Author Topic: Brexit and geographical arbitrage  (Read 3814 times)

celticblue

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Brexit and geographical arbitrage
« on: August 03, 2016, 10:52:03 AM »
Hi,

The recent Brexit events have made me rethink my ER.

The good news is that the sudden collapse of the pound means I could actually FI and RE right now if I choose to live in the UK.

But its also made me think I should stay in the US for now and apply for US citizenship when I am eligible at the end of this year.

Once I have US citizenship around March 2017 I can then reconsider where I want to live (UK or USA) intermittently over the years of FIRE. It would depend on currency fluctuations, healthcare costs, family circumstances etc. It seems like a great opportunity. As I have both sizeable UK and USA based pension pots I will be subject to significant currency/change in tax regimes risks throughout FIRE. Also Brexit has reminded me that crises happen and that significant economic changes do unfold and change your outlook. It might be great to look at FIRE through the lens of geography and relative value.

Am I being naive or missing some glaring downside to this opportunity? I am also considering having 2 kids via surrogacy if I can keep my current job going for 2 more years to save up for the cost. The opportunity for dual citizenship for the kids (if they happen) would be significant as well.

Please let me know your thoughts

UnleashHell

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Re: Brexit and geographical arbitrage
« Reply #1 on: August 03, 2016, 11:10:09 AM »
I'd stay for the dual citizenship. it makes life a hell of a lot easier being here in the States. Once you have that then the kids will get it regardless of your geographical location.  The only potential downside is that the British citizenship might not let you travel as freely around europe as you currently you can. That's something that hasn't yet unraveled but it might be worth doing a contingency plan just in case.

 We were born in the UK but now have dual citizenship - our youngest was US born so she now has UK citizenship to go with it.
I'm looking into Irish citizenship as well.. just in case...

arebelspy

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Re: Brexit and geographical arbitrage
« Reply #2 on: August 04, 2016, 01:17:45 AM »
Hi,

The recent Brexit events have made me rethink my ER.

The good news is that the sudden collapse of the pound means I could actually FI and RE right now if I choose to live in the UK.

But its also made me think I should stay in the US for now and apply for US citizenship when I am eligible at the end of this year.

I wouldn't FIRE just because a currency fluctuation "got" me there--what if it reverts back?  I'd build up a bigger buffer.

I also would stay and go for the citizenship, for the benefits.

Good luck!
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

worms

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Re: Brexit and geographical arbitrage
« Reply #3 on: August 04, 2016, 01:27:04 AM »
I would avoid making hasty life-decisions during a period of change, the end point of which is still uncertain.  While the pound has dropped (and many London quoted shares risen in sterling terms as a result) the consequential effects on Uk inflation, input costs etc have still to feed through. There is also huge uncertainty over the outcome of any leave negotiations and the true long-term impact on the UK economy.

I really can't see any downside to holding on for a while (at least until after your citizenship comes through) except for the extremely remote chance of a rebound in sterling.

arebelspy

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Re: Brexit and geographical arbitrage
« Reply #4 on: August 04, 2016, 01:32:31 AM »
In your scenario, I might be taking a small hedge position for the possibility of the pound going back up a bit.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

worms

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Re: Brexit and geographical arbitrage
« Reply #5 on: August 04, 2016, 01:47:15 AM »
In your scenario, I might be taking a small hedge position for the possibility of the pound going back up a bit.

That might make sense for the OP, taking this opportunity to transfer some investments or cash from US to UK. 

For me in UK, I am already overexposed to the vagaries of sterling and the ongoing risks of Brexit!  I could sell stocks that have benefited from the sterling drop and hope for a rebound but would lose the benefit of the dollar or euro denominated dividends, which are now worth more than before.  I'm inclined just to ride the roller coaster on this one.

Playing with Fire UK

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Re: Brexit and geographical arbitrage
« Reply #6 on: August 04, 2016, 06:13:18 AM »
Have you looked into the tax implications of US citizenship? You'll be at the mercy of double taxation treaties changing or the overseas income tax exemptions changing.

daverobev

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Re: Brexit and geographical arbitrage
« Reply #7 on: August 04, 2016, 04:04:10 PM »
Have you looked into the tax implications of US citizenship? You'll be at the mercy of double taxation treaties changing or the overseas income tax exemptions changing.

This absolutely. Remember that an an actual American, you cannot use an ISA in the UK. Wherever you live you will always have to do a US tax return. You will need to keep an adjusted cost base for any stoics or ETFs or funds in both dollars and pounds if you live in the UK.

It's fine if you're going to live in the US. If you seriously think you'll leave, I'd really look into tax stuff. "Lots" of American expats are now renouncing their US citizenship simply because of the administrative burden it place on you.

Compare to living in the UK, where only a very small percentage of people even have to do a tax return at all!!

