We've recently retired after living in the US for nearly 20 years, US citizens now. I doubt that we will ever return to live in the UK, we have 4 kids settled here, none married yet but settled none the less. Nevertheless, the pull of home is strong after retirement.

I have a nagging feeling that makes me think I should plan for the possibility of returning. Keeping our options open, if you will. We've done well - our assets are way above the UK inheritance nil-rate band, but way below the US almost $11m threshold.

If we were to return to the UK to finish our days I would not want to relinquish my US citizenship. Plus, the taxes to be paid would be onerous.

How do we set up our assets to 'gel' nicely with both tax set-ups?

I have heard of Vanguard ETFs that are UK compliant, and luckily we've invested with Vanguard here in the US for many years.

But what about US savings I bonds? 529 accounts - our youngest child is still in grade school? CD's? HSAs where we've been diligently saving for as many years as we've been able?

How are those to be made compliant when reporting income to both the IRS and HMRC? It may take us many years to transition ourselves to suitable investments, I know we have at least one VG mutual fund with large embedded capital gains which cannot be converted to a VG ETF.

Any comments gladly received and if anyone can point me to online resources on this topic, many thanks

The most important thing is to keep your British passports up to date. If your British passport has expired, you can renew it in the US using the link below -

https://www.gov.uk/overseas-passports

You may want to apply for your children's British passport (if they are also British Citizens) at the same time.

It may also be worthwhile to check your UK state pension entitlement. It can be beneficial for you to top up your contribution records by paying voluntarily National Insurance contributions.

https://www.gov.uk/check-state-pension

Thank you for this link - very useful! We have always kept our British passports current so I was able to check my records and will get DH to do his. It looks like I am entitled to a UK state pension after all - I thought they had changed the rules so you had to have 35 years' credits. Maybe I need to talk to someone to confirm it all...

https://www.gov.uk/international-pension-centre

You should get a pro-rated pension based on your contributions.

Another useful link, thank you.

It appears as if it is worth paying for these voluntary contributions. Is that what most expats do? What is the procedure for getting a bill for this? Once you're caught up with your 6 years, do you get billed automatically for future contributions each year until retirement age?

First, ask HMRC to check your NI contribution records, then HMRC will tell you how much NI voluntary contribution you can pay up -

https://www.gov.uk/pay-voluntary-cla...onal-insurance

It appears that you can pay class 3 NI by posting a cheque to HMRC -

https://www.gov.uk/pay-voluntary-cla...urance/by-post

By using cheque as a method of payment, HMRC cannot debit money from you for future NI contributions.

As to whether it is worth paying extra class 3 NI contribution in exchange of a bigger UK state pension, the most important question is how long you will be able to collect the larger state pension for. If you live to 90 years old, then it is likely that the extra money you spend today is very worthwhile and vice versa.

Wow, where to start?

Let me first congratulate you on taking the step of looking before you leap! Most people don't and suffer the consequences. From your comments, it appears you already have done some investigation and have realised some of the pitfalls. You already know both the US and UK have special rules for "foreign" sourced income.

If you did move back to the UK, and due to your "domicile", you would likely be taxed on the arising basis. That's not all bad. There are rules, but they are, generally, not difficult to live with if the proper steps are taken. Since you are also USCs, the US will treat you as resident in the US for application of tax purposes, and the US rules on foreign sourced income (UK pensions, investments, etc.) are much more complicated and punitive. Although you may have significant US sourced income (pensions and investments), the UK would be your primary taxing authority. They have first bite of the cherry.

You mention you are retiring, but have only lived in the US for 20 years. That leads to a suggestion you may possibly have some UK assets, in the form of UK pensions at least, which remain foreign for US purposes.

Vanguard - Yes. Vanguard, currently, allow a foreign address IF you are already with Vanguard prior to leaving the US. They also appear to handle distributions to foreign beneficiaries much better than any others. And yes, it's much better if the Vanguard funds are HMRC reporting. Non-reporting funds do not benefit from generous HMRC rules for exemptions and may be taxed at higher rates depending on your circumstances.

