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Investment Dliemmas?

Investment Dliemmas?

Old Aug 31st 2014, 8:20 pm
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Default Investment Dliemmas?

Hi Everyone.

As per my other posts I am in the process of adjusting status. Biometrics test on 10th September.

My next topic of consideration is investments. Like a lot of Brit Expats over here I have some strands of investments in Blighty -
1) Some ISAs
2) Couple of Personal Pensions
3) A Final Salary (minuscule) pension
4) A few shares
5) Non-Interest bearing Current Account.

I am-a-thinknig I am not alone in this position when coming here - middle aged person comes to US with investments still in the UK.

Essentially I don't want to violate tax laws in each country and not pay extra tax either. Currently my understanding is as follows -
1) ISAs - These will be taxed by the IRS; I need to move them.
2) P/Pensions - Think I can keep them but have to report them in the US.
3) Final Salary - I can keep I think.
4) Not sure on the shares
5) Like the PP I can report this.

Maybe there are folks out there who have actually done nothing (kept the ISAs and kept schtum!) with UK stuff and been fine, but I have been advised that the Inland Revenue are VERY accommodating to the IRS with respect to data 'sharing'!

Me and the Mrs may well return to the UK in a few years so there is this to consider with any investment changes I make. I'e' Flexibility, the option to draw down an income, like a SIPP or P/Pension in the UK.

Firstly, I'd ask if my assumptions above are correct.

Secondly - what could my options be with the ISA proceeds.
1) QROP? I know little about these but was advised if I take one out to ensure the country behind the QROP has a tax treaty with the US. Could this be the UK as my ISAs are with Fidelity in the UK and they can do a QROP. Can you 'back fill' previous tax years allowances like you can a SIPP or P/Pension.
2) Proceeds into a US investmaent vehicle like a 401k or IRA. Again, if I go back to the UK how would this work?

Thanks and thats enough for now as its time for a restorative G&T now my brain hurts with all this.

Last edited by freerskier; Aug 31st 2014 at 8:29 pm. Reason: Speeling - again!
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Old Aug 31st 2014, 8:44 pm
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Default re: Investment Dliemmas?

If you become a US tax resident you will have to pay US tax on ISA gains. If you have a cash ISA it presents no US tax issues, other than having to pay tax on the interest. If you own a stocks and shares ISA that is invested in UK investment funds you should sell them before you move to the US because they will fall under Passive Foreign Investment Corporation rules.

Some people believe that the personal pensions are a problem for US tax, but many people....and the IRS office at the US embassy in the UK see them as having tax deferred status under the tax treaty and the pension wrapper eliminates and PFIC issues.

The final salary scheme is no issue for US tax, like wise with the shares, you'll just have to pay US tax on any capital gains and dividends.

The current accounts is also a non-issue for tax.

However, you must make sure you comply with FICA and FATCA informational returns and make sure you understand which of your UK investments contributes the the thresholds of each.

Forget about QROPS, as a US tax payer they are of no help to you.

Also forget about rolling UK assets into a US retirement account, it can't be done. If you do contribute to a US retirement account while in the US and then you return to the UK they are well covered under the treaty and you can take money from them from the UK.
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Old Aug 31st 2014, 8:59 pm
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Default re: Investment Dliemmas?

Thanks - COuld I take the proceeds from the ISAs though and, fx them to the US and put them in a 401k/IRA etc.

Again, my future felxibility: Poss return to the UK plus hte ability to draw down from any investment are the goals.

Cheers.
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Old Aug 31st 2014, 9:10 pm
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Default re: Investment Dliemmas?

Originally Posted by freerskier View Post
Thanks - COuld I take the proceeds from the ISAs though and, fx them to the US and put them in a 401k/IRA etc.

Again, my future felxibility: Poss return to the UK plus hte ability to draw down from any investment are the goals.

Cheers.
No, there are strict rules about how you can fund 401ks and IRAs, basically all the money must have originated from US earned income.

