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Moving to Florida at the end of the month - what to do with ISA's?

Moving to Florida at the end of the month - what to do with ISA's?

Old Jan 2nd 2024, 10:43 am
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Default Moving to Florida at the end of the month - what to do with ISA's?

Hi all,

Myself and my partner are moving from the UK to Florida for work in a few weeks time. Our situation is as follows
- We are on 3 year working visas, and do not intend to stay longer than 5 years (return to the UK likely)
- We both invest into S&S ISA funds on Vanguard, roughly equating to c.£100k

I've tried (and failed!) to research online on what exactly we should do with our investments to avoid the PFIC trap in the US - is anybody able to shed any light on exactly what we should or, or better yet point us in the direction of a specialist US/UK Tax advisor we can work with to restructure our investments before we leave and also to support us whilst we are there (and when we return?)

Thanks so much!

Last edited by SM94; Jan 2nd 2024 at 10:50 am.
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Old Jan 2nd 2024, 11:30 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by SM94
I've tried (and failed!) to research online on what exactly we should do with our investments to avoid the PFIC trap in the US - is anybody able to shed any light on exactly what we should or, or better yet point us in the direction of a specialist US/UK Tax advisor we can work with to restructure our investments before we leave and also to support us whilst we are there (and when we return?)
Basically the only way is to sell everything before you arrive, and then invest it in a US taxable brokerage account.
Assuming you do return to the UK, that will be somewhat annoying as it'll take a few tax years to put that amount back into an ISA, but that's a cost of being US tax resident. Hopefully your offer in the US is generous enough to counter that.
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Old Jan 2nd 2024, 3:00 pm
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Given that you are planning on no more than 5 years in the USA I would convert the S&S ISA into a cash-ISA. While in the USA you would have to declare the interest and pay US taxes on the interest. If at some point you want to transfer it over and invest in Vanguard funds then great, but I would be sure I didn’t have an S&S ISA when I moved.
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Old Jan 2nd 2024, 4:21 pm
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

By far, the simplest and easiest approaches are as recommend earlier. If you value the long term ISA benefits enough to invest in cash for the duration of the time you will be subject to IRS taxation (and forego potentially better market returns) then I would take durham_lads advice and switch to a cash ISA. If your ISA has investments bonds available you could switch to bonds which escape PFIC rules along with cash and individual shares. Otherwise, cash everything in as postbox134 recommends. Either way you need to sell the PFICs before you leave the UK. Doing so the day you arrive, or later, is too late to avoid the draconian taxation and onerous reporting requirements placed upon PFICs.

Another option is to keep the investments and elect MTM taxation on the PFICs. That requires that you pay US tax on all unrealized gains while subject to IRS taxation, but preserve the ISA benefits for when you return to the UK. MTM taxation must be elected in the first US tax year, so you would have to do so on your first tax return. Also, in the first tax year it will calculate unrealized gains back to the date you purchased the investments so you would want to sell the investments before you get here, and buy back (after a delay of 61 days or more) to set the most advantageous cost basis. If I recall correctly there may be an option for new arrivals to set the tax basis at the cost when they arrived in the US but would have to review those details be sure. Under MTM taxation US tax will be paid on all unrealized gains at ordinary income tax rates, so essentially at your highest marginal tax rate for that year rather than the highest published rate (plus backdated interest) which is the default taxation method. You would still have the reporting issues which are significant. Take a look at Form 8621 and determine if you want to deal with that (one for each fund!).

Also, PFIC reporting is only required for investments that exceed $25,000 if single/$50,000 if married, so another alternative may be to keep some PFICs underneath that limit. You would still have to pay tax on any sales, or dividends but if you do not sell that would be manageable. The issue is that the minute the investments break those thresholds (even for one day) then the reporting requirements are triggered, so you would have to give some margin for growth (and currency movements) to avoid that. To mitigate the tax associated with a forced sell you would also want to sell (and rebuy) the investments before you leave the UK to achieve the best possible tax base.

Note that realistically, all options require that you sell the PFICs before you get here. Once you have done that you can take your time considering your options, although your ISA provider likely will not allow you to purchase any funds while you are a US resident, so keep that in mind.

