US/UK Tax TalkRoland A. Sabates

Director of Operations

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Agenda

Brief Overview of H&R Block Expat Tax Services

Importance of U.S. tax compliance from both the expat and HR professional

US / UK Tax Talk

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Largest Tax Preparer in the World

680+ million returns worldwide since 1955…24.2 million in 2015

~12,000 offices globally, with over 80,000 tax professionals and associates worldwide1

Well-established operations in the U.S., Canada and Australia• Start-up operations in India and Brazil

Files approximately 1 in every 7 U.S. tax returns • 96% brand awareness• Capable of serving clients anywhere, anyway and anytime they choose (Assisted and DIY)

Offers complementary “Tax Plus” products to clients• Emerald Card is the 3rd largest general purpose reloadable debit card in the U.S.

1 Excludes tax professionals and associates at franchise locations3

Established & Growing International Presence

One of our fastest growing businesses is International

Emerging MarketsIndiaUS Expat Tax ServicesBrazilOffices on/near 25 U.S. Military BasesEvaluating other opportunities

Completed 51st Tax Season10% Segment Share

Canada

AustraliaCompleted 44th Tax Season7% Segment Share

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H&R Block Expat Tax Services

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H&R Block Expat Tax Services

Retail expat services available in Canada, Australia, and IndiaExpat Tax Services launched in May 2013

• Served thousands of clients in over 160 countries • U.S. tax return preparation and filing, FBAR, consulting• Highly specialized. Most advisors are CPA’s, tax attorneys, or

enrolled agents (EA’s)• Virtual service using Skype, email, or phone with secure document

sharing and storage

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1. Register @ hrblock.com/expats

2. Provide Tax Information

3. We Prepare Tax Return

4. Review & E-file

Why is this important?

3,415

2015

American Taxpayer – • Penalties• Costly Compliance Fees• Avoidable U.S. Tax Exposure

HR Professional – • Associate Engagement and Retention• Popularity of International Assignments

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Meet Irene…

Irene is high potential digital marketing manager with your organization and accepts a two-year assignment working in London.

She meets a British national, gets married, and requests to be localized to the London office.

Irene contacts the accounting firm she had been working with through her employer and is given a quote of several thousand dollars. She decides to look for another option but misses the filing deadline. By the time the next year’s filing deadline rolls around, her first child is on the way and U.S. taxes falls down the priority list.

She enrolled in the group personal pension offered through her employment and begins making a monthly contribution to an Individual Savings Account with a UK-based financial institution.

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U.S. Tax Filing Deadlines

April 18, 2016 – Deadline to pay 2015 U.S. tax

June 15, 2016 – Deadline to file for U.S. taxpayers overseas (automatic extensions can be requested to October 15th)

June 30, 2016 – FBAR filing deadline (no extension)

October 15, 2016 – Extended filing deadline

December 15, 2016 – Additional extension for U.S. taxpayers overseas

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Benefits to Reduce U.S. Taxation

Foreign Earned Income Exclusion

$100,800 excluded from taxable incomeQualifications

• Physical Presence Test• Bona Fide Residence Test

Additional housing exclusion amount - $85,300 (London)

Foreign Tax Credit

Dollar for dollar credit for tax paidIncome TaxCarryover of unused credits for up to 10 YearsDifferent limitations for passive and active income

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Comparative US / UK Tax Rates

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U.S. Tax Rates U.K. Tax RatesRate Single

