Moving from the USA to the UK on assignment? Find out what the immigration and tax implications are for both expat employees and employers..
As a US expat moving to the UK from the USA for a work assignment, navigating the complex world of immigration and international taxation can be daunting.
Both employees and employers need to be aware of various immigration and tax implications to ensure compliance and optimize their financial positions.
This article will explore key immigration and tax considerations for US employees of moving to the UK from the USA on a work assignment, highlight the main responsibilities for employers and share some practical tips.
Let us start by discussing the immigration requirements for US citizens moving to the UK from the USA.
This is an important aspect that both employees and employers need to consider alongside the tax implications.
Various Visa types (also known as work permits) are available for US citizens moving to the UK from the USA.
The most common visa for US citizens on work assignments in the UK for more than 6 months is the Skilled Worker visa (formerly Tier 2).
However, depending on whether or not the US employer already has an entity (subsidiary or branch) in the UK, other visa routes may be available such as:
– UK Expansion Worker visa (Global Business Mobility): allows to come to the UK to set up a branch of an overseas business that has not started trading in the UK yet
– Senior or Specialist Worker visa (Global Business Mobility): for senior or specialist employees being transferred to a UK branch of their organization
– Government Authorised Exchange visa (Temporary Work): for shorter assignments or internships
For most US individuals moving to the UK from the USA for work, a Skilled Worker visa will be needed unless they are being seconded to their US employer’s UK branch in which case the Senior or Specialist Worker visa will likely be the route to take.
Key requirements for the Skilled Worker Visa (though these are similar for the Senior or Specialist Worker visa) include:
a) Job offer from a UK employer with a valid Sponsor License
If the US employer does not have a UK Sponsor License yet, it will need to first obtain one before they can sponsor work permits in the UK.
A Sponsor License is needed regardless of whether an employer wants to hire in the UK foreign employees from outside its organization on a permanent basis or move to the UK from the USA employees within the current group structure on a 1-2 years assignment.
b) Skill level: the job must typically be at RQF level 3 or above (equivalent to A-level)
c) Salary threshold: must meet both the general salary threshold and the “going rate” for the specific occupation
d) English language proficiency: Proof of English language skills at level B1 or higher (though this would not typically be required for US citizens)
e) Maintenance funds: Proof of sufficient funds to support oneself (unless the employer certifies maintenance)
A Skilled Worker visa can be issued for up to five years and provides an access route to UK Indefinite Leave to Remain / British Citizenship.
This is a key difference with the Senior or Specialist Worker visa which, on the other hand, does not provide a path for individuals moving to the UK from the USA to obtain UK Indefinite Leave to Remain / British Citizenship after 5 years.
As explained earlier, for most work visas, the UK employer must hold a valid Sponsor License which, once obtained, lasts for an initial period of 4 years but can be renewed provided the eligibility requirements continue to be met. This involves:
a) Applying for a Sponsor License from the UK Home Office
b) Assigning a Certificate of Sponsorship (CoS) to the employee
c) Maintaining compliance with sponsor duties, including record-keeping and reporting
Two of the biggest hurdles for US employers to overcome in obtaining a Sponsor License are typically:
1. Lack of a UK bank account: a must have requirement if the UK entity applying for the Sponsor License has been trading in the UK for less than 18 months.
Furthermore, the bank account, in order to be compliant with the requirements of the UK Visa & Immigration authorities, has to be with a financial institution supervised by both the FCA and the PRA
2. Inability to find an Authorised Officer (AO): who must be a paid member of staff or engaged as an Office Holder of the UK entity seeking to obtain the Sponsor License and be based in the UK (though not necessarily a UK citizen).
Most visa applicants must pay the Immigration Health Surcharge, which gives access to the UK’s free National Health Service (NHS).
Family members (spouse/partner and children under 18) can usually accompany the main visa holder. They’ll need to apply for dependent visas.
Visa processing typically can takes 8-12 weeks (from submission) for a Sponsor License application.
An additional 3-8 weeks are then required to obtain a work permit (i.e. Skilled Worker visa or Senior or Specialist Worker visa) for an individual.
The two processes cannot run in parallel.
Priority and super-priority services are available for faster processing (at additional cost).
Employers must conduct right to work checks before employment begins to ensure the employee has the correct immigration status.
For individuals moving from to the UK from the USA on assignments under 6 months, US citizens might be able to use the Temporary Worker – Government Authorized Exchange visa or, in some cases, work as a business visitor without a work visa (with only a number or permitted activities allowed).
While Brexit has had a significant impact on EU citizens working across border, it has had less impact on the process for US citizens moving to the UK from the USA.
However, the overall system has been overhauled, replacing the old Tier system with the current points-based system.
Both employers and employees need to stay compliant with immigration laws:
a) Employers must keep records and report certain changes to the Home Office
b) Employees must adhere to the conditions of their visa and report any significant changes in circumstances
US employers planning a move to the UK from the USA one of more of their employees, should consider:
a) Starting the process early: as explained above, Visa applications can take time, especially if a sponsor license is needed
b) Budgeting for costs: as visa fees, healthcare surcharge, and potential legal fees can be significant
c) Coordinating with tax planning: Ensure immigration strategy aligns with tax considerations (see further below)
In conclusion, when moving to the UK from the USA, immigration aspects require careful planning and often professional assistance.
