Author Topic: Maybe leaving US to return to UK: Implications?  (Read 158 times)

celticblue

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Maybe leaving US to return to UK: Implications?
« on: Today at 08:15:09 AM »
Hi,

Going through tumult so looking for advice.

I am trying to work out if I should become a US citizen (with a good chance of leaving the country to go back to UK and never returning ) or leave US prior to my 8th  year of having a green card and return to UK.

Does anyone have insight or experience of:

1) Exit tax in leaving US and giving up green card , what it is, how to avoid etc? Before OR after the 8 year cut off I believe exists when an Exit Tax kicks in
2) Becoming a citizen and then potentially leaving the US forever to return to the UK but still being subject to US taxes, ie having to file US taxes annually.

The reason I am leaving open returning to the US is.....life!

I also do not know the tax implications of returning to the UK but still having a large 401k and investment accounts in the US. What happens to them? can i legally retain them or do I need to divest. Any thoughts? do lose access to the benefits of UK tax saving accounts because I would have to pay US tax on them anyway

I am asking a tax preparer to advise me (waiting for response currently) but I wanted to be able to compare it to the insights and experience of this community with their mustachian outlook on life.

Thanks in advance


Dave1442397

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Re: Maybe leaving US to return to UK: Implications?
« Reply #1 on: Today at 12:12:50 PM »
Personally, I would get US citizenship before leaving the country. It can always be revoked later if you find it not to your liking. On the other hand, if you never get it and lose your permanent resident status due to not being in the country, there's no (easy) going back.

There are tax agreements between the US and the UK, so while it might be a hassle doing the extra tax filings, you should be ok financially.

http://www.uk-yankee.com/articles/us-tax-guide-americans-living-uk

As an immigrant, US citizenship is hard come by, and not something I would give up.

UnleashHell

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Re: Maybe leaving US to return to UK: Implications?
« Reply #2 on: Today at 12:53:08 PM »
I'd tend to agree - getting citizenship now and revoking later is way easier than going through the process again in the future.

Citizenship isn't as much work as a green card! costs though. of course.
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Kwill

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Re: Maybe leaving US to return to UK: Implications?
« Reply #3 on: Today at 01:07:43 PM »
You might also post in the UK Tax sub-forum: https://forum.mrmoneymustache.com/uk-tax-discussion/

Do you have children or a spouse who would be affected by the decision? Or might you in the future? That would sway me toward taking citizenship, if it were me. Children of US citizens automatically become citizens at birth, giving them some future tax implications but also giving them the right to live and work or study in the US in the future, potentially also with in-state tuition rates if they live in a place for awhile first.

I'm a US citizen living in the UK, and the tax issue is complicated. Probably it will be much easier after the first few years. I don't think I'll have to pay more tax by being American because UK taxes are higher, but there's a lot to sort out. If I stay in the UK long enough to retire and get a lump sum pension payout, that would potentially trigger some major US tax.

Editing to add: Brexit might be one more reason to stay in the US long enough to take citizenship. If Brexit goes great and all the details get sorted out and the pound recovers, that'll be great. But if things go badly, it might be nice to have the option to go elsewhere for awhile.
« Last Edit: Today at 01:13:22 PM by Kwill »

Hula Hoop

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Re: Maybe leaving US to return to UK: Implications?
« Reply #4 on: Today at 01:25:53 PM »
I just wrote you a long reply that got eaten.  I'm a US citizen who has been living in Europe for 12 years (married to a local).  I'm not so sure getting US citizenship is a good idea in your situation.  I don't find FATCA that onerous as I only have one account here that's over $10K and I earn less than the threshold to pay taxes in both countries but - some things you should consider if you become an Amcit:

1) If you earn over a certain amount (check the tax treaty) you will be subject to double taxation.  Also under certain circumstances such as capital gains tax (here is a high profile example: http://www.telegraph.co.uk/news/politics/11361816/Boris-Johnson-to-pay-six-figure-American-tax-bill.html)
2) If you're an Amcit, it's virtually impossible to invest anywhere outside the US because of onerous taxation obligations - you should research this.  Could be a big problem if you want to invest locally in the UK for retirement.
3) some foreign banks refuse to let Amcits open bank accounts with them because of FATCA
4) giving up US citizenship is a huge hassle and very expensive.  There is also no guarantee that they'll let you back into the US even with a tourist visa.  Google this.

Good luck!
« Last Edit: Today at 02:12:34 PM by Hula Hoop »

Goldielocks

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Re: Maybe leaving US to return to UK: Implications?
« Reply #5 on: Today at 02:47:21 PM »
You need to investigate UK / US tax treaty, to see if you can roll over the 401k or IRA's into a UK based fund, and how.

The US accounts will be frozen for non-residents, unless you have one of the very few banks that will allow a non-resident to trade.   When I left the US, wells fargo allowed trades at first, and then stopped a few years in, because of the hassle for them of filing and license and such.   The result was pressure letters to sell everything to cash (I refused), so the only thing I could do was when ready, call and have a "sell all" order, which triggered a 10% early withdrawal penalty.  Doing anything else was extremely difficult. 

I was able to eventually roll over IRA to my domestic account, but it was tricky for taxes.  I had to pay out in the USA, and then reclaim an offset for foreign taxes paid on my domestic return.   Penalties, such as 10% penalty for early withdrawal are not always recognized, and I needed a VERY high income year to claim that much in foreign taxes as unused credits did not carry over to future years.   

An alternative is to leave the money (in an account that you can't trade on), until age 55+, then withdraw as monthly pension income or in full.

Note, the 401k was not recognized for the tax treaty, only IRA's, so I had to create an IRA.   A roth -- just pull the money and take it with you.

Check out the rules for SS pension, if you have accumulated credits.  I think if you have over 40 credits, you will get $ direct from the US in future years, but if you have less, you may not get a direct payout, and it is convoluted if you get any credit depending on your country.  If you are close to 40 credits for SS, definitely wait until you have reached that hurdle.  So much better.

Also, whatever you do,  sell 100% of any losses in a non-retirement account before you leave the USA while you are still filing taxes, because non-residents can not claim capital losses while out of country for tax offset, but any losses from prior years (while resident) can be reactivated in future if you ever become a US resident again.


I can't comment on whether the US citizenship is worth it for you.   I do know that the US doesn't like the reverse:  High income and asset US citizens who leave / renounce citizenship, then still come back to the US regularly.  They think it was a ploy only to avoid taxes to the US, and the border can give a lot of problems for you about US entry, effectively banning you, if they decide that you are a possible tax evader.