Last edited by Glasgow Girl; Jan 2nd 2024 at 4:27 pm.
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Old Jan 4th 2024, 10:21 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by Glasgow Girl
By far, the simplest and easiest approaches are as recommend earlier. If you value the long term ISA benefits enough to invest in cash for the duration of the time you will be subject to IRS taxation (and forego potentially better market returns) then I would take durham_lads advice and switch to a cash ISA. If your ISA has investments bonds available you could switch to bonds which escape PFIC rules along with cash and individual shares. Otherwise, cash everything in as postbox134 recommends. Either way you need to sell the PFICs before you leave the UK. Doing so the day you arrive, or later, is too late to avoid the draconian taxation and onerous reporting requirements placed upon PFICs.

Another option is to keep the investments and elect MTM taxation on the PFICs. That requires that you pay US tax on all unrealized gains while subject to IRS taxation, but preserve the ISA benefits for when you return to the UK. MTM taxation must be elected in the first US tax year, so you would have to do so on your first tax return. Also, in the first tax year it will calculate unrealized gains back to the date you purchased the investments so you would want to sell the investments before you get here, and buy back (after a delay of 61 days or more) to set the most advantageous cost basis. If I recall correctly there may be an option for new arrivals to set the tax basis at the cost when they arrived in the US but would have to review those details be sure. Under MTM taxation US tax will be paid on all unrealized gains at ordinary income tax rates, so essentially at your highest marginal tax rate for that year rather than the highest published rate (plus backdated interest) which is the default taxation method. You would still have the reporting issues which are significant. Take a look at Form 8621 and determine if you want to deal with that (one for each fund!).

Also, PFIC reporting is only required for investments that exceed $25,000 if single/$50,000 if married, so another alternative may be to keep some PFICs underneath that limit. You would still have to pay tax on any sales, or dividends but if you do not sell that would be manageable. The issue is that the minute the investments break those thresholds (even for one day) then the reporting requirements are triggered, so you would have to give some margin for growth (and currency movements) to avoid that. To mitigate the tax associated with a forced sell you would also want to sell (and rebuy) the investments before you leave the UK to achieve the best possible tax base.

Note that realistically, all options require that you sell the PFICs before you get here. Once you have done that you can take your time considering your options, although your ISA provider likely will not allow you to purchase any funds while you are a US resident, so keep that in mind.

Thank you all so much for your responses - that has helped so much!!

I will be sure to take on board your recommendations.

One further question I had: once I enter the US, if I then decide to use that cash to invest into a brokerage (E.g Vanguard Index fund) - is there any implications for me once I decide to come back to the UK? I.e is there something I should look out for when selling my funds in the US brokerage account and getting the cash to bring back to the UK? Thanks so much for the advice!
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Old Jan 4th 2024, 10:45 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by SM94
Thank you all so much for your responses - that has helped so much!!

I will be sure to take on board your recommendations.

One further question I had: once I enter the US, if I then decide to use that cash to invest into a brokerage (E.g Vanguard Index fund) - is there any implications for me once I decide to come back to the UK? I.e is there something I should look out for when selling my funds in the US brokerage account and getting the cash to bring back to the UK? Thanks so much for the advice!
If you buy Vanguard ETF index funds, as opposed to Mutual funds, then they report into HMRC so that if you do return and the dividends and capital gains from those funds will receive the HMRC lower tax treatment. It is easy to manage Vanguard accounts from overseas, I do it all the time. Just today I initiated a transfer of funds from one of my Vanguard accounts, that I intend to transfer to my UK bank. I have found the simplest way to do this is to have a Wise USD account, which comes with a US bank routing and account number and link it to my Vanguard accounts. I also have my US bank account linked to my Vanguard account. When, like today, I want to transfer money to my UK account I first sent the money from Vanguard to my Wise USD account and that will happen overnight, free of charge. Tomorrow I will open my Wise account on my Wise app and transfer the money to my UK bank account which takes about a minute for the funds to arrive. The first time you make a Wise transfer to your UK bank you need to set up your bank account sort code and account number and then it is saved as an account you can easily select in future.

