febhotsauce

Hi all,



Relatively new expat here in the States, UK Citizen, moved here May 2022.

Have just gone to file my first tax form and realised I have around 100k of PFICS in my Vanguard UK account.

I have gone down that rabbit hole over the last few days and my head is spinning.



I plan to sell these ASAP and take the hit (hopefully not too big as the gains are marginal at this point) just to get the pain out of the way and avoid onerous reporting going forwards.



My question is around what to do over the next few years, given that we will DEFINITELY be leaving the USA in 3-5 years to start a family in the UK. We expect to save around 50k per annum that we want to invest long term for future plans.



I have come to the conclusion that unless I build a single stock portfolio in the UK (which I deem as too risky and cumbersome), I will need to move my money over to the US and invest in the Vanguard funds here.



I have a few options as to how this would work when we leave. I’m on an L1 VISA.

I would be a non covered expat (<$2m net worth).

• Sell these in the final year of our time here, I shouldn’t have to pay exit tax?, just 15% Capital Gains (maybe less If I can time my leaving early in the year to make my annual earnings lower).
• Leave the USA, then sell all the funds and pay UK capital gains tax.
• Leave the USA, keep the vanguard account open, and sell bit by bit to stay under the annual UK Capital Gains tax limit (12K or so right now) and ultimately pay no tax - this may take years, but that is fine with us as we don’t need access to the lump sum. I am particularly interested in this, but want to know if this is legal and whether I would run into problems with keeping my Vanguard account open once I leave?
• Completely ignore all of the above and just declare my UK assets as normal stocks on 8938 form. Understand this is probably bad advice that nobody here is going to suggest, but I have heard financial advisors suggesting this in my readings.
• Anything else I may have missed that will let me keep funds in UK during this time, to get them back to the UK relatively tax free if I move them over the Vanguard US.

Ultimately, if I moved assets here, I could have 3-500k in a Vanguard USA fund when we leave. How can I get that money back to the UK without paying a huge amount of tax on gains (could be north of 100k gains by then)?



Apologies for the long post, appreciate any input anybody can provide.

Cook_County

Unless you select UK reporting funds, this plan may have a slight hole it it in terms of selling US funds as a UK resident. Moving back to today, I would bite the bullet, and file 8621s for each PFIC & pay any tax due for 2022. For 2023, you will have the same number of PFICs, but because of the fall in the pound may find there is little or no gain so little PFIC tax if the PFICs were sold at this point.

febhotsauce

Thanks for the quick response!

Point taken on the UK reporting funds. A quick check on this Bogle page says VT is covered, although it may be outdated so I'll double-check that.

https://www.bogleheads.org/wiki/US_d...eporting_funds

Do you have an idea if the "drip selling" over a number of years once back in the UK to fall under UK CGT limit would cause issues (I'm thinking mainly on the US side that Vangaurd may force close the account if I leave the US?).

durham_lad

Vanguard certainly do a good job of supporting overseas customers, including using my UK mobile to send login verification codes. I am a UK resident and have IRAs and taxable ETF funds that are are also HMRC Reporting. I sell off some shares every year and take advantage of the UK cap gain allowances. You just need to sell using the “specific id” method so you can know the exchange rate on the date of purchase and sale of the shares you sell as the cap gain or loss in £s will be quite different to what it is in $s.

On the UK side I think you have to bite the bullet and do the PFIC reporting this year. I might have kept things simple and having sold my Vanguard UK funds put all the money in NS&I fixed income. The interest is simply taxed by the IRS as interest and the balance reported on an FBAR and also on an 8938 with the IRS return if the limits are reached.

PetrifiedExPat

In a few years the UK maybe in even a worse state than it is now.

I used to strongly support raising a family there, however, over the last year, the winds have changed for me. Fingers crossed for you and fam