If you want flexibility the US is a far better place to invest than the UK and can be far less expensive too. I moved to the US when I was 25 and now have all my investments in the US. If I return to the UK I will leave most of my investments in the US being careful to avoid UK non-reporting funds.
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Old Aug 31st 2014, 9:12 pm
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Default re: Investment Dliemmas?

Originally Posted by freerskier View Post
Thanks - COuld I take the proceeds from the ISAs though and, fx them to the US and put them in a 401k/IRA etc.
No.
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Old Aug 31st 2014, 9:26 pm
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Default re: Investment Dliemmas?

Originally Posted by nun View Post
No, there are strict rules about how you can fund 401ks and IRAs, basically all the money must have originated from US earned income.
Of course. But once someone has a job/salary in the U.S., a 401k or IRA can be funded. And if divestment of foreign assets enables someone to invest more in a 401k/IRA than they would otherwise be able to do so, I see no reason under the law why they cannot do so.

If planning a future in the U.S. the ISAs should normally be sold, or at least converted to cash ISAs (which are still taxable in the U.S., but simple to report). Small shareholdings should also be sold, normally, as they are usually difficult to dispose of once non-resident. This should normally be done before U.S. tax residence is established. However, if one is already U.S. tax resident they should normally still be sold and any U.S. tax due (capital gains) considered as a life lesson in the importance of advance planning.
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Old Sep 1st 2014, 12:24 am
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Default Re: Invesntement Dliemmas?

Originally Posted by JAJ View Post
Of course. But once someone has a job/salary in the U.S., a 401k or IRA can be funded. And if divestment of foreign assets enables someone to invest more in a 401k/IRA than they would otherwise be able to do so, I see no reason under the law why they cannot do so.
Agreed, but the contributions must come from US earned income or from a rollover of another allowed US retirement account. Spending the proceeds from the sale of foreign assets to allow larger 401k contributions (up to the statutory limits) and getting more tax deferral might well be a good move.

If planning a future in the U.S. the ISAs should normally be sold, or at least converted to cash ISAs (which are still taxable in the U.S., but simple to report). Small shareholdings should also be sold, normally, as they are usually difficult to dispose of once non-resident. This should normally be done before U.S. tax residence is established. However, if one is already U.S. tax resident they should normally still be sold and any U.S. tax due (capital gains) considered as a life lesson in the importance of advance planning.
Holding foreign shares might be inconvenient and a UK broker might not even want to keep your account open if you have a non-UK residency. If you have a capital gains allowance in the UK, can sell the shares and avoid CGT that might
be a good thing to do before coming to the US.....of course it depends on you exact circumstances. One area that usually needs careful consideration before moving is the sale of a primary residence
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Old Sep 1st 2014, 4:18 am
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Default Re: Investment Dliemmas?

Thanks folks - all really interesting info.

If we could just get back to the crux - and pleas look at my original 4ish points

1) ISAs - Yes. I agree and I new and had to sell them. But given my goals and your advice what are my options bearing in mind what I put in my original post re flexibility and draw down capacity AND IF i GO BACK TO THE UK IN A FEW YEARS.
Cash ISA is an option yeah - and report to the IRS accordingly. Fine.

However, £42k in cash ISAs aint totally efficient. What else could I do with it. Buy property in the UK or US - hey, theres an idea. Could I put this in an IRA or 401k - are they like UK personal pensions - linked to to earnings in terms of contribution.

IF the proceeds were put into a 401 or IRA what happens if I go back to the UK? Hey, lots of fun 'what ifs' there!!! Could I put 42k srtright into a 401 or IRA?

Can I put the 42k in a US account of some description but still support my future plans - see`above.

Guys - I know you are all bright but its this simple intricacy (god I should be a poet) that I seek to solidify in a decision.

So - with 42k from proceeds of UK ISAs what are the practical options bearing in mind the previously stated goals. Not being cynical here but I am guessing many of you have been in this position with similar aspirations and have solved it tax, legal and reporting-wise for UK and US.