If you want or need the money the same day you can choose to wire the money from Vanguard to your Wise account but Wise, like some other US banks, charge a fee for receiving Wire transfers.


Last edited by durham_lad; Jan 4th 2024 at 10:48 am.
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Old Jan 4th 2024, 10:58 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by durham_lad
If you buy Vanguard ETF index funds, as opposed to Mutual funds, then they report into HMRC so that if you do return and the dividends and capital gains from those funds will receive the HMRC lower tax treatment. It is easy to manage Vanguard accounts from overseas, I do it all the time. Just today I initiated a transfer of funds from one of my Vanguard accounts, that I intend to transfer to my UK bank. I have found the simplest way to do this is to have a Wise USD account, which comes with a US bank routing and account number and link it to my Vanguard accounts. I also have my US bank account linked to my Vanguard account. When, like today, I want to transfer money to my UK account I first sent the money from Vanguard to my Wise USD account and that will happen overnight, free of charge. Tomorrow I will open my Wise account on my Wise app and transfer the money to my UK bank account which takes about a minute for the funds to arrive. The first time you make a Wise transfer to your UK bank you need to set up your bank account sort code and account number and then it is saved as an account you can easily select in future.

If you want or need the money the same day you can choose to wire the money from Vanguard to your Wise account but Wise, like some other US banks, charge a fee for receiving Wire transfers.
Thanks very much!

A couple of questions if you don't mind!

1) Presumably you have 2 Vanguard accounts? One for the US and one for the UK?
2) When you say that those certain Index funds benefit from lower HMRC tax treatment, do you mean that once I return to the UK and move those funds over from my vanguard US account to my vanguard UK account, the taxes I pay on the capital gains for that tax year will be lower than if I was investing in other funds? Sorry if I'm confusing you here - could you please elaborate on that point?

Cheers
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Old Jan 4th 2024, 11:12 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by SM94
Thanks very much!

A couple of questions if you don't mind!

1) Presumably you have 2 Vanguard accounts? One for the US and one for the UK?
2) When you say that those certain Index funds benefit from lower HMRC tax treatment, do you mean that once I return to the UK and move those funds over from my vanguard US account to my vanguard UK account, the taxes I pay on the capital gains for that tax year will be lower than if I was investing in other funds? Sorry if I'm confusing you here - could you please elaborate on that point?

Cheers
I don't have a UK Vanguard account, they don't allow US citizens to have an account.

With Vanguard I have a Roth IRA account and a brokerage account. Each account comes with a different account number and is managed separately. (A single log-in accesses both accounts). Each account has the option to link to one or bank accounts. Before we moved back I also had a joint brokerage account with my wife, also accessed through the same log-in. Since the UK taxes individuals not couples then it was simpler and more tax efficient to stop using the joint account and instead have individual accounts because then we can better utilize our personal allowances.

The ETF funds will likely pay out dividends each quarter plus from time to time you may decide to sell shares which will give rise to capital gains both of which get better tax treatment in both the USA and UK. While you are living in the USA you are not taxed at all or have to report any foreign holdings to HMRC, the advantage to holding ETFs is on returning to the UK because stock fund dividends and capital gains are also taxed at a much lower rate by HMRC. If you are living in the UK and have mutual funds paying out dividends and capital gains then it is all taxed as regular income (like interest).
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Old Jan 4th 2024, 11:20 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

One other thing to check is that Vanguard UK allows you to hold and manage your accounts while living in the USA. They probably do but it is worth checking ahead of time as they don't allow US citizens or US residents to open accounts with them so they can avoid the IRS FATCA reporting requirements.

https://www.vanguardinvestor.co.uk/n...for-an-account

I'm a US citizen or tax resident. Can I apply for an account?

No, for legal reasons we can't offer you an account, as our funds are UK-only. If you want to buy a Vanguard fund you could use a US broker or a specialist UK broker.
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Old Jan 4th 2024, 11:51 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by durham_lad
One other thing to check is that Vanguard UK allows you to hold and manage your accounts while living in the USA. They probably do but it is worth checking ahead of time as they don't allow US citizens or US residents to open accounts with them so they can avoid the IRS FATCA reporting requirements.


