26th Feb 2024 by Dan Keeley

Navigating the Pond: Pre-Planning Tips for US Expats Moving to the UK

US/UK

Embarking on a move from the US to the UK is an exciting prospect filled with new opportunities and adventures. However, the process of relocating to a new jurisdiction comes with its fair share of challenges that can hurt the unprepared and unaware.
 


As Benjamin Franklin famously said, “by failing to prepare, you are preparing to fail”.

Embarking on a move from the US to the UK is an exciting prospect filled with new opportunities and adventures. However, the process of relocating to a new jurisdiction comes with its fair share of challenges that can hurt the unprepared and unaware.

By taking proactive steps to prepare for your move, you can save yourself time, minimize stress, and avoid costly tax bills from the IRS or HM Revenue & Customs.

In this short guide, I will summarise some of the key tips to consider before making the journey “across the pond”.

1)    Start early

As with most plans, the earlier you start, the better. Once you begin to delve into the interplay between the US and UK, you will soon realise there are a myriad of things that you need to be aware of. By pre-planning, preferably before you step foot in the UK, it should provide you with sufficient time to, firstly, become aware of the possible implications of the move and then action any necessary changes.

2)    Seek specialist guidance 

Enlisting the support of specialist professionals who understand the intricacies of the US and UK systems can provide invaluable insights into the tax and financial implications of your move. They can provide expert guidance to help navigate the complexities of tax laws in both countries and optimize financial strategies for the transition.

3)    Understand Your Reporting Requirements

Understanding reporting requirements is crucial for US expats living in the UK to comply with tax laws in both countries and avoid double taxation.

The Foreign Account Tax Compliance Act (FATCA) requires US citizens to report specified foreign financial assets, while the Report of Foreign Bank and Financial Accounts (FBAR) mandates the disclosure of foreign accounts exceeding certain thresholds. Failing to comply with these reporting obligations can result in severe penalties. Therefore, it’s essential to familiarize yourself with these requirements and ensure timely and accurate reporting.

Moreover, to prevent double taxation, US expats can take advantage of tax treaties between the US and the UK, which provide mechanisms for offsetting taxes paid in one country against tax liabilities in the other – just remember that you may need to file by the 31st December to align the tax years! (please note, the UK tax year runs from April to April, whereas the US is the calendar year so some tax advisors may suggest pre-paying your UK taxes). Understanding the provisions of these treaties and leveraging available tax credits and deductions can help minimize the tax burden and optimize financial planning strategies.

4)    Remittance vs Arising Basis of Taxation 

As an expat moving to the UK, you have a choice of being taxed on either the “Remittance” or “Arising” Basis of taxation. For non-domiciled individuals, HMRC gives you the opportunity to elect to be taxed on the Remittance Basis of taxation, for free, during the first seven tax years of residency (after which you will have to pay the “Remittance Basis Charge” to continue to be taxed on the Remittance Basis). In doing so, it will allow individuals to shelter the income and capital gains of assets held outside of the UK (e.g., if you held a brokerage account in the US) from UK taxation, and you will only be liable for UK taxes on any income/ gains earned in the UK or any income and gains remitted (i.e., physically brought) into the UK.

For those expats who elect to be taxed on the Arising Basis of taxation, you need to be aware that your non-UK assets will automatically fall into the scope of HMRC, and you will be taxed on your worldwide income and gains as they arise annually.

Each method has both pros and cons, and the individual families’ circumstances will determine which method is more suitable. Factors such as the ones listed below, will impact the decision and subsequent planning conversations, so it becomes of vital importance that you consult with a US/UK specialist to ensure you are making the right decision.

