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UK tax questions - what can I fill personal exemption with?

UK tax questions - what can I fill personal exemption with?

Old Oct 8th 2020, 10:33 am
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Default UK tax questions - what can I fill personal exemption with?

Hi - as part of my planning for possible return to the UK I'm running a couple tax simulation models to see how much I'll owe (UK and US) based on our situation (or expected situation in the future). Reading the UK GOV website I understand the UK has separate personal, capital gains, dividends and interest exemptions. For about 8 years all of our spending power will come from these three sources, we don't plan on having an paid employment. The way I am reading the GOV website I can fill the personal exemption with any of these sources, then fill the specific exemptions on top of that. Would I be correct?

Is there a TurboTax UK equivalent where I can try out different simulations like I can with the US version?

On a separate note I converted my taxable Vanguard mutual fund to a VTI ETF this week to comply with the "you can only have these in your taxable account or we'll be forced to turn your assets into our assets" HMRC rule who's name escapes me now. All went well but I was surprisingly nervous the day it happened!

Thanks in advance for you help.
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Old Oct 8th 2020, 3:36 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Sounds like you are making good progress on your financial preparations.

I use Taxcalc to run scenarios, costs about £30.
https://www.taxcalc.com/

Yes, the tax free exemptions are personal exemptions. Since I have US pensions that more than fill up my personal exemption then we put the ETF after tax savings in my wife’s name so she never fills up her HMRC personal limits with the interest, dividends and capital gains. We have another 2 years of her having no other income before her OAP and then SS start coming in.
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Old Oct 8th 2020, 3:47 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by GOALFIRE View Post
Hi - as part of my planning for possible return to the UK I'm running a couple tax simulation models to see how much I'll owe (UK and US) based on our situation (or expected situation in the future). Reading the UK GOV website I understand the UK has separate personal, capital gains, dividends and interest exemptions. For about 8 years all of our spending power will come from these three sources, we don't plan on having an paid employment. The way I am reading the GOV website I can fill the personal exemption with any of these sources, then fill the specific exemptions on top of that. Would I be correct?

Is there a TurboTax UK equivalent where I can try out different simulations like I can with the US version?

On a separate note I converted my taxable Vanguard mutual fund to a VTI ETF this week to comply with the "you can only have these in your taxable account or we'll be forced to turn your assets into our assets" HMRC rule who's name escapes me now. All went well but I was surprisingly nervous the day it happened!

Thanks in advance for you help.
You have an annual PERSONAL ALLOWANCE (currently 12,500) and a separate annual CGT ALLOWANCE (currently 12,300). You also have an annual dividend allowance of 2,000 and an interest allowance of 1,000.

If you have only interest and dividends HMRC will only look to those allowances first to deplete before using any available personal allowance. You can also transfer 10% of your personal allowance to your spouse IF your total income is below the personal allowance.

Investing, you cannot flip investments simply to use up the CGT allowance (bed & breakfasting). An investment in an identical stock cannot be sold and bought back within a 30 day period to deplete the available allowance.

As soon as you arrive in the UK you should consider sheltering capital in an ISA for which the annual allowance is currently 20,000 pounds even if you arrive part way through the tax year. Income funds can be held in an ordinary fund and share account while accumulation funds are best held in ISAs for tax management/reporting purposes. ISA investments are initially in CASH, you cannot transfer existing stock and fund holdings into one.

Personally, I would just LOVE IT if somebody would come up with carefully constructed templates (with the correct hierarchies in place) for major domiciles to show how personal taxes and social levies are calculated in each against available allowances. UK/Ireland/Spain/France/Portugal/Germany/Netherlands comparisons would be good for starters.

Last edited by Pistolpete2; Oct 8th 2020 at 3:58 pm. Reason: As soon as you arrive in the UK you should consider sheltering capital in an ISA
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Old Oct 8th 2020, 6:47 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

The OP is a dual US/UK citizen, his wife is a USC.

Note that for a USC living in the UK you can’t shelter assets from the IRS in an ISA. Interest from within an ISA is taxable in the US tax return and if you hold a stocks and shares ISA those funds would be taxed punitively as PFICs.

Last edited by durham_lad; Oct 8th 2020 at 6:50 pm.
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Old Oct 8th 2020, 9:24 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by durham_lad View Post
The OP is a dual US/UK citizen, his wife is a USC.

Note that for a USC living in the UK you can’t shelter assets from the IRS in an ISA. Interest from within an ISA is taxable in the US tax return and if you hold a stocks and shares ISA those funds would be taxed punitively as PFICs.
Yes, aside from a checking account and a standard savings account I don't plan on any other form of UK investments. All my money will be US based (still researching if I will change brokerage) and I'll just transfer living expenses every month/quarter whichever makes the most sense.
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Old Oct 17th 2020, 10:39 am
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Default Re: UK tax questions - what can I fill personal exemption with?

Sharing a handy website I found for calculating UK tax. One thing it did clarify is that I can use dividends and interest to fill up my personal allowance as well as their separate allowances but I CAN NOT do that with capital gains. A bit of a bummer but better to find out now so I can run my tax models than after I fill in my first return!

https://taxscouts.com/calculator/

Of course to be sure one should consult a tax professional and so on!
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Old Oct 17th 2020, 10:55 am
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by GOALFIRE View Post
Sharing a handy website I found for calculating UK tax. One thing it did clarify is that I can use dividends and interest to fill up my personal allowance as well as their separate allowances but I CAN NOT do that with capital gains. A bit of a bummer but better to find out now so I can run my tax models than after I fill in my first return!

https://taxscouts.com/calculator/

Of course to be sure one should consult a tax professional and so on!
Nice website, thanks for sharing, I've bookmarked it.

