Oliver Heslop, founder of Global Expatriate Tax Services (GETS) and Expatriate Tax Services London Ltd, is a highly experienced UK tax specialist dealing with expatriate cross border issues. He is also the official Expat Focus UK Taxation partner and is available to answer readers’ UK tax questions. In this article, Oliver looks at purchasing a house, comprehending payroll, and exploring ISAs as an American expat in the UK
Last month, I wrote about the tax errors that new US arrivals might make in the UK. Today we will focus on why Americans move to the UK (all positive reasons!). We will then cover a few financial points of interest that an expat encounters in the UK.
IRS vs HMRC
One joke about coming to the UK relates to an American who said, “I’m moving to the UK; time to turn my watch back two centuries”. I replied, “true, very true”. This definitely applies to a few areas of UK life (certainly service in restaurants). However, when it comes to tax and finance, we find that the US’ IRS and the UK’s HMRC are not that different.
Why Americans Move to the UK
You probably already know about some of the common reasons why Americans move to the UK. Of course, there’s the common language, the UK can be a jumping off point for European trips, and London has endless attractions for expatriates … But let’s drill down a little deeper.
We carried out some interviews with US expats to sound them out on their reasons for living in the UK. There were a few intriguing answers:
- “The UK scenery … It has the most breathtaking scenery, gorgeous countryside and stark coastlines.“
- “The education system … The UK universities are on a par with the best US institutions.”
- “Pace of life … Depending on which US State you are from, you can find the UK pace of life more calming and relaxed.”
- “Cultural richness … The landmarks, the history, the museums, the whole darn lot.”
Facebook Sites for American Expats
As a point of general interest, we like and recommend these Facebook groups:
Both are well organized and informative.
Let’s look at some of the financial challenges you might experience here.
Buying a House in the UK
Let me address some concepts that an American may not be familiar with. Firstly, British estate agents: their focus tends to be upon the requirements of the vendor, not you the buyers. It is the vendor who pays the commissions, but the commissions paid to agents are low (by US standards), which changes the whole approach to service. The agents will often have less time for you.
If you already own a home (e.g. in the US or UK), the stamp duty land taxes payable are higher on a UK house purchase. In other words, there is a higher tax charge for second-home owners.
We work with many American expats and their feedback on house buying and conveyancing has been fascinating. They stress to us that they do not always recommend using large national firms for legal conveyancing. In general, these firms do not have the time to support expats with day-to-day questions and worries. Instead, our clients prefer to use local solicitors or local high street banks, who may have more resources and be able to give more attention to clients.
Understanding the UK Payroll and PAYE
Here are some important tips:
- PAYE stands for Pay As You Earn and describes the system for collecting payroll tax in the UK.
- NIC is short for National Insurance contributions or the UK social security system.
- A PAYE tax code will appear on all of your UK payslips. It is the code used by your company payroll to calculate your PAYE withholding tax.
- An incorrect PAYE code is very common andcan result in you underpaying tax or overpaying during the year. You don’t want a large bill at the end of the tax year. You should check with payroll or a tax advisor to ensure your code is right.
- P60 is your UK equivalent of a W2.
The important thing to remember about PAYE is that payroll is only an estimate of your UK taxes during the year. The UK tax man (HMRC) has the right to collect more taxes from you via UK tax returns. For that reason, you want your employer to be as accurate as possible in their PAYE collection. You should always challenge if unsure.
These are a marvellous tax-free invention. An ISA, or Individual Savings Account, is a type of savings account offered in the UK that provides many benefits. These include:
Tax-free savings: ISA savings are not subject to income tax or capital gains tax, which means that any interest or investment growth earned on the money saved in an ISA is tax-free.
Flexibility: there are different types of ISAs available, including cash ISAs, stocks and shares ISAs, and innovative finance ISAs. This allows savers to choose the type of ISA that suits their investment goals and risk appetite.
Competitive interest rates: Some ISAs offer competitive interest rates, which can provide higher returns compared to other types of savings accounts.
Easy access: This benefit has great appeal for many people. Overall, ISAs are a vehicle that are popular with UK nationals and expats alike. The range of benefits above speak for themselves.