Mini Autumn Budget 2022 Analysis: What Does It Mean for Americans?

The Chancellor’s financial statement and subsequent U-turn on the 45% tax rate has been covered in detail in our Mini Budget Hub.

As the UK continues to deal with the fallout of the announcement, we take a step back and review how this affects Americans in the UK.

Personal tax

After a false start, the additional 45% rate of Income Tax remains. For Americans, the UK top rate of tax continues to be higher than the maximum US Federal rate of tax, which remains at 37% (for now at least).

The maximum rate of tax on dividends will be 38.1%. The current maximum UK dividend tax rate dwarfs the 20% US qualified dividend rate, meaning many Americans carefully manage their UK dividends and UK tax payments each calendar year to attempt to balance their UK and US liabilities.

The 1.25% reduction of National Insurance Contributions is a saving for Americans who live in the UK and are not continuing to contribute to US Social Security.

Corporate Tax

The proposed higher rate of UK Corporation Tax of 25% has been scrapped. The 19% Corporation Tax rate will continue.

The US Corporation Tax rate is 21%, therefore the UK is still an attractive place for US businesses to expand into from a taxation perspective.

For American owners of UK trading companies, the US Global Intangible Low Taxed Income (GILTI) rules continue to apply a version of a global minimum tax. Therefore, the amount of UK Corporation Tax being paid will need to continue to be monitored. As in prior years, favourable capital allowances and other corporate tax reliefs which may reduce the effective rate of UK corporate tax need to be considered with a view to the GILTI rules. Americans subject to these rules will want to ensure that UK profits avoid having additional US tax due to the GILTI regime.

Property, Interest Rates and Investment assets

With interest rates continuing to rise, many people will be considering refinancing their mortgage to fix their interest rate. For Americans with foreign currency mortgages, the repayment and refinancing of debt can result in taxable foreign exchange gains. With the strong US dollar, this is likely to affect any Americans currently undertaking this exercise. Tax advice should be sought as to any potential US tax exposure on mortgage debt prior to refinancing.

A benefit of the strong US dollar is that unrealised gains on sterling denominated assets gains may be smaller in US dollar terms. This may help:

• American homeowners who only qualify for a $250,000 ($500,000 filing jointly) capital gains exclusion on sale of their main home and otherwise qualify for full UK principal private residence relief.
• American owners of Passive Foreign Investment Companies who may be able to divest themselves of such assets with a reduced US tax exposure.
  Year-end tax planning and foreign exchange

A combination of a weak sterling and strong dollar has seen the Pound reach historic lows. This means that typical year-end foreign tax planning exercises will need to be more rigorous to ensure that sufficient UK tax is paid to create a foreign tax credit on the US side. If you are an American resident in the UK and usually make significant UK tax payments before 31 December, or have any unusual taxable events in 2022, please get in touch. It may be beneficial to advance this planning and consider switching USD to GBP given the current favourable exchange rate.

Would you like to know more?

If you have any questions about the Government’s Mini Budget and how it may impact you, please get in touch with John Bull using the details on this page or your usual Blick Rothenberg contact.

You can also visit our Budget Hub, where you can find our commentary and a range of insights to help you better understand how the Budget may affect you.