Phew - thats about it for now but I can't help thinking that my sitch is so not unique. Person comes form UK with ISAs and Personal Pensions and wants to ensure tax wise all is good in both countries and investments given the draw down and return to UK flexibility ideas.

OK, so apols for finishing on a big sentence - Sorry for any audacity.

Concluding - Given the objectives what do we think is the best vehicle for the ISA proceeds?

Hey, thanks everybody. Its drunk o'clock in Utah.

Cheers.
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Old Sep 1st 2014, 12:06 pm
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Default Re: Investment Dliemmas?

Originally Posted by freerskier View Post
Thanks folks - all really interesting info.

If we could just get back to the crux - and pleas look at my original 4ish points

1) ISAs - Yes. I agree and I new and had to sell them. But given my goals and your advice what are my options bearing in mind what I put in my original post re flexibility and draw down capacity AND IF i GO BACK TO THE UK IN A FEW YEARS.
Cash ISA is an option yeah - and report to the IRS accordingly. Fine.

However, £42k in cash ISAs aint totally efficient. What else could I do with it. Buy property in the UK or US - hey, theres an idea. Could I put this in an IRA or 401k - are they like UK personal pensions - linked to to earnings in terms of contribution.

IF the proceeds were put into a 401 or IRA what happens if I go back to the UK? Hey, lots of fun 'what ifs' there!!! Could I put 42k srtright into a 401 or IRA?
This has already been answered....you cannot put ISA money into a 401k or IRA. The contributions to a US based retirement account must come from US earned income or from the rollover of another US retirement account. If you have a US job with a 401k etc you could live off the proceeds of your ISA so that you could put more of your US earned income into something like a 401k.

There is no need to sell a cash ISA or one that is invested in individual shares as long as you do not plan on selling any of them while you are a US resident as you'll have to pay US capital gains. If you think that you might sell them it's better to do that before you become a US tax resident.

Can I put the 42k in a US account of some description but still support my future plans - see`above.
Of course, you can put the ISA money into an regular US investment account with any number of companies like Vanguard, Fidelity etc or a US broker.


So - with 42k from proceeds of UK ISAs what are the practical options bearing in mind the previously stated goals. Not being cynical here but I am guessing many of you have been in this position with similar aspirations and have solved it tax, legal and reporting-wise for UK and US.

Phew - thats about it for now but I can't help thinking that my sitch is so not unique. Person comes form UK with ISAs and Personal Pensions and wants to ensure tax wise all is good in both countries and investments given the draw down and return to UK flexibility ideas.

OK, so apols for finishing on a big sentence - Sorry for any audacity.

Concluding - Given the objectives what do we think is the best vehicle for the ISA proceeds?

Hey, thanks everybody. Its drunk o'clock in Utah.

Cheers.
Here's what I'd do in your situation is I had an ISA and was planning on moving to the US for a few years and then returning to the UK.

1) If I had a cash ISA or stocks and shares ISA invested in individual shares, didn't plan on selling them and had a certain plan to return to the UK, then I would keep them and pay US tax on the interest and dividends.

2) If I had an ISA invested in UK pooled investment funds I would sell it and invest the proceeds in a low cost US based index fund.

3) When in the US I would contribute as much as possible to any tax deferred retirement accounts offered by my employer and put as much as I could into a ROTH IRA.

4) Assuming you do not become a US citizen, if you return to the UK you can easily sell your after tax investments and move them to the UK and then have no future US tax liability. You would leave any US retirement accounts in the US and simply draw on them at age 59.5 and would only be liable to UK tax under the tax treaty. Any ROTH withdrawals would be UK tax free.

One thing to consider is applying to pay UK voluntary National Insurance Contributions while you are in the US, depending on your past and possible future UK work history.

Last edited by nun; Sep 1st 2014 at 12:15 pm.
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Old Sep 1st 2014, 2:55 pm
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Default Re: Investment Dliemmas?

The isas I have are unit trust based. So yeah, Selling them is the thing.

At what point am I considered tax resident in the US? Apols if this is a dumb question.

