitable for specialized roles in the finance sector. His visa sponsor is Goldman Sachs.
Tax Implications:
US Tax Residency: James becomes a permanent US tax resident. He must file US tax returns reporting his worldwide income.
Capital Gains: If James owns property in the UK, he must declare capital gains on disposals. However, he can claim UK capital gains tax relief for primary residence sales.
State Taxes: New York has a high state income tax, which James must factor into his annual returns.
Actionable Steps:
Register for UK self-assessment tax return to manage capital gains tax obligations.
Consult with a cross-border tax specialist to ensure compliance with UK and US filing requirements.
Tips for a Smooth Transition
Stay Informed on US and UK Tax Treaties: Regularly review US-UK tax treaty and Totalization Agreement updates. The IRS and UK Government (HMRC) websites are valuable resources.
Plan for State-Specific Tax Requirements: Ensure you understand state-level tax implications, especially if relocating to a high-tax state like New York or California.
Owning property investments in the UK
Anyone moving from the United Kingdom to the United States that have residential or commercial property investments that generate rental income will need to complete a non-resident self-assessment tax return to HMRC.
Human Resources (HR) and employee contracts
When relocating employees from the UK to the US, Human Resources (HR) departments must be deeply involved in ensuring compliance with both countries’ employment laws. Moving internationally introduces complex issues around visa requirements, taxation, and social security obligations directly impacting employees’ rights and benefits.
HR should help employees secure certificates of coverage and ensure they are aware of their rights under the US-UK Totalization Agreement, which prevents dual social security contributions. It’s also vital for employees to understand how US laws on labour rights, health insurance, and retirement differ from the UK Legal protections around job security, parental leave, and healthcare can vary significantly, and employees must be proactive in safeguarding these rights by consulting HR and, if needed, legal advisors.
Understanding these differences helps employees make informed decisions, ensuring they don’t inadvertently forfeit benefits or legal protections.
Relevant References
UK National Insurance and US Totalization Agreement
Q&A Section
Do UK expats need to file US tax returns?
If they qualify as US residents, they must file US returns and report worldwide income.
Can UK nationals avoid double taxation?
Yes, by claiming Foreign Tax Credits and utilizing the US-UK tax treaty.
How long can I stay in the US without becoming a tax resident?
Generally, under 183 days per year, but this is more complicated if you were in the country in the previous tax years.
Do US states impose their own taxes on expats?
Yes, each state has unique tax requirements.
Are UK expats subject to Social Security taxes in the US?
Usually, yes, unless they qualify for a Totalization Agreement exemption.
This guide aims to help relocating corporate employees understand the tax complexities of moving from the UK to the US, preparing them for a smooth, compliant transition.