Married Separate

Head of Household

Rate All Taxpayers

10% $0 to $9,225 $0 to $9,225 $0 to $13,150 20% Basic Rate £0 - £31,785

15% $9,225 to $37,450 $9,226 to $37,450$13,150 to

$50,20040% Higher Rate

£31,786 - £150,000

25%$37,450 to

$90,750$37,451 to

$75,600$50,200 to $129,600

45%Additional

Rate£150,000 +

28%$90,750 to $189,300

$75,601 to $115,225

$129,600 to $209,850

33%$189,300 to

$411,500$115,226 to

$250,750$209,850 to

$411,500Personal Allowance £10,600

35%$411,500 to

$413,200$205,751 to

$232,425$411,500 to

$439,000

39.60% $413,200 + $232,426 + $439,000 +

Standard Deduction

$6,300

Personal Exemption

$4,000

British Pension Schemes

Favorable Treatment Under U.S.-U.K. Income Tax Treaty• Elective deferrals and tax-deferred earnings available for most American

participants

Employer v. Personal Pension Schemes

Strategy and Grey Area

Watch Outs• QROPS – early access• Contribution limitation differences

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British Investments

Individual Savings Accounts (ISAs)• Cash ISAs• Stock and Shares ISAs

Passive Foreign Investment Company• No capital gains rates• Losses do not offset gains• Punitive tax and interest charges• Costly compliance

Net Investment Income Tax (NIIT)• 3.8% tax on investment income

− $125,000, $250,000• Problems with foreign tax credit

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Foreign Account and Entity Information Reporting

Foreign Accounts• FBAR – Foreign accounts valued in excess of $10,000

− Ownership or Signature Authority− Penalties –

> Non-Willful - $10,000> Willful – Greater of $100,000 or 50% of the highest balance of the account

• Form 8938 – FATCA – Foreign accounts and assets valued in excess of $200,000/$300,000

Foreign Trusts• Non-employer pensions• Flat Penalties - $10,000

Foreign Limited Companies• Forms 5471, 8865, 8858, 926• Flat Penalties - $10,000

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International Family Issues

Nonresident Spouse• Filing Status• Election to file jointly with foreign spouse• Transfers of assets between spouses• Divorce

Children born overseas• U.S. citizenship for children born overseas• Child tax credit• Dependent care credit

Affordable Care Act - Health insurance coverage

Constructive ownership rules for foreign businesses

Signature authority over accounts maintained for relatives

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UK Home Ownership

Mortgage Interest Deduction• Offset Mortgages

Sale of Home Exclusion• $250,000 ($500,000 – MFJ)• Foreign Currency Fluctuations

Rental Activities

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Additional Child Tax Credit

$1,000 per U.S. citizen child claimed as a dependent• Under age 17• Claimed as a dependent• No foreign earned income exclusion• Social security number required by filing deadline

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FILING STATUS PHASEOUT

Single, HOH $75,000

$20,000/childMFS $55,000

MFJ $110,000

Miscellaneous Issues

State Taxes• Continued state residency status

Equity Compensation• Source of Income from RSUs and stock options

Social Security Taxes

Business Ownership• Sole Trader v. Limited Entity• Changes to UK dividend taxation – U.S. implications

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Options Available to Non-Filers

Delinquent Information Reports• For taxpayers who have filed all income tax returns and paid all

tax but neglected to file certain information reports.

Streamlined Compliance Program• Nonwillful filers – definition of “nonwillful” not entirely clear• 3 years of delinquent tax returns and 6 years of delinquent

Offshore Voluntary Disclosure Program• Structured penalty exposure

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Tax Savings Strategies

Foreign Earned Income Exclusion and cash ISAs

Child Tax Credit for certain taxpayers

Excess UK taxes paid• 10-Year Carryover• Subsequent move to low tax country• Pension planning

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Let’s Check in With Irene

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Irene receives a letter in the mail from her financial advisor requesting that she provide them with a Form W-9 and sign a waiver allowing them to disclose her information to the U.S. Department of Treasury. They explain that signing the documents is a condition of maintaining an investment account.

In addition, the notification that her financial advisor sends her includes a three-page letter describing in detail her obligations to report non-U.S. accounts. She immediately contacts an accountant in the United States.

• Filing status – MFS or Head of Household• Likely phased out of child tax credit• Individual Savings Account reporting• UK pension plan likely exempt from U.S. tax

• Streamlined Foreign Offshore Procedures− Exposure to penalties?