How will Biden’s administration impact you? | US Citizen in UK
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US citizen in UK? What might a new US administration mean for you?
If 2020 hadn’t been challenging enough with the uncertainty surrounding the economy and the global pandemic there was a contested US election to top it off. With Trump’s law cases slowly being thrown out, it seems inevitable that come January 20th there will be a new president in the White House, and a new administration in office.
Although until the day the administration officially changes, and legislation is actually put in place we can only speculate on how this new administration will affect US expats living in the UK.
Possible tax changes on the horizon | US citizen in UK
However, as part of the Democrat election campaign some of their proposed tax reforms have been considered radical as they pretty much reverse changes made in 2017 by the Trump administration and will primarily affect high earners – at home and abroad.
The key proposed changes for Americans abroad include:
Income Tax increase – To increase the highest rate of tax from 37% to 39.6%. This would bring the top rate of income tax in line with Obama-era tax rates.
Capital Gains Tax changes - Long Term Capital Gains and Qualified Dividend tax rates to be scrapped for those with income over $1m. This would mean a change from the existing 20% rate to to bring it in line with ordinary income rates.
Estate and Gift Tax increase – To increase the top tax rate from 40% to 45%, and to decrease the tax exemption from $11.58m to $3.5m. There is also a proposal to repeal rules that provide for a step-up in basis for inherited assets, which could have a significant impact on taxpayers inheriting appreciated property.
Corporation Tax increase – The proposal would increase the Corporation Tax rate from 21% to 28%.
Global Intangible Low Tax Income (GILTI) changes – The legislation currently in place allows a 50% deduction for foreign registered companies that are subsidiaries of US corporations. The proposal is to repeal this allowance and therefore increase the GILTI tax rate from 10.5% to 21%. The deduction did not apply to individuals owning foreign companies, so would only affect those whose business interests are held by US corporations.
Child Tax Credit and Dependent Care Credit increases – These proposals would increase the Child Tax Credit from $2,000 to $3,000 ($3,600 for children under the age of 6), with the full amount eligible for a refund. In addition, the proposal for Dependent Care Credits would see the maximum claimable amount increased to $8,000 for one child or $16,000 for two or more children.
Such changes, if passed, could have a significant impact on the amount of tax you are due to pay to the US government.
How much difference can Biden actually make?
Ironically, winning the election was the easy part for Joe Biden, as once he takes his place at the White House the hard job of getting legislation through Congress will begin.
Depending on the outcome of the Georgia run-off elections, it is possible that while Democrats will have control of the House, they may still be the minority in the Senate. For any significant changes to be approved, the incoming President may need to secure an element of bipartisan support, so do not be surprised if some of his proposals fall by the wayside or get heavily watered-down.
With the situation being so uncertain you could be tempted to ‘wait and see’ but it is better to be prepared and start the conversations earlier rather than later. If you think some of these tax changes could affect you, or you would like clarification, give us a call today and we will offer advice on what the best plan of action could be for you at this time