Council Tax, Damn

I swear, England is trying to nickel and dime me to death. First, the TV licence, and now the council tax. Council tax is a property tax that is levied on your property, and the amount of tax is determined by which borough you live in and the value of your property. Strangely enough, it's not the landlord that's usually responsible for paying the tax, but the tenant renting the property.

Lucky for me, I live in Westminster, which has some of the highest taxes around, and I got a notice from the taxman that they're coming to my flat to see how much tax they think I ought to pay. So I've been sitting at my flat this morning, playing hooky from work, and the taxman (lady, it turns out) has just arrived to see what the flat's worth.

At the moment, she's roaming around our flat with a special tool that takes all the measurements of the different rooms, and she's already asked me twice as to how many bedrooms the property has. Because our flat is new built, it's not currently in any tax band, and hence, the reason for the assessment. If you refuse to the in-person assessment, they estimate your tax band based on surrounding properties that are about the same size.

I had a difficult time determining whether I ought to just go with the estimate, but ultimately, I decided to have the assessment done since I know the tax band of our neighbor (who has the same floorplan as me) is in the second to highest band. What have I got to lose?

Anyway, she's just informed that our flat is rather large - this doesn't sound too good. I'm supposed to sit tight while she informs Westminster council about our tax assessment and then we get our first council tax bill. Definitely not a London moment to cherish and remember. Sigh.

Taxes Are Taxing

I think tax issues are normally pretty annoying and complicated, but now it seems to have become doubly so now that I'm a US citizen living in the UK. Not only do I lose out on a significant amount of cash, but now I have to go through the whole rigamarole of figuring out who gets my money and how much and when. Lucky me, I get to be responsible for taxes in both countries.

But it turns out, I only have to file US taxes, and I don't have to worry too much about my UK taxes.

UK TAXES

If you're employed in the UK and don't have complicated investments, you more than likely do not have to file any tax forms in the UK at all. Under the Pay As You Earn scheme, your employer is responsible for ensuring that the proper amount tax is being withheld from each paycheck and you don't have to lift a finger come tax day. You will likely be taxed for National Insurance and Income Tax unless you hardly make any money at all (like moi). Now I just need to figure out how to claim the taxes back under my "personal allowance." Oh, and a word of warning - get a National Insurance number straightaway, preferably before you start working. Otherwise, your employer will assign you an emergency number, which means you'll get taxed at a much higher rate.

US TAXES

The US wants a cut of your earnings and the IRS demands that you file a tax return in the States as well for any foreign income earned. They provide you with an average exchange rate with which you're meant to translate your foreign earnings into dollars. http://www.irs.gov/businesses/small/international/article/0,,id=206089,00.html
The nice thing is that the US has a tax treaty with the UK so I think I receive a set-off for any taxes that I pay to foreign governemnts.

Another complicating matter is that in the States, married couples file joint returns, whereas in the UK, married couples file as individuals. Confused yet? I am. Especially in light of the fact that J's office has a tax service doing his taxes in the UK and the US, but I'm responsible for filing my own taxes. But since we're married, they'll be filing our joint US return for us, and I don't have to file any UK taxes under the PAYE scheme. So in the end, it all works out to very little paperwork for me. Yay!

Now, off to see the Queen about that tax refund...

Uncle Sam v. Her Majesty the Queen

Two things in life are certain: death and taxes. What's not certain is what taxes you have to pay when you're a US citizen moving to the UK for two years. There's a lot of misinformation out there about paying taxes as an American expat in London, so I thought I'd clear it up for those who may be curious. I actually read a New York Times article not too long ago about American expats renouncing their citizenship while abroad so that they could avoid double tax. Obviously, this is a cause of concern, since Uncle Sam already takes about half of our paycheck. Luckily for me, and not so lucky for the Gray Lady, the article interviewed people who were misinformed and was poorly researched.

I'm not a tax professional, but this is what I gleaned from speaking with one:

Federal taxes - US citizens get a tax credit for foreign taxes paid. We will be paying UK taxes, and we will get credit from the US gov't dollar for dollar for taxes paid. This, in effect, wipes out any US taxes owed since UK taxes are a bit higher. You also get a deduction for housing expenses (after the first $15k), and a deduction on income income up to $91k. I'm not sure if the deductible income amount varies by salary, but that's the relevant number in our situation. However, the deductions are basically moot, because of the first point: Tax credit for foreign taxes paid.

State taxes - Since we're intending on staying abroad for longer than 18 months, we do not owe any state (CA) taxes for the time we're gone. The corollary to that is, you have to pay state taxes if you intend to leave the state for a period shorter than 18 months.

We've also got a condo that we're thinking of renting out. The rental income will be less than our mortgage, HOA, property taxes, etc., so we don't need to pay any taxes since we're actually losing money on the property. We would also lose our tax credits for interest paid on the mortgage and property taxes.

This is all for US taxes, and we're supposed to talk to another tax professional re: UK taxes once we arrive. Will keep you posted!