The legal framework for the United States and United Kingdom cross-border tax compliance

Cross-border tax compliance between the United States and the United Kingdom is critical for businesses that operate in both countries. Its purpose is to ensure deductions are fair and transparent.

According to a 2024 report, almost 30% of UK-only companies are considering expanding internationally. If yours is a part of this group and you believe the US is on your horizons, learning more about this legal framework can help you plan effectively for the future.  

Understanding the US-UK Double Taxation Treaty

This agreement is designed to prevent individuals and businesses from being taxed twice on the same income by both territories. Under the treaty, various types of earnings, such as dividends, interest and royalties, are charged only in the country of residence or at reduced rates in each location.

One benefit of this policy is facilitating smoother compliance by offering relief in cases where funds might be taken in either jurisdiction. This is done by crediting what’s been paid in one place against the other or through exemptions. 

Key obligations

The two significant regulations are the US Foreign Account Tax Compliance Act (FATCA) and the UK’s Common Reporting Standard (CRS).

FATCA requires foreign institutions to provide information about US citizens’ overseas assets to the Internal Revenue Service (IRS). Similarly, the CRS expects companies here to report financial accounts held by non-UK residents to HMRC. 

Inheritance considerations

These details are vital if you have assets in these locations. The inheritance tax in Britain applies to estates valued above £325,000, with rates as high as 40% on amounts exceeding this threshold. The US also has a similar regime, which concerns the assets of the citizens and residents.

The previously mentioned treaty extends to estate and gift deductions, stopping individuals from being charged twice for the items left to them. Proper planning using trusts can help to minimise liabilities across borders.

Recent developments 

Some of the latest policies have focused heavily on increasing transparency and minimising evasion. This was highlighted in November 2023, when the UK government led plans to crack down on cryptocurrency tax evaders. This is a global effort and could prevent billions from going missing.

Understanding these rules isn’t always straightforward, especially if this is the first you’re hearing about them. Consulting specialist lawyers to navigate these issues can ensure a seamless process, allowing you to focus efforts on your expansion into America.