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It’s that time of year again – A reminder of the US tax filing deadlines

It’s that time of the year again. That time where US individuals are beginning to think about their 2016 tax year filings. Many people have received their relevant W2’s (or equivalent pay statements reflecting their employment earnings and withholdings), their 1099s related to investment income and their 1099s related to taxable pension distributions and reportable rollovers. So, let’s take a moment and review some of the most relevant filing deadlines for US individuals.

US pension contributions in a world of changing UK pension landscape

For many Americans living in the UK, the focus of retirement savings and contributions has typically been UK pensions as opposed to US pensions due to the generous annual allowances and tax relief offered in the UK as a higher tax jurisdiction. However, with the ever changing UK pension landscape, individuals earning over £150,000 have a tapered UK pension allowance, making funding US pensions as part of the overall retirement saving strategy slightly more attractive.

It’s that time of year to start thinking about year-end planning

Americans in the UK not only need to balance two jurisdictions, they also need to take into account the differing tax year ends. As we quickly approach the holiday season and end of the year, it is a great time to review wealth goals and objectives and consider areas of tax planning that require action before 1 January.  Below is a non-exhaustive list of some areas individuals may want to give consideration to. Areas mentioned will not be relevant to all individuals and expert advice should be sought on how to apply opportunities to individual circumstances.

A Guide to UK Visas

It is common for people to have questions about UK visas. The process can be a daunting one. There are broad considerations that need to be given attention as one goes through this process. And, depending on your visa status, it is important to also understand your obligations.

Below, we share a recent article from The American Magazine that covers some of the basics that are important to know if you are an American moving to the UK.

http://www.theamerican.co.uk/pr/lituk_Guide-to-UK-Visas_OTS.php

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Considerations when you are thinking about giving up your US passport

Being an American living outside of the US can be difficult, with all of the complex reporting requirements and potentially adverse tax consequences of owning foreign securities. Sometimes, the seeming hassle sparks expats to want to give consideration to giving up their US passport. Below we will discuss a few of the many financial considerations associated with expatriation.

The process of expatriation can be different for people depending on their individual circumstances and whether or not you are considered to be what is called a ‘covered expatriate’. If any of the following three scenarios apply to you, and you expatriate post June 2008, then you are considered a ‘covered expatriate’:

Daily Life in the UK as an American

Daily life in the US and the UK has its similarities and its differences. Almost any American who lives in the UK can put together their own list based on their perspectives and past experiences.  Everyone gets homesick from time and time and it is easy to sometimes get caught up and dwell too much on the familiar and underappreciate the differences.

Bill Bryson is an American author who lived in the UK for over twenty years. At the point in time he decided to return to the US, he took one final trip around the country and wrote a travel book called ‘Notes from a Small Island’ providing humorous insight into daily life in the UK.  In light of recent events, we thought this excerpt from the book was particularly well placed.

Why is Estate Planning important?

Estate and inheritance tax planning for a US person living in the UK is an important area of your financial life to address. This is probably even more so due to the large differential in the nil rate inheritance tax bands available in the UK as compared to the US (£325,000 versus a current $5.45 million in 2016). A lack of understanding about how inheritance tax works can end up costing families hundreds of thousands if not millions of dollars. However, proper planning can help minimise the amount of inheritance tax payable and help ensure that families are left with an estate that will provide for their needs after death. Proper strategies will largely depend on the individual circumstances of the decedent.

Considerations need to be given to the following:

• Whether you are deemed to be UK domicile or non-UK domicile
• Location and situs of assets
• What would be ideal versus acceptable
• Size and composition of assets
• Citizenship of spouse, if applicable
• Citizenship and relationship of estate beneficiaries
• Whether any lifetime wealth transfer is feasible

There is significant personal thought and planning that goes into what strategies will best meet your specific individual preferences. Sometimes it’s difficult to know where to start or how to think about the eventual distribution of your assets. It is often beneficial to have a solid idea ahead of sitting down with a solicitor so that you can have more productive conversations. Taking the time to frame your thinking on who you might want to pass assets to will begin the process of developing a strategy based around your own needs and requirements.

Estate Planning is a dynamic process. As your life develops your beneficiaries and charities will change. This should not be an excuse to not plan but instead to amend and tweak existing structures.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

Financial Considerations when you are ready to purchase a home

When it comes to planning for a home purchase in the UK, there are many factors and aspects of your financial life to consider. First there are the traditional things to consider:

• How much can I put down?

When considering how much to put down on a home purchase, you need to think about what you have in the way of existing liquid assets versus what you will pay off over time. The more you put down up front the more equity you are putting into the property as you move forward. Frequently, the larger the deposit, the greater the choice of mortgage deals. The exact amount of deposit will depend on individual facts and circumstances.

• Have I taken into account any Stamp Duty Land Tax (SDLT) and Conveyancing Fees that will be payable?

It is easy to forget about how much SDLT and Conveyancing Fees amount to when you are purchasing a property. When looking at how much you have available to allocate towards a deposit you also need to consider the cash outlay for these. SDLT in particular has now become even more important if the property represents a second home as the SDLT rates at all price bands have been increased by 3% for the new tax year.

• What kind of mortgage do I want to secure?