US employers should work closely with their HR and Global Mobility departments and possibly with external providers to ensure all requirements are met.
Employees should also be proactive in understanding their visa conditions and responsibilities whilst encouraging their US expat employees to do the same.
Having looked at the Immigration considerations when moving to the UK from the USA, let us now look at the tax implications.
Despite living and working abroad, US citizens remain subject to US tax laws due to the country’s citizenship-based taxation system. Here are some crucial points to remember:
a) Filing requirements: US expats must continue to file annual US tax returns, reporting their worldwide income.
b) Foreign Earned Income Exclusion (FEIE): for 2024, expats can exclude up to $126,500 of foreign earned income from US taxation, subject to certain conditions.
c) Foreign Tax Credit (FTC): this credit helps avoid double taxation by allowing expats to offset US taxes with UK taxes paid.
d) Foreign Bank Account Report (FBAR): US persons with foreign financial accounts exceeding $10,000 in aggregate must file FinCEN Form 114
When moving to the UK from the USA, US expats become subject to UK tax laws.
Typically, this happens, when stays in the UK exceeds in the aggregate 183 days in any 12-month period.
However, if other conditions are satisfied, UK taxation and payroll may become relevant for short-term business visitors too.
Key points include:
a) UK tax residency: determined by the Statutory Residence Test, which considers factors like days spent in the UK and ties to the country.
b) Income tax: UK residents are taxed on worldwide income, with rates ranging from 20% to 45% for the 2024/2025 tax year.
c) National Insurance Contributions (NICs): similar to US Social Security, NICs are mandatory for most workers in the UK.
However, US expat employees remaining on the US payroll for the duration of their assignment when moving to the UK from the USA will likely be able to claim an exemption from NICs by applying for a Certificate of Coverage to the US Social Security Administration.
d) Double Taxation Treaty: the US-UK tax treaty helps prevent double taxation and determines which country has primary taxing rights on various types of income.
Employers sending staff on UK assignments should consider:
a) Payroll and withholding: determining whether to:
– maintain the employee on US payroll
– remove the employee from the US payroll and transfer them to a UK payroll
– or operate a UK shadow payroll for the US expat moving to the UK from the USA.
b) Social security agreements: the US-UK Totalization Agreement may allow US employees moving to the UK from the USA to remain in the US Social Security system by obtaining a Certificate of Coverage as explained in the previous section above.
c) Tax equalization policies: many employers, when sending their employees to the UK from the USA, structure the move to ensure employees are neither better nor worse off tax-wise due to the assignment.
d) Reporting requirements: Employers and employees may need to file information returns with both US and UK tax authorities.
a) Timing of move: the date of arrival in the UK can significantly impact tax residency status and liability for the first tax year and in the tax year of departure from the UK.
This is even more so when moving to the UK from the USA, as the US fiscal year follows the calendar year whereas the UK fiscal year runs from 6 April to 5 April.
b) Housing arrangements: the tax treatment of employer-provided housing or housing allowances differs between the US and UK.US expats assigned to the UK for under 2 years may benefit from certain exemptions from taxation under Detached Duty Relief.
Furthermore, some relocation expenditures up to GBP 8,000 may also be exempt from UK taxation.
c) Pension contributions: understanding the tax implications of continuing US 401(k) contributions or participating in UK pension schemes.Typically, US expats moving to the UK from the USA and remaining on their US payroll, can be exempted from / opt-out of participating in the UK employer-provided private pension scheme.
d) Stock options and equity compensation: these can create complex tax situations spanning both countries even after the US employee has moved back to the USA from the UK.The help of a tax advisor / CPA is usually required to correctly apportion and tax stock options and other equity compensations (i.e. RSUs) in each country.
Staying compliant with both US and UK tax laws is crucial:
a) US expats must file Form 2555 (Foreign Earned Income) or Form 1116 (Foreign Tax Credit) with their US tax returns and ought to also claim Foreign Tax Credits for any taxes paid twice on the same income both in the US and in the UK.
b) UK tax returns (Self Assessment) may likely be required, especially for higher earners or those with complex tax situations.
c) US expats moving to the UK from the USA should also be aware of FATCA (Foreign Account Tax Compliance Act) reporting requirements for certain foreign financial assets.
When the UK assignment ends, consider:
a) UK tax clearance: obtaining a P85 form to potentially reclaim overpaid taxes.
b) Capital gains implications: understanding the tax treatment of any UK investments or property upon departure.
c) Pension transfers: exploring options for UK pension funds accumulated during the assignment.
Navigating the tax implications of a US-UK expat assignment requires careful planning and ongoing attention to compliance requirements in both countries.
Both employees and employers should seek professional advice when moving from to the UK from the USA to ensure they understand and meet their obligations while optimizing their tax positions.
By addressing these considerations and following these tips proactively, US expats and their employers can focus on making the most of their UK assignment and expanding the business overseas.
Still have some questions on what to do in relation to your specific circumstances when moving to the UK from the USA?
Feel free to contact us should you require further clarifications. We offer a free ½ hour consultation.
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