You have not mentioned ROTH in the States. Currently, under the treaty, ROTH distributions are not taxed by either the US or UK. It's generally agreed that it is very advantageous for the USC resident in the UK to have as much as possible into ROTHs prior to leaving the US.

If you return to the UK, there are a number of investments which are available in the UK to all other UK residents, but which you should avoid as a USC. It's not that they are illegal for a USC to own, it's just that US rules are extremely punitive towards them and as a result, any gain made will be wiped out by US tax. It's not unheard of for the US tax to eventually eat into the principle as well as the profits.

The taxation of USCs abroad is covered in IRS publication 54. (I'm sorry, but the link is unavailable for some reason. Most unusual. Go to the IRS website and search for Publication 54, or simply google IRS publication 54.) These are only the general rules, and do not cover the tax consequences of owning foreign assets.

Relinquishment of USC. I fully understand your reluctance due to personal (family) ties to the US. In addition, there are two groups of people who are really unable to renounce: those who are unable to afford the base cost plus expenses, and those who might have been successful financially. The last group are not rich!!!!, they are simply average folks that have worked and done reasonably well. But, due to the rules for determining who is subject to the Exit Tax, even having something as basic as a pension (and its value) will work against them. To attempt renunciation for the latter group can be financial suicide.

Thanks OAP!

I shall be retiring in a couple of years and will move back to the UK. I have dual US/UK citizenship. I investigated what to do with my 401k etc and the fact that many US financial companies don't want to deal with those out of country.

I spoke to the people at Schwab and they told me they have no issues with Americans being abroad in the UK. My plan therefore is to eventually move my 401k (at T.Rowe Price) to an IRA at Schwab. The IRA would have better fund choices and would allow me to be more flexible in the drawdown stage.

I have heard that Schwab are good.

We found our way to Vanguard, quite serendipitously, early on as DH's first 401k was run by them. As I started to research investment firms and look at costs I realized that we were being advised by sharks in London and we moved our other assets to Vanguard in the US. As soon as we were semi-retired we rolled over the 401k into an IRA to be able to convert it slowly to Roth as our best bet to 'smooth' out US taxable income over the rest of our lives. It turns out that is also beneficial if you are dual UK/US citizens living in the UK.

Our move to the UK is ten plus years away - and a lot can happen in ten years - I doubt we would move before our youngest is out of college. And then maybe not...

It's good to have options - is it obvious I'm a planner?

Thank you for the additional information.

First, you are indicating that most, but not all, income and assets are based in the US. This will make your task somewhat easier. IF you returned to the UK, both the UK and US will tax you on your worldwide income. I believe you already understand that.

You indicate you would have no earned income, Therefore, generally, the procedure is to file a UK return, pay the tax on all income (including the US foreign income), then offset US tax due via Form 1116 (Foreign Tax Credits) when filing the US 1040. Again, I believe you already understand that.

Let me start with a number of links:

SA100 Foreign pages. This is the actual UK return for the foreign portion of income (for 2016/17) you would have to file yearly with HMRC. It may give you an idea of what HMRC are looking for.
https://www.gov.uk/government/upload...SA106-2017.pdf

SA100 Foreign pages, Notes. The explanation for how to complete the foreign pages.
https://www.gov.uk/government/upload...notes-2017.pdf

HMRC notes found on Gov.UK for foreign income. The broad overall starting place.
https://www.gov.uk/tax-foreign-income

Yes. Domicile can be difficult to determine, but for HMRC it's where you eventually intend to return to with intent to establish a permanent home. As a UKC, returning (more or less permanently) to the UK, your domicile would revert to the UK. (Caveat: you may be able to challenge this given some situations.) Therefore, if you meet the residence tests, you would be subject to yearly UK tax. Since your income is from foreign sources, you would need to file a Self Assessment tax return.

The HMRC SRT (Residence tests)
https://www.gov.uk/government/upload...nal_078500.pdf

As long as all your income, investments, and pensions (discussed later) are in the US, the US tax return will be much simpler. In order to offset UK tax credits, you may become involved in the "resourcing" basket on Form 1116 (FTC), but I believe you've already sussed this.