Playing with Fire UK

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Re: Brexit and geographical arbitrage
« Reply #8 on: August 05, 2016, 02:05:58 AM »
Yep,

My BIL is British, works in Britain and has US citizenship via a parent. For the UK tax, it comes out automatically via PAYE and he doesn't need to do anything. By comparison his US Tax Return is a total nightmare, (considering he has no income in the US, no savings there, only been there on holiday). More and more banking facilities in Europe won't offer accounts to US Persons because of the reporting requirements.

celticblue

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Re: Brexit and geographical arbitrage
« Reply #9 on: August 05, 2016, 04:23:37 AM »
I appreciate this forum so much . Thank you.
The comments here have really challenged me (in a good way)
I am now pretty concerned , and probably should have been before. But I am left not knowing what is the right thing to do .
I believe I can get to FIRE if I just live in the US. I believe I can get to FIRE if I just live in the UK. For each of them I can outline a plan to get there. But now I am really questioning whether I can get there in combination.
Any useful tax approach I have in one country could be neutralized by the requirements of the other country. And having enough padding in the stash for this contingency would require many more years of work.
Would love to hear any other opinions as so far it's been very eye opening

daverobev

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Re: Brexit and geographical arbitrage
« Reply #10 on: August 05, 2016, 09:05:18 AM »
I appreciate this forum so much . Thank you.
The comments here have really challenged me (in a good way)
I am now pretty concerned , and probably should have been before. But I am left not knowing what is the right thing to do .
I believe I can get to FIRE if I just live in the US. I believe I can get to FIRE if I just live in the UK. For each of them I can outline a plan to get there. But now I am really questioning whether I can get there in combination.
Any useful tax approach I have in one country could be neutralized by the requirements of the other country. And having enough padding in the stash for this contingency would require many more years of work.
Would love to hear any other opinions as so far it's been very eye opening

As long as you keep your primary residence in the US, you're fine. You can visit the UK for good chunks of the year (enviro-consciousness permitting - British expat and now Canadian here - and I struggle with flying because, well, it's bad - at least in my worry-wort mind) with no issues - unless you have UK income (ie, rental properties), you don't need to do self assessment, and the tax free allowances are pretty good so you shouldn't actually be affected.

If you're going to live *anywhere* else in the world than the US, being an Actual American is a drag. That's just how it is.

Playing with Fire UK

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Re: Brexit and geographical arbitrage
« Reply #11 on: August 05, 2016, 09:28:01 AM »
I am now pretty concerned , and probably should have been before. But I am left not knowing what is the right thing to do .

Give it some time, check out what other people have done and read a bit more into the requirements.

You still have a really enviable position, you'll just need to apply some strategy to the tax planning. There are ways to structure your savings/property/citizenship to optimise for whatever path you choose.

Do you have a partner? If so could you split your citizenship/ownership between you to optimise tax.

celticblue

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Re: Brexit and geographical arbitrage
« Reply #12 on: August 05, 2016, 09:48:34 AM »
Very helpful. Thank you.

I am going to try and learn more about tax implications by the end of the year - which is the earliest I can apply for citizenship..

By then I might have a sense of whether my current role (which is the best paid I will ever be) can possibly stretch to another 18 months. This might enable me to financially reach my dream of surrogacy. Surrogacy has to happen real soon as I am approaching 45 and the window for parenting at a healthy age is narrow. Surrogacy would have to be in the US as there is no equivalent in the UK (compassionate surrogacy is the only legal option in the UK).

I should probably tackle the whole surrogacy issue in another thread though but I guess balancing financial and life goals is why we are all here :)



TheAnonOne

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Re: Brexit and geographical arbitrage
« Reply #13 on: August 05, 2016, 11:11:18 AM »
Do you expect the POUND to stay at it's current level forever? I would continue to work and not rely on that "not-fact"

dreams_and_discoveries

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Re: Brexit and geographical arbitrage
« Reply #14 on: August 10, 2016, 02:22:18 AM »
Interested to hear others thoughts on this - as someone who want to travel in FIRE  I really want the pound to recover.

What hedging strategies are people using?  I've just got a heavy international portfolio, which seems a a step in the right direction.

MMMaybe

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Re: Brexit and geographical arbitrage
« Reply #15 on: August 10, 2016, 03:31:53 AM »
If you are not 100% sure that you will stay in the US as your primary place of residence, please carefully consider (as others have mentioned) taking on US citizenship. As a long term expat, I have been privy to woes of the American expats. They are now at a serious disadvantage compared to other nationalities for a whole host of reasons, for example:

If you were a UK citizen living in HK for example, you would benefit from low tax rates-not if you were a US citizen. US citizens also have problems accessing financial products including bank accounts in other countries. Then there is the matter of all the paperwork that needs to be filed. Accountants overseas charge handsomely for doing US returns. Etc etc. 

Its also a very expensive undertaking to give it up if you realise that you've made a mistake.

jim555

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Re: Brexit and geographical arbitrage
« Reply #16 on: August 10, 2016, 07:31:15 AM »
US citizenship makes you someone most foreign banks just don't want to deal with due to reporting US requirements.  Also Uncle Sam wants your worldwide income, even if you don't live in the US.  I would not apply for US citizenship unless there was a very good reason for it.  A lot of USC are renouncing just to escape the tax nightmare.

celticblue

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Re: Brexit and geographical arbitrage
« Reply #17 on: August 10, 2016, 12:58:44 PM »
Thank you. I was being naive and mainly considering the benefits of US citizenship without fully understanding some of the downside. So glad I posted as it has triggered new avenues for me to explore.
I suspect my long term plan will not be remaining in the US (old parents in the UK and the need for chronic health coverage for myself for a pre-existing conditionwhich would be covered under the UK NHS without the anxiety of securing appropriate health insurance).

So for right now I will be doing a bit more research and potentially holding off applying for citizenship until i have specific reasons to move forward with it.

arebelspy

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Re: Brexit and geographical arbitrage
« Reply #18 on: August 10, 2016, 07:20:16 PM »
US citizenship makes you someone most foreign banks just don't want to deal with due to reporting US requirements.

This is true. You can always just use a US bank or online bank though (and hedge against currency fluctuations, if that worries you).
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.