Home | Blog | UK Year-End Tax Planning/US Pitfalls

UK Year-End Tax Planning/US Pitfalls

With all the temporary business closures happening as a result of COVID-19, it might be easy to forget that life still goes on. The US may have extended their deadline, but the UK tax year will still end on the 5th of April regardless of the present circumstances. Therefore, as we approach the UK  year-end, we have put together some things to consider whilst you are at home.

We tell clients that, generally, things that are not taxable in the UK are often taxable in the US. Dual uk year-end planningcitizens need to find a balance. Below are some considerations for UK year-end tax planning and the potential pitfalls from a US point of view.

Investments

Individual Savings Accounts, Enterprise Investment Schemes and Venture Capital Trusts are all tax-effective ways to invest from a UK tax perspective. These can reduce current or future UK tax and,  in the right circumstances, reduce unused “excess foreign tax credits” for Americans in the UK.

Whilst these aren’t bad investments they may be treated as PFICs (Passive Foreign Income Companies) from a US perspective, which will almost certainly result in a US reporting obligation, possibly at a high rate of tax as well. Collective investments such as UK unit trusts and VCTs are always PFICs, but with the right structuring, liability can be minimized. Quoted direct shareholdings and cash would not be considered PFICs. Weigh the advantages and disadvantages and take US tax advice before investing.

Additional Contributions to a Pension Above the Annual Allowance Maximum

The final date for paying pension contributions for the 2019/20 tax year is 5 April. You are currently allowed to make contributions up to the annual allowance threshold of £40,000 to a qualifying pension in a given year under HMRC rules. (The maximum contribution amount is reduced for incomes over £150,000 to a minimum of £10,000.)

If you wish to make contributions above this amount, HMRC rules allow you are also able to utilise any unused allowances from the prior 3 tax years if available. As such, if you have any unused allowance relating to the 2016/17 tax year, you should consider whether you wish to make an additional pension contribution by April 5 or lose the benefit forever.

Please note that some pension plans will require additional US tax forms to be filed. Be prepared to weigh the cost of this preparation against UK tax savings. Advice should be taken if the contributions are being made by a US person. See our post on What is a US Person for Tax Purposes for further clarification.

Gifting to a Spouse

Spouses and civil partners are taxed separately in the UK. Typically, assets that generate income or capital gains are gifted to the spouse with the lower UK tax rate.

However, if there one spouse is a US citizen, there may be US gift tax obligations. This may not result in having to pay tax but may require US reporting (more forms!) imposing a penalty if these information returns are not filed, even if it was accidental or overlooked.

As 5 April 2020 is fast approaching, if we can help balance your UK/US tax planning, please get in touch. There is often a solution to most of the US tax bumps in the road.

Here to Help

Here to Help

Contact one of our specialists

London
US Tax & Financial Services Ltd
3 Harbour Exchange Square
London E14 9GE
United Kingdom

T: +44 20 7357 8220

F: +44 20 7357 8225

Email Us

Zurich
US Tax & Financial Services Sarl
Brandschenkestrasse 20
CH-8001 Zurich
Switzerland

T: +41 44 387 8070

F: +41 44 387 8079

Email Us

Geneva
US Tax & Financial Services Sarl
Blvd. Helvetique 36
CH 1207
Geneva
Switzerland

T: +41 22 700 2500

F: +41 22 700 2526

Email Us

Middle East, Asia and the Americas
US Tax & Financial Services GmbH
Löwenstrasse 28
PO Box 1367
CH-8021 Zurich
Switzerland

T: +41 44 387 8070

F: +41 44 387 8079

Email Us

Nordics
US Tax & Financial Services Ltd / MAJATTORNEY
Norra Skeppsbron 5B
SE 803 10, GAVLE
Sweden

T: +46 26 18 82 22

M: +46 70 61 88 016

Email Us

Read Services in :EnglishFrenchItalianGerman