Although you can't use capital gains to fill up the personal allowance you do have an separate £12,500 tax free allowance per person for capital gains and then the tax is only 10% for a basic rate taxpayer. A couple can benefit further by each having funds or shares in their own names then selling enough to maximize their £25k allowance. We actually pay more on our IRS return since there is no tax free allowance (for our joint income) so we are taxed on the whole gain at 15%.

Last edited by durham_lad; Oct 17th 2020 at 11:01 am.
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Old Oct 17th 2020, 2:55 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by durham_lad View Post
Nice website, thanks for sharing, I've bookmarked it.

Although you can't use capital gains to fill up the personal allowance you do have an separate £12,500 tax free allowance per person for capital gains and then the tax is only 10% for a basic rate taxpayer. A couple can benefit further by each having funds or shares in their own names then selling enough to maximize their £25k allowance. We actually pay more on our IRS return since there is no tax free allowance (for our joint income) so we are taxed on the whole gain at 15%.
You're welcome, about time I returned some capital though I'm still in your debt! So on that note please allow me to dig a bit deeper on your statements above.

We have a joint brokerage account with Vanguard (all VTI) can we split it up into two individual accounts without a tax event happening? If not I'll just open another account for my wife and direct future purchases of VTI to her account (on account of her being 5 years younger than I).
The real benefit of this will really come when I can, or am forced to, start pulling from my IRA but my wife can not given she'll be 5 years younger. This assumes we've not managed to reclassify all our IRA's into Roth's which is the goal right now. Given the UK taxes as individuals I can see it's beneficial to have sperate brokerage accounts so you can control where the gains get allocated.

Thanks in advance!
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Old Oct 17th 2020, 3:26 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by GOALFIRE View Post
You're welcome, about time I returned some capital though I'm still in your debt! So on that note please allow me to dig a bit deeper on your statements above.

We have a joint brokerage account with Vanguard (all VTI) can we split it up into two individual accounts without a tax event happening? If not I'll just open another account for my wife and direct future purchases of VTI to her account (on account of her being 5 years younger than I).
The real benefit of this will really come when I can, or am forced to, start pulling from my IRA but my wife can not given she'll be 5 years younger. This assumes we've not managed to reclassify all our IRA's into Roth's which is the goal right now. Given the UK taxes as individuals I can see it's beneficial to have sperate brokerage accounts so you can control where the gains get allocated.

Thanks in advance!
In our case all the pension income is mine at present, her US company did away with their final salary scheme several years before she retired and converted her pension years into a cash balance scheme, contributing to it each year thereafter, plus she also had a 401k with them. We rolled all this into a Fidelity IRA after she retired and then over to Vanguard the year before we moved back to England.

Consequently we decided to simply remove my name from the joint account and let all the dividends plus capital gains when we sold shares flow into her cash account. Removing my name was a non-taxable event. I would think that you would be able to remove your name from the joint account and then have your wife gift shares to you with no tax consequences, or perhaps Vanguard can simply split the shares between you to save the hassle of gifting.

Best thing is to talk to Vanguard via phone or private message through their website when logged on, but the link below indicates that gifted shares have no tax consequence, they transfer with the same cost basis and are not treated as if they have been sold.

https://www.investopedia.com/ask/ans...iftofstock.asp

Please bear in mind that gifted shares with a capital gain will be transferred with the gain to the recipient. As a result, if the recipient sells those shares, they will have to pay taxes on the capital gains, which would include the difference between the original cost basis or the purchase price and the selling price. Please consult a tax professional since capital gains taxes can be different for short-term holdings versus long-term holdings.
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If the shares are to be transferred within the current brokerage firm, it should be fairly straightforward. However, if the transfer is being sent to another financial institution, the sender should contact the receiving institution for the firm's procedures on completing a stock ownership transfer. The receiving institution will likely have an address for which the written authorization is to be sent or electronic transfer instructions since the shares can be transferred electronically from the sending broker.
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Old Oct 17th 2020, 9:32 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by GOALFIRE View Post
You're welcome, about time I returned some capital though I'm still in your debt! So on that note please allow me to dig a bit deeper on your statements above.

We have a joint brokerage account with Vanguard (all VTI) can we split it up into two individual accounts without a tax event happening? If not I'll just open another account for my wife and direct future purchases of VTI to her account (on account of her being 5 years younger than I).
The real benefit of this will really come when I can, or am forced to, start pulling from my IRA but my wife can not given she'll be 5 years younger. This assumes we've not managed to reclassify all our IRA's into Roth's which is the goal right now. Given the UK taxes as individuals I can see it's beneficial to have sperate brokerage accounts so you can control where the gains get allocated.

Thanks in advance!
We are in the process of splitting our US NQ Brokerage account from a joint account into two individual accounts. There are no tax consequences as it is between spouses. Once back in the UK we can determine which account we want to realize the gain depending on how each of our UK personal allowances has been utilized each year.
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Old Oct 17th 2020, 10:05 pm
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Default Re: UK tax questions - what can I fill personal exemption with?

Originally Posted by Russet View Post
We are in the process of splitting our US NQ Brokerage account from a joint account into two individual accounts. There are no tax consequences as it is between spouses. Once back in the UK we can determine which account we want to realize the gain depending on how each of our UK personal allowances has been utilized each year.
Excellent, good to know it is so easy.
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