If you are an American who is working and living in London, then you need to understand the differences there are between US and UK tax laws. Receiving the correct expat tax information and advice will make your life a whole lot easier.
The first important thing to know regarding living and working in London is that you will still need to file for your US taxes, simply because you are an American. With that said, it is not the end of the line as far as taxes are concerned. You will have to also file for UK income tax and pay any outstanding amounts as well.
These taxes tend to be higher than US taxes, as they include National insurance contributions as well as personal income tax. National insurance in the UK is designed to provide you with a safety net in the event of illness or unemployment. National insurance also includes other benefits such as health and pension benefits. As this is insurance, your contributions will allow you to claim for the above mentioned benefits as long as you are living in London. US citizens who come to work in London do have the opportunity to choose to either pay US social security taxes to the US or National insurance contributions to the UK. Which one you choose to pay should depend on how long you plan on living in London.
If you are an employee, your employer should deduct any and all taxes from your salary and pay it directly to the HMRC. Her Majesty’s Revenue and Customs deductions should appear on your pay slip. These deductions are also known as PAYE (Pay as you earn) in the UK. The banks and building societies will also deduct tax from any interest that you have earned in your account. This is the same as a savings and loans associate would do in the US. The deductions are done before you receive your interest, but the banks and building societies will provide you with this information on your monthly statement. Also, find out what employee benefits are available, as often these come with tax breaks for employees.
Before you start living and working in London, you will need to get a National insurance number. This is the same as the US social security number.
There is a Double Taxation Agreement between the UK and the US, which does help with regards to how much tax you end up paying. You will still need to pay both US and UK taxes, but you may qualify for a tax rebate from the IRS. There are certain criteria that need to be met in order to receive a rebate. It is a rather complicated process and it is for this reason that you should seek the advice of a professional who deals with expat taxes.
You may also qualify for a housing Exclusion or Deduction, but it does depend on your individual circumstances, which is why you need to get the correct information from the people in the know. Everyone’s situation is different from the next and it is very important that you get all your tax ducks in a row before you head over to the UK. Save yourself a lot of extra worry by getting professional expat tax advice.