Forgetting the QROP idea, could I put the ISA proceeds in a sipp in the uk fir instance, especially, if at the moment I am not (see above) tax resident in the US. I mention the sip idea as an earlier contributor advised that the personal pensions, whilst I should report them, don't attract additional tax in the US yet - untill I cash them in of course.

Thanks everyone again for debugging my situation.

Last edited by freerskier; Sep 1st 2014 at 3:12 pm.
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Old Sep 1st 2014, 3:45 pm
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Default Re: Investment Dliemmas?

Originally Posted by freerskier View Post
At what point am I considered tax resident in the US? Apols if this is a dumb question.
Not a dumb question at all, it's critical you understand your status. Here are the rules.

Determining Alien Tax Status

Basically if you move to the US to work and live you will become a resident alien and liable to US tax.

Forgetting the QROP idea, could I put the ISA proceeds in a sipp in the uk fir instance, especially, if at the moment I am not (see above) tax resident in the US.
SIPP contributions limited to the amount you earn. You might be able to cash out the ISA and use the money to fund a SIPP as long as you stay within the limits, but I'm not sure. However, given the fees charged by UK investment firms for ISAs and SIPPs I'd take the ISA money and simply invest it in the USA.

I mention the sip idea as an earlier contributor advised that the personal pensions, whilst I should report them, don't attract additional tax in the US yet - untill I cash them in of course.

Thanks everyone again for debugging my situation.
That is a topic for debate....some say that gains in SIPPs are US taxable, some say they are not.....I'm in the second camp.
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Old Sep 1st 2014, 7:31 pm
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Default Re: Investment Dliemmas?

Thanks fur the advice.

As far as tax status goes, my h2b visa ran out May 15th and I've been in the us from last November till now. I think I am resident fur tax purposes.

Ok - last naughty question. If I did nothing I presume the irs would find out re the isas by virtue of the inland revenues reporting?
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Old Sep 1st 2014, 7:53 pm
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Default Re: Investment Dliemmas?

Under the substantial presence test it would look like I am us resident fur tax.

However, determining the date residency starts seems less clear as reference is made to tax treaties with the persons originating country; taking the tax year fur that country into consideration 1st.

Is this the case with the tax treaty between blighty and the US? If so my tax residency in the us would start in April 6th. This would give me approx 30 days (up to the 183 substantial presence number) where I am not us resident to sell the isas an shares and not be taxed by the irs - I think!!!!

I know I am loafing up the queries here but couldn't I put the isa proceeds into one of my existing personal pensions, using previous unused tax years contribution limits to qualify?

Last edited by freerskier; Sep 1st 2014 at 8:04 pm.
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Old Sep 1st 2014, 8:01 pm
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Default Re: Investment Dliemmas?

Originally Posted by freerskier View Post
Under the substantial presence test it would look like I am us resident fur tax.

However, determining the date residency starts seems less clear as reference is made to tax treaties with the persons originating country; taking the tax year fur that country into consideration 1st.

Is this the case with the tax treaty between blighty and the US? If so my tax residency in the us would start in April 6th. This would give me approx 30 days (up to the 183 substantial presence number) where I am not us resident to sell the isas an shares and not be taxed by the irs - I think!!!!
When did you first enter the US, on what visa and for what purpose? How long have you stayed in the US?

If your H2B ran out in May and you've been in the US from Nov until now what has been your status, do you have another visa or Greencard or Greencard application ongoing?

It sounds to me as if you are US tax resident for at least 2014, might have some immigration issues and if you have owned UK investment funds during your time in the US might have PFIC forms to fill out too and pay the PFIC taxes rather than straight capital gains. If you arrived in the US on an H2B in Nov of 2013 you should have filed a 1040 NR for 2013 as you won't have been in the US for 183 days over the previous 3 years. Of course you should also file the required state taxes too.

Last edited by nun; Sep 1st 2014 at 8:18 pm.
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Old Sep 1st 2014, 11:26 pm
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Default Re: Investment Dliemmas?

I entered on h2b and am in process of adjusting status as I got married in May.
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