Knowing whether it is beneficial to secure an interest only loan or a principal repayment loan as well as looking at the appropriate repayment period are all important things to understand and give consideration to. The decisions made here will first and foremost impact monthly cash flow. Thinking through how the property will be used now and in the future and knowing how long you may own the property are factors to take into account.

In addition to the traditional things to consider, when you are American, there are a few other considerations:

• When you are looking at your sources of capital for a deposit, will you be bringing any assets onshore from the US?

Remitting assets into the UK for a home purchase is often a large planning point of discussion for American clients. It is important to understand whether assets held offshore are considered ‘clean’ from a remittance standpoint or whether you will need to pay a tax charge in the UK upon bringing that money in. Understanding any tax charges that might be applicable is extremely important as you definitely do not want to be surprised to find out that a chunk of the assets that you thought were available to put towards a deposit are actually going to go towards paying a UK tax bill.

• Have you thought about the appropriate ownership structure if you are married and one spouse is not American?

The sale of a main residence has tax implications for an American individual whereas it is tax free from a UK perspective. When one spouse is not American, it can often be beneficial to think about the ownership structure of the property and determine whether it is in the family interest to consider Joint Tenants in Common or ownership in the non-US spouse’s name. The amount a mortgage lender will lend will also be based on who is going to own the property.

Planning ahead and knowing how to approach the above questions will help ensure that you don’t get adversely surprised as you embark on a very large financial purchase.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.

The Role of Foreign Exchange in Investing

Wealth management is the art of managing risk in an effort to optimise reward. For US citizens living in the UK, risk management needs to go beyond the classic issues of retirement planning involving how much money will be needed to retire, or at what age is retirement feasible. Expats need to also understand whether any foreign exchange risk lurks in their underlying portfolios.

For expats who are settling overseas for the long run, foreign exchange risk is complex but highly manageable – if you know how to identify and then anticipate the hazards. There are three areas where US citizens are likely to take on risk without always understanding the pitfalls. This includes:

(1) Planning investments in terms of their future liabilities – Will future expenses be mostly in dollars, pounds, or a combination or currencies?
(2) Being mindful of how to hold cash – Should cash be held in dollars, euros or some other currency?
(3) Not converting currency from one to another to make an investment decision due to exchange rate costs – subsequently ignoring the eventual underlying currency exposures of the investment made.

We explore each of these in a bit more detail below and provide tips for US expats on how to take charge of foreign exchange risks.

• Maintain buying power by selecting the right currency now for fixed income investing.

Traditional investment portfolios generally break down into three basic categories – fixed income, stocks, and cash. Each category plays a special role. Cash is important for emergencies; stocks are the growth engine, and fixed income investments should provide the basis for daily expenses after retirement or for mitigating the overall level of volatility in a portfolio. Foreign exchange risk in fixed income portfolios is singularly important to manage and you should consider having the right mix of dollar and pound-based fixed income investments. US citizens living overseas should look at matching the income from their investments to the local currency where they will be incurring most of their expenses. This will protect from exchange rate fluctuation. You don’t want to suddenly discover after decades of saving that the largest component of your portfolio is in dollars rather than the currency of your liabilities or vice versa.

• Pay attention to cash – is it in a local currency?

Everyone needs to keep cash – or cash equivalents – on hand for emergencies. In our experience we sometimes find that globetrotting clients can be indifferent to the currency in which they hold cash. If you are living in the UK and keep cash accounts in euros as well as dollars, then you are subjecting yourself to currency risk. This is true for cash equivalents, like US Treasury bills or money market funds. If you suddenly need £30,000 to replace your car, you don’t want to convert your cash from another currency. The foreign exchange market is vast – more than $5.3 trillion trades daily. But the price volatility is considerable. You could get lucky, and the currency you hold could strengthen. But in effect, you are playing roulette with your reserves.

• Don’t be afraid to change dollars to invest in US-based global stock funds.

Stocks, real estate and commodities – these are the assets that can help to power growth in a nest egg. For many US investors living abroad, buying US-based funds is typically the most efficient way to build a globally diversified portfolio of real assets. Diversifying is critical: it helps to outweigh the true risk of currency fluctuation and keep the return engine of a portfolio humming. We have found that a number of investors hesitate to swap their pounds for dollars. They think that they will get killed on exchange rate costs. However, if your wealth adviser has correctly set up efficient foreign exchange banking services, those transaction rates should be trivial.

Investors also mistakenly assume that they are taking on dollar risk if they exchange pounds for dollars in order to invest in a US global stock fund. Buying US funds is often considered the most tax-efficient venue for expats and the investor needs to distinguish between the denomination of the investment and the true foreign risk exposure. The currency risk for a US person permanently living in the UK, buying a dollar denominated fund, that buys stocks in Europe, is the movement between the euro and pound – not the relationship between the US dollar and pound. If you exchange pounds to buy a dollar-based emerging market fund, then the foreign exchange risk is pound vs. emerging market currencies. There is no dollar risk. The dollar is merely a reporting currency.

When it comes to stocks, the ups and downs of foreign exchange can indeed enhance or hurt returns in the short-run. Some managers may use fancy techniques to hedge – or protect – investors from the vagaries of the foreign exchange market. In the long-term, however, academic studies show that hedging isn’t all that effective when it comes to stocks.

Global diversification is seen as the best friend for savers. When investors understand just where currency risk lies, they can make choices about how to manage that risk. A misunderstanding of these risks can result in investors not being able to achieve their goals

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.