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Learning, Sharing, and Teaching => Investor Alley => Topic started by: mowgil on April 12, 2015, 03:03:06 PM

Title: US Expat in UK
Post by: mowgil on April 12, 2015, 03:03:06 PM
Hi MMM community,

Do any of you happen to be US citizens living abroad, specifically in the UK?

I am currently trying to figure the various tax implications out, I have some reading up to do, but if someone has already been in this particularly situation, i would be interested in their experience/learnings/advice?

On a related note, are there any recommendations for the UK version of vanguard (It looks like the minimum investment for vanguard is 100k GBP, which i don't have), or the uk version of something like sharebuilder?

Title: Re: US Expat in UK
Post by: Cpa Cat on April 12, 2015, 03:21:27 PM
I have citizenship in both the UK and the USA, and my husband and I have entertained moving to the UK for years. I admit, the complications with investing/taxes/etc are a headache I haven't really wanted to embark upon - but I did research them some.

The first problem you face is that if you just open a UK account somewhere and start investing, chances are that you're going to end up investing in a PFIC. Then you have to start filing PFIC forms and dealing with various other PFIC complications - including higher taxes. PFIC stands for Passive Foreign Investment Company (AKA - A non US mutual fund or ETF).

The second problem you have is that the UK punishes you equally for investing in "non reporting funds" (AKA most non-UK domiciled funds).

But there is good news - the UK does let some funds apply to be "reporting funds." AND the majority of those that fit both bills are Vanguard ETFs (US domiciled + UK reporting). But maybe not all Vanguard ETFs (I don't know for sure). And not Vanguard mutual funds.

I don't have a suggestion for where to open an account. Just that you should be careful before pressing the "buy" button and make sure you double check that the fund you're choosing fits the two requirements.
Title: Re: US Expat in UK
Post by: Doubleh on April 12, 2015, 03:48:53 PM
How long do you plan on staying in the uk? Particularly if you expect to return to the US in ER it may well make sense to keep your investments in the US.

We live in London and my wife is uk / us dual national. Investments she owns are all in the USA, in ira or 401k; these are ignored by the uk authorities as they are recognised as sheltered retirement funds, whereas a taxable account would be subject to uk tax. You can certainly invest in vanguard funds in the uk through a brokerage, you could put this in an  isa but even though it's tax exempt in the uk will still be taxed by uncle Sam.

Then as cpa cat says you get into issues like the pfic reporting regime which is a whole can of worms. As I understand it this impacts funds of any sort but not individual shares so one approach is to keep your uk investments to individual shares. Of course you still have to pay taxes to uncle Sam.

 Unfortunately like cpa cat I haven't yet figured a solution to all this, other than to figure out it is pretty complex. At the moment I own any UK investments we have and I have no liability to us taxes, but if we go down the route of getting me a green card that option goes away so I'm interested to hear anything you learn!
Title: Re: US Expat in UK
Post by: LordSquidworth on April 12, 2015, 07:15:27 PM
I'm no expert... but... If I understand taxes properly...

It'd be beneficial for you to keep your investments in US accounts. It'd be easier for you, and save you tax wise.

The US taxes you on US stuff and foreign stuff.

The UK taxes you on stuff in the UK, or income brought to the UK from outside.

So either way you're paying US taxes. One way you're paying UK taxes on only what you bring to the UK for use.

Title: Re: US Expat in UK
Post by: Doubleh on April 13, 2015, 03:08:36 AM
The US taxes you on US stuff and foreign stuff.

The UK taxes you on stuff in the UK, or income brought to the UK from outside.

So either way you're paying US taxes. One way you're paying UK taxes on only what you bring to the UK for use.

This seems a common belief but isn't quite true, so I'll try to clarify a little based on what I have been told. Bear in mind I'm also not an expert, this is just what I've been able to figure out as I understand it.

The UK does tax you on your worldwide income if you are a UK resident, just as the US does. The difference is that the US will always tax you on your worldwide income, wherever you live, as long as you are a US citizen whereas the UK taxes you worldwide only while you are resident there.

So for example, I'm a UK citizen and my wife is a US / UK dual national. While we live here in the UK she is subject to both UK and US tax on her worldwide income, but if we were to move to the US she would no longer be taxed by the UK on her worldwide income. She would only be liable to UK tax on any UK sourced income, for example property or non tax sheltered investment accounts held in the UK.

What LordSquidworth may be referring to, there is an exemption for foreign sourced income available to imigrants to the UK, but this is only partial. As I understand it you can claim a tax exemption by filing on a remittance basis, meaning you only owe UK tax on foreign income if you actually bring the money into the UK. But you can only claim this exemption if you meet certain criteria - I think if your overseas income is less than 2,000, and you have been in the UK for less than 7 years.

One option that may work for you is to make large contributions to your UK employers pension - the maximum is 40,000 but you can also use the last couple of years contributions if you haven't already. This will get you some pretty useful savings on UK tax. The government has recently removed the requirement to buy an annuity, but the remaining big disadvantage is that, unlike a 401k you cannot make withdrawals before pension age. This is currently 55 so if you are say, 45 or 50 and planning to retire soon it could work very well. If you're under 40 then chances are the age will have gone up to 60 or 65 before you get there. I haven't found a way to transfer a pension to the USA and treat it as a 401k. Note that a pension provided by your employer is exempt from PFIC that CPA Cat talked about, but a personal pension (SIPP or Stakeholder) that you take out yourself may or may not be - even the professionals seem to disagree about this.

Bottom line is that there is a lot of complexity here and after a good bit of digging I've struggled to find any clear answers!

I can recommend who prepare both UK and US tax returns for my wife; they can advise on tax from both sides of the pond and are relatively affordable for an expat service. They have given good and prompt advice on questions we've asked them like "what will our liability to UK tax be if we sell a rental property in the US?" but we haven't asked them these specific questions yet as we have the workaround of just making sure I own any UK based investments.
Title: Re: US Expat in UK
Post by: mowgil on April 13, 2015, 04:23:46 AM
Hi All,

Thanks for the responses so far. For context, I am a mid 20s dual national (US/UK) working for a US corporation here in the UK indefinitely. I will keep you updated with whatever I learn. I did just sign for the pension plan (it is a SIPP i believe), as not to miss out on the employer match, but am waiting to hear back from a tax consultant to make sure i understand the implications. I have contemplated transferring a portion of my earnings back to the US as the idea of them sitting idly is slightly depressing, but want to understand all the implications before i make any decisions. (and the exchange rate going back to the US makes me a little sad right now too hah.)