Katerina1

Hi All -

I realise that Tax issues are discussed here from time to time , more recently in relation to investments .

I am a returning UK citizen and I am planning to get a comprehensive tax advice , but still looking for an accountant though.

In the meantime I have a fairly simple question . I will receive a lump sum transfer into my UK Lloyd’s bank account from overseas in Asia where we were previously located. This amount is required to cover rent upfront for 6 months as I am still looking for a job here in the UK (I arrived 5 days ago).

Now my question is will this lump sum amount be subject to UK tax? I understand that it will not be as it represents savings from my previous employment and has been already taxed.

I am sure lots of people have been in similar situation when they relocate back to the UK as many people have to start over again with lump sums from abroad .

Any insight into this wound be appreciated .

Many thanks !

durham_lad

If the lump sum transfer is simply from your after-tax savings or investments then no UK tax is due. If it’s from a pension plan then I don’t know, but even so, if that pension plan distribution was before you moved back 5 days ago then I don’t think it is taxable by HMRC.

For example, we sold our house before we moved back from the USA then after we had moved back moved a large sum over to buy a house in England. No taxes due.

Katerina1

Thank you for confirming , that’s what I thought.
It would also be useful to know if banks report anything on transfers directly to HMRC at source or if all reporting goes through self-assessment.

Thanks !

durham_lad

You don’t even report lump sum transfers to HMRC on a self-assessment as there is zero tax to pay. Once the lump sum has moved and starts to generate interest then that will be reported to HMRC.

You may well be asked questions as to the source of the money, but that is to do with money laundering. For my large lump sum to buy a house I had to show proof of the source of the funds, and a copy of my recent brokerage statements was sufficient. I used to be regularly asked by Wise for the source of my irregular transfers of ~$10k but after answering “pensions” a few times I stopped being asked. Last week I transferred $19k (to buy a car) and again wasn’t asked where it was coming from.

MGH888

I'm in a similar situation -

Returning from the USA and buying a house and bringing the family back. All funds will be net of taxes paid here in the USA and so not subject to tax in the UK. But my question is whether anyone has any recommendations for an exchange/transfer service? Banks seem to be very expensive - looking online I have found some options that save as much as 50% vs bank fees and exchange rate. . . . but would love to hear something from someone that has used such a service successfully and had a good experience?

Thank you !

durham_lad

I have used Wise for a number of years.

I’ve seen torfx recommended but never used it myself.

https://www.torfx.com/ppc6/cmp-best-...0aAoRtEALw_wcB

To answer another question from you.

Quote:

Also - is there that much of a tax advantage to rolling the money over from your 401K to an ISA in the UK? I'm 10-12 years away from retirement and thought I might just deal with having some overseas investments to declare on my UK tax? But I am only just starting to look into the financial side of things. Any insight most welcome !

in the 40k the IRS doesn’t tax it until there are distributions so moving money out to an ISA will immediately tax it plus if you are a USC living in the UK then the ISA must be a cash ISA to avoid PFIC taxes, and interest will be taxed by the IRS

MGH888

Many thanks ! I just pinged you with a message as I saw a comment from you regarding having done this before and also moved a 401K over to an ISA.
I will check Wise and torfx out !

durham_lad

see my response above on 401k and ISA. Very much depends on your citizenship status.

MGH888

Thanks ! I am a dual citizen with UK and US citizenship. Not sure whether that creates an exception regards paying tax if moving a 401K from one countries retirement system to another without starting a withdrawal. This is the start of my research !! If you have any insight - GREAT... if not I will share/post here if/when I get some clarity.

durham_lad

I am have dual citizenship myself so can speak from my own experience.

You cannot transfer a US retirement account to the UK without paying taxes, AFIK.

I rolled my 401k to an IRA well before moving back. That is a tax free event and I did it because my 401k was large and it would be extremely difficult to manage from the UK. I chose a brokerage (Vanguard in my case) that has good support for overseas customers including accepting a UK mobile phone number for security code verification. I also then converted it to a Roth IRA in lump sum conversions over 10 years, paying US taxes each conversion, with the knowledge that it will grow tax free and withdrawals would be tax free in both countries.

ISAs are just like regular accounts to the IRS and fully taxable. Cash ISAs are fine but stocks and shares ISAs are toxic, so don’t go there.

Other pooled investments (eg mutual funds) are also taxed punitively by the IRS so if you want to invest in the stock market outside of the USA it would have to be individual securities. This is why I maintain a US brokerage for our investment funds. I find it easy enough to manage, trade within the brokerage and transfer funds to England when needed. I have my Wise account (US routing and account number) set up in my brokerage account so that I can easily transfer money out, as I would to a regular US bank. It is then a matter of a minute or less to move the funds to my UK bank.

MGH888

Thanks - very helpful feedback.

My 401K is large too - but in a Fidelity fund manager through my company. When I leave I think I will still be able to manage this remotely, even if the fees may go up a little if I am no longer with my company who the 401K is with - but I will triple check. My thinking was that if I don't need this until I retire, then I could simply withdraw the max amount under my tax threshold each year - but that may get very messy I suppose. I have seen articles about people living off a 401K while living outside of the US and was hoping it is not too complicated. Same thing with Social Security which I will be eligible for at some point and have earned enough credits to receive.

From your comments below - are mutual funds held in the USA while living in the UK considered toxic? Or the other way around? At one time I was going to invest in the UK and I remember someone saying that if I did that then individual securities would be needed as the IRS wants to know what companies you are invested in.

Thanks

durham_lad

Fidelity as a company will almost certainly have good support for overseas customers, but when they are the custodians of 401k plans they are very much constrained by the rules of the 401k, so it will be just as well to triple check as you say.

As long as mutual funds are held within a retirement fund such as a 401k or IRA then absolutely no problems at all. Gains and dividends etc that don't get withdrawn don't get taxed.

If you have US mutual funds in taxable accounts (as opposed to retirement accounts) then HMRC will, I think, treat all dividends and capital gains as regular income. No punitive taxes similar to what the IRS does for equivalent funds held in the UK (the IRS calls them PFICs), but still higher taxes than they need to be. There are thousands of US funds that report into HMRC so that HMRC know these funds and they will get the lower tax rates afforded to dividends and capital gains. These approved offshore funds can be found here:
https://www.gov.uk/government/public...eporting-funds

Before we moved over I converted my mutual funds to ETFs listed above. Often there are no tax consequences if a mutual fund has an ETF equivalent. For example Vanguard has a total stock market index mutual fund, VTSAX, and also an ETF equivalent, VTI. When I converted my VTSAX shares to VTI there was zero tax to pay and VTI is recognized by HMRC. (I may have the ticker symbols slightly wrong, but you get the picture)

When it comes to receiving SS you can have that directly into your UK bank account and you get the very best exchange rate on the day. It works great. SS is not taxed by the IRS, just HMRC while you are living in the UK.

kateg60

Will I be able to withdraw a large amount of cash from an IRA and transfer the cash to the UK without paying US tax at the time of transfer? I will pay the taxes but was planning to do that later in the year?

durham_lad

Unfortunately if you have an overseas address then the brokerage is required to withhold a minimum of 10% at the time of the distribution. This even applies to distributions from a Roth IRA where no tax is actually due. I discovered this recently, so have registered a US correspondence address along with my UK street address with my brokerage to avoid this in future. For me it wasn't too big a deal since I pay estimated taxes each quarter anyway so I simply didn't pay any estimated taxes as the withholding from the large Roth distribution was enough.