Yes, you've already figured it out!

It will be taxed at normal rates in the UK. If there is a 'basis' in the UK pension, you may be able to reduce the taxable income via use of the IRS 'General Rule' for the IRS 1040 return, and the corresponding work sheet for the General Rule.

Was the UK pension defined contribution or final salary? If DC, it should be reported on the FBAR as well.

Then you've made a good start.

Yes, varying exchange rates are always a concern (and always will be).

As a USC taxpayer abroad, it is the definitive source of information for filing. Unfortunately, it doesn't specify all additional forms that may be required and under what circumstances (Such as the form for your exemption from paying the Obamacare tax,... which may change in the upcoming tax reform,.... if it happens).

Your situation is not unique, but your planning is laudable. Might I suggest you also investigates posts on the UK Yankee site, tax section.

US - UK Taxes

You may find many posts relevant to your investigations. For example:
Foreign Tax Credit Relief: Determining US Tax Paid? Or revise US return?

Keep an eye on the upcoming US tax reform. Although a complete unknown at this time, if a reform does eventually come about, the current House and Senate proposals contain changes which may have consequences for either US expats, or UK expats in the US.

I think you have been given some excellent advice already and I will just add a couple of suggestions since we were in a similar situation. We worked in the USA for 23 years before retiring, then spent 6 years traveling before moving back last year. We are both dual citizens and have no intention of giving up US citizenship for the reasons mentioned above.

In preparation for moving back we converted our after tax mutual funds into HMRC reporting funds and at the same time removed my name from the joint account so they are only in my wife’s name. This is because I have both US and UK final salary pensions and my wife has no such private pensions. The UK taxes folks only as individuals so having those investments in her name maximizes the tax advantages of her tax free allowance plus the dividends and capital gains will taxed at the lower rates of a basic taxpayer.

We both have IRAs and Roth’s but I have been converting as much of my IRA to Roth first because I am the one in the higher tax band in the UK.

We have kept up voluntary NI contributions so we both will be collecting OAP with 30 and 31 years of contributions plus we both will be getting US SS. Consequently we have enough secure income to meet all our needs and have already started gifting money to our children with the intention of being close to or below the UK inheritance tax allowance. We are nowhere close to the US allowance of $11m and in the UK you can gift as much as you like each year and with each gift a 7 year clock starts ticking, at the end of which those gifts are never subject to inheritance tax.

Glad you found this thread, durham_lad. All through this, I kept thinking you were the right one to respond given your recent move back and your awareness for the need of planning.

Where to start!

Thanks go to both OAP and durham lad for replying, this has given me lots to think about.

The link to the residence test is an eye-opener. I have been going along under the misapprehension that as long as I keep my UK visits to less than 180 days I am ok for tax purposes. Not so... it all tightened up a few years ago, it seems.

I have been visiting my aging mum quite a lot since my dad died, 4 or 5 trips a year. As I neither meet the automatic UK nor automatic overseas tests, I have been looking at the 'sufficient ties' test to see if HMRC could possibly count my UK trips as residency. As I stay in my mum's spare bedroom when I'm with her, and have stayed with her more than 16 days in the tax year, I have to count an 'accommodation tie'. Plus, last year we had a long family holiday in the UK taking advantage of the long school vacations so I spent more than 90 days in total in the UK, there's my second 'tie'.

Too much information - but this might help someone - I reckon I need to keep myself under 120 days and maybe, under 91 in the UK to be on the safe side.

Note that banks are required to snoop on you and report if they believe you are hitting the residency limits. This happened to us in 2011 after a long stay and our bank noticed from our atm activity that we could have hit the residency requirements. We hadn’t because we had actually left the country and returned a couple of times and I kept careful records. However it did mean I had to complete an HMRC form detailing time spent in the UK over that year and the previous 3 plus expected time in the UK over the next year or 2. We received the the letter from the bank with the form to fill in mailed to us in the USA after we had returned.