Questions to be thinking of that may impact what suits your specific family situation best:

  • How long are you expecting to stay in the UK and are you likely to eventually need to bring some of your US assets over to the UK to facilitate spending?
  • Would it make sense to forgo the various allowances granted to UK Arising Basis taxpayers, in favour of having the ability to shelter the income and capital gains of assets held outside of the UK (e.g., if you held a brokerage account in the US) from UK taxation?
  • If you are planning to stay in the UK for the long term, does it make sense to restructure your US assets so that they are tax efficient from a US and UK perspective, now, at a later date or not at all?
  • Should you look to rearrange how investment income is, and to what account, received in the US? Is there a benefit to segregating your pre-arrival capital so that it remains “clean” and can be freely remitted (i.e., physically brought) into the UK without further UK tax implications?

5)    Restructuring Investments 

If you are a US taxpayer, the IRS will require you to report and potentially pay tax (above certain thresholds) on your worldwide income and gains regardless of where you reside. So, for those who are taxed on the Arising Basis of taxation in the UK, it becomes of paramount importance that your investments are structured in a way that is considered tax efficient in both jurisdictions.

Specifically, investing in non-US regulated collective investments (e.g., Unit Trusts, Open Ended Investment Companies (OEICs) or Non-US Exchange Traded Funds) will cause US taxpayers to fall foul of the IRS’s, extremely punitive, Passive Foreign Investment Company (PFIC) regime. Investing in PFICs from a US perspective is extremely tax toxic and, after accounting for interest, penalties and reporting obligations, the taxable gain can be completely wiped out to tax so avoiding these like the plague is your best bet. 

US taxpayers need to also be aware of how the IRS views UK products such as ISAs (Individual Savings Accounts), Offshore Bonds and Self-Invested Personal Pensions (SIPPs). Although they are fantastic planning tools from a UK perspective, the IRS will take their own view of the tax treatment of each of them so it is best to consult with a specialist advisor to ensure that what you know is tax-efficient from a UK perspective, doesn’t give rise to unattractive tax consequences in the US. 

From a UK perspective, US expats (taxed on the Arising Basis of taxation) should become familiar with how gains of US Mutual Funds and ETFs are treated by HMRC. In the UK, the growth of US funds that haven’t gone through the process to attain “UK Reporting Status”, may attract Offshore Income Gain treatment upon sale. This can be the difference between being taxed at the investor’s highest marginal income tax rate (up to 45%) as opposed to the more favourable Capital Gains tax rate (up to 20%).

6)    Restructuring Structures

Trusts in the US are commonplace, but reviewing trust structures should be a key consideration for US expats relocating to the UK to ensure that they remain suitable and fit for purpose. Due to differing tax laws, trusts set up in the US may not operate tax-efficiently in the UK or, due to the residency of trustees and beneficiaries, may unintentionally fall into the UK tax net and lead to unexpected tax liabilities. By assessing trust structures beforehand, expats can ensure compliance with both US and UK tax laws and avoid unintended consequences.

7)    Get in touch with MASECO 

Finally, and following on from point two, our advisors are here to help any US expats planning on relocating to the UK so please do not hesitate to reach out today. Whether you simply want a lesson in some basic do’s and don’ts, are seeking formal investment management and financial planning advice or to use us as an intermediary to our extensive professional network of US/ UK tax and legal specialists, we are on hand to find solutions and help alleviate the stress of what will be a life changing move!

The Legal Stuff

This document may not be forwarded, copied or distributed without our prior written consent.  This document has been prepared by MASECO LLP for information purposes only and does not constitute investment, tax or any other type of advice and should not be construed as such.  The information contained herein is subject to copyright with all rights reserved.

The views expressed herein do not necessarily reflect the views of MASECO as a whole or any part thereof.  All investments involve risk and may lose value.  The value of your investment can go down depending upon market conditions and you may not get back the original amount invested.  Your capital is always at risk.  Information about potential tax benefits is based on our understanding of current tax law and practice and may be subject to change. The levels and bases of, and reliefs from, taxation is subject to change. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at Burleigh House, 357 Strand, London WC2R 0HS.  The individual partners are Mr J E Matthews, Mr J R D Sellon, Mr A Benson, Mr D R B Dorman, Mr H Q A Findlater, Mr T Flonaes, Mr E A Howison and Ms A L Solana.  For your protection and for training purposes, calls are usually recorded.

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.
 

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