GOALFIRE

Hello - wife (USC) and I (UKC & USC) are weighing up moving to the UK in about 2 years time. We'll go the spouse route on savings, we don't intend to work at all as we'll be retired. One of the big draws of the UK is the travel opportunities in Europe. That being said it looks like they are quite liberal on being able to leave the UK up until you are ILR. Once she gains ILR does that mean she could leave for longer periods and then return (say if we wanted to return the US for a period of time, say a year or two)? How long does it take to gain UK citizenship after ILR is granted?

Taxes - most of our income will come from IRA's and I'd planned to do ROTH conversions before moving to the UK. Can I do ROTH conversions once I am in the UK? I assume the converted amount would be classed as income in the UK (as it would in the US)?


Still in the initial planning stages at this point so more questions to come as we move down the road to making a decision but these two questions are an important start.

Thanks in advance for any answers.

durham_lad

Hi, welcome to the site. My wife and I are dual UK/USC living in England. We did a few years of Roth conversions before we moved back in 2016. Since then each year we had a single lump sum Roth conversion and that is taxed only in the USA. One more left to do then we will be 100% Roth before I start receiving OAP, SS and now no IRA RMDs. This will save me going into the 40% UK tax bracket.

SanDiegogirl

ILR is like a Green Card for the US.... if you leave the UK for any lengthy time (2 years is the max) your ILR status will lapse.

Once your wife has ILR she should immediately apply for naturalisation. THEN she can go and please as she likes.

GOALFIRE

Excellent, thanks for the reply. Only being taxed on the conversion in the US is huge. Similar to you we'll be looking at hitting the 40% bracket if we settle in the UK so will want to try and go all ROTH so as not to hit RMD's. That being said we should have 20 years (25 for my wife) before those hit so plenty of time to convert and minimize US taxes as we do them too.

durham_lad

you are well set given the time frame. We didn’t start the conversations until after we retired 10 years ago at age 55, giving us 11 years before OAP and SS kicked in. Next year we will be both be OAP’s - SHOCK!!

Russet

I understand the Roth Conversions were only taxed in the US while you were in the US but once you moved back to the UK and continued to make the annual conversions, do you not need to report all your worldwide income in the UK?

durham_lad

single lump sum conversions are only taxed in the US. I have been using a dual qualified US/UK tax preparer based in London to do our taxes. In the white space on the self assessment filing the Roth conversion is stated along with the DTA reference on lump sum withdrawals.

GOALFIRE

Thanks - do you know how long (and I know things can change) it takes from ILR to naturalization roughly?

SanDiegogirl

Last time I heard it was 3 to 4 months.

Russet

You mentioned you were making annual conversions - so a partial conversion of a roth account each year? or multiple single lump sums? On this basis why would I take an IRA distribution from a traditional ira each year - which would need to be reported on the UK return when I could do a partial roth conversion and then take the distribution from the ROTH? It obviously doesnt avoid paying the taxes somewhere but it must make the UK and US returns easier? As you dont have to report distributions based on exchange rates and then claim foreign tax credits. Or am I missing something?

We are thinking ahead as we will be in a similar position to you when we return to UK in a couple of years so trying to gain some insight so we can prepare for thr future!

durham_lad

It is a partial conversion once per year, a lump sum moved from an IRA to a Roth, taxes paid to the USA, no money taken from the Roth. I sell some shares from an after tax account to pay the taxes on the conversion, the capital gains on that sale is subject to U.K. and US tax.

GOALFIRE

…..and then Roth withdrawals are tax free in the US and also in the UK too I believe (at least under the tax laws today)? My plan is to do a conversion ladder to help bridge the gap (if needed) until I can draw from the IRA penalty free at 59.5. Under the five year rule we can convert $X each year then 5 years from the time of conversion we can withdraw the converted amount 5 years prior tax free. At this stage we think it will just be a just in case option as we think we can make ~10 years on non-tax sheltered funds but always good to have a back up.

Russet

...ahh that is the piece I was missing - you need to leave the conversion in the roth for 5 years before you can withdraw it tax free.