Client login

Arising Basis Taxation and your Investment Portfolio

Upon arriving in the UK, most Americans are non-domicile for income tax purposes. Usually you can elect to pay tax on the remittance basis so that UK tax is only paid on foreign income or gains when they are brought into the UK. Once you have been resident in the UK for more than 7 out of the last 9 tax years you are taxed on the arising, or worldwide, basis unless an election is made to pay an annual Remittance Basis Charge (otherwise known as the RBC). Under rules that come into effect for the new UK tax year, this RBC can only elect to be paid for the tax years prior to meeting a UK long-term residency of more than 15 out of the last 20 years. For many Americans, paying the annual charge often does not make financial sense due to being subject to US tax on a worldwide basis. As a result, it is usually in your 8th UK tax year that you often find yourself dealing with worldwide taxation in two jurisdictions. Knowing what is tax-efficient from both a US and UK perspective becomes of utmost importance.

The real joy of the holidays – Coming Home

Evidence based investment approach.

With the holiday season in full swing, what better way to be reminded of the importance of the season than through Heathrow’s Christmas advert. Arguably one of the best adverts to come out this year, it follows two elderly bears on their travels to London in order to spend Christmas at home with their loved ones.

The arrival gate at Heathrow is that quintessential place that captures the pure joy of families, friends and loved ones being reunited after time spent apart. No matter how far we go, nothing feels quite like coming home. As many of us get ready to travel this holiday season, Heathrow’s advert serves as a timely reminder of what so many of us treasure and yet so often take for granted.

Click here to watch the full advert!

Michael Lewis and Daniel Kahneman

The Sunday Times magazine carried an article this week about two people whose work I enjoy hugely – Daniel Kahneman and Michael Lewis. More specifically it was an interview with Michael Lewis, author of Liar’s Poker, Moneyball and the Big Short amongst others, who has written his latest book about Kahneman and his former co-author Amos Tversky and how the two men came together as friends and then radically changed the way we think about the human mind and why we make the decisions we do. Before their work, economists mostly thought of people as generally rational beings who would analyse all the necessary information before coming to the best decision.

Investing: It’s an on-going process, not a point in time

At any gathering around the world, I’m invariably approached by someone who wants to know when and where they should enter the market. For the past couple of years, those of my friends and family in the States have been pleased with how their portfolios have been performing.  I generally agree with them knowing that there is significant home country bias in their portfolios.  However, the rest of the world hasn’t fared as well.  In our market, primarily the US expat market, we hear something opposite from those in the States.  Presently, 22 August 2016, the US is all but fully valued (some may say over-valued) according to Research Affiliates . It’s impossible to pick and choose markets in advance to garner the benefits that appear to be easy to select in the rear view mirror.  Times are challenging now.  In fact, times are generally challenging.  Below are some of some of the key indices around the world to provide some insight as to how things really are and have been over the past few years.  It’s very easy to take a snippet from an article or listen to the talking heads on television and believe that markets are doing something they’re actually not.  As Wealth Managers, our job is to provide a solid portfolio structure that will give the best chance of a positive result based on risk appetite.  We diversify broadly, both from a geographical and industry perspective.  The easiest way to keep this in mind is to think about the late 1990’s.  Tech was the rage and if you weren’t in it, you would receive paltry high single to low double digit returns.  That was great while it lasted, but, like all other fads, that fizzled and many people and institutions were burned.  Don’t give in to the hype of greener pastures.  You’ve heard it before, this time, make sure you don’t go searching.

What is the basic difference between a US and Non-US trust?

Evidence based investment approach.

There are many different considerations that come into play regarding trusts depending on the type of trust you own, the tax status of the individuals who settle the trust and retain an ongoing benefit from the trust. As such, it is often important to review some of the basic rules associated with what makes a trust a US trust as opposed to a non-US ‘foreign’ trust.

A US trust is one that satisfies two tests:

(1) Court Test – A court within the US has primary rights to administer the trust.
(2) Control Tests – at least one ‘US person’ has the ability to control all substantial decisions related to the trust. A US person would be defined as a US citizen, green card holder, or resident alien under the substantial presence test.

Drown out the Noise – You Are Smarter than You Think

I spent a couple days earlier this week at an investment conference. Whilst there, I was reminded of the volumes of empirical evidence supporting our investment philosophy. It was reassuring and affirming.  Even though I’m “in the business,” I’m not immune to the noise that is everywhere.  Talking heads on TV telling us which stocks are winners; newspapers telling us the sky is falling; co-workers telling us how great their investments are the greatest thing since sliced bread. These distractions are ever-present, and it takes true resolve to not be swayed by these externalities. Clients will often ask what we think of a particular event (How will Brexit impact me?) or security (Should I buy some Apple?) or perceived future risk (But what if Trump is elected?).  These questions are relevant and valid, but they shouldn’t cause you to deviate from your long-term strategy.

HMRC confirms non-domicile changes are set to take effect in April 2017

Following the Brexit vote in June, there was speculation as to whether (and when) HMRC would follow through with publishing more detailed changes set to take effect in April 2017 for non-domiciled individuals who are long-term resident in the UK. However, on 19 August, HMRC published a second round consultation (open until 20 October) which provides a bit more insight into the details of the changes that are on the horizon.

The dark side of quantitative easing

Since the Great Recession there has been a slow recovery fuelled by nearly universally loose monetary policies around the world. We have now reached a point where many countries’ long term interest rates are negative, but there is still little sign of inflation.

Will continuing this policy work? How far can it go?

Enterprise Investment Scheme (EIS) investment for the US person in the UK

Historically UK pensions have been a good way to achieve UK tax relief and it is also an opportunity for US persons living in the UK to efficiently use their excess foreign tax credits on their US tax returns.  However, with the introduction of the tapered allowance for new pension contributions, high earners are restricted in their ability to make sizable contributions and have fewer opportunities to seek tax relief.

As such, many individuals are now seeking other ways to achieve tax relief and also efficiently use their foreign tax credits. One possible way is through investment in an Enterprise Investment Scheme (EIS).  EIS was set up to encourage investment into small unquoted companies carrying on a qualifying trade in the UK.  As investing in smaller companies often comes with a greater level of risk, tax relief is used to incentivise that risk. EIS offers those who invest in qualifying companies both income tax and capital gains tax benefits.

You have moved to the UK – Now what?

As an American living in the UK, almost nothing related to your financial affairs is easy.  The consequences of seemingly simple decisions – such as how to pay for a new home or purchase a mutual fund – may create unnecessary tax charges and complexities.  There are a number of key milestones that occur, from the time you arrive in the UK to the time you potentially approach and reach retirement. Many of these changes will impact the appropriate wealth management strategies for American expats. Understanding how rules will change for you over time will allow you to plan ahead and make prudent financial decisions.  We begin these series of articles with some initial considerations for your first three years in the UK.