Thanks, I did check and I can keep the account open but am not allowed to make any investments or changes to it! I think I'm going to sell everything and then open an account with a broker when I get to the US (maybe just Vanguard US for ease of use!) and invest into those HMRC friendly funds so that when I move back everything is as smooth as it can be.

Out of interest, is there anything else I should be aware of before I action all of this? E.g timing of when to open an account in the US, what to do when I sell my shares in the US etc.
  1. Sell all S&S ISA funds in the UK before I enter the US
  2. Transfer funds to US bank account
  3. Open up US broker account, invest into HMRC friendly funds after 60(?) days
  4. Continue to invest into HMRC friendly funds for the next 3 years whilst I'm in the US
  5. Once the time comes to return to the UK, sell all of the funds in the UK broker account, transfer via Wise to UK bank account
  6. Transfer funds into S&S ISA back in the UK (assuming it is still £20k at that time, £20k per year whilst keeping the rest in a standard Vanguard account)
Anything else I'm missing?


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Old Jan 4th 2024, 12:51 pm
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

On (3) you should not have to wait for 60 days before buying the US funds. The 61 day comment was only applicable if you were going to retain your PFICs and wanted to reset your cost base. In short, the IRS has a Wash Rule which means that if you sell and rebuy the same fund (or similar) within 30 days before or after the sale then the IRS ignores the sale and the cost base is not reset. That won’t apply if starting fresh with US funds.

On (5) I think you mean sell the US (HMRC friendly) funds from your US account. You don’t need to sell immediately. There are no issues retaining US funds in the UK, the problems are only associated with owning non US funds in the US. Therefore you could sell as and when you are able to transfer an amount into your ISA, but it may be simpler for you to get rid of the US account when you return.
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Old Jan 4th 2024, 12:57 pm
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Amazing, thank you so much, I really appreciate all of the help you and everyone else has given!
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Old Jan 4th 2024, 12:59 pm
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by SM94
Thanks, I did check and I can keep the account open but am not allowed to make any investments or changes to it! I think I'm going to sell everything and then open an account with a broker when I get to the US (maybe just Vanguard US for ease of use!) and invest into those HMRC friendly funds so that when I move back everything is as smooth as it can be.

Out of interest, is there anything else I should be aware of before I action all of this? E.g timing of when to open an account in the US, what to do when I sell my shares in the US etc.
  1. Sell all S&S ISA funds in the UK before I enter the US
  2. Transfer funds to US bank account
  3. Open up US broker account, invest into HMRC friendly funds after 60(?) days
  4. Continue to invest into HMRC friendly funds for the next 3 years whilst I'm in the US
  5. Once the time comes to return to the UK, sell all of the funds in the UK broker account, transfer via Wise to UK bank account
  6. Transfer funds into S&S ISA back in the UK (assuming it is still £20k at that time, £20k per year whilst keeping the rest in a standard Vanguard account)
Anything else I'm missing?
That all looks to be a sound plan. You won't be able to open a US bank account until you are resident but you can open a Wise USD account at any time before you move and also get a Wise debit card on that account. That way you can have USD easily available when you arrive and use your Wise debit card to buy things in shops and use at ATMs to get cash, while you open a US bank account, establish a credit record and get a US credit card etc. Our daughter has recently done this in reverse. She moved from California to England 14 months ago and ahead of time opened a Wise GBP account and got a debit card for use when she got here. Like myself she uses her Wise account to transfer USD to GBP. One thing she did better than I managed to do is to use her Wise USD account to pay solicitors and buy her house here in England with direct payments to the solicitors. When I did it in 2016/17 I transferred the funds to our UK bank and then paid for the new house etc from my UK bank. This meant I hit the IRS FATCA threshold for the year and had extra forms to file with my IRS return. No extra taxes but an aggravation and cost I didn't need to have had as tax preparers typically charge on the number of forms they file.

PS
Vanguard US make it easy to manage your account from overseas including accepting a UK mobile number for text verification codes when logging on

Last edited by durham_lad; Jan 4th 2024 at 1:04 pm.
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Old Jan 4th 2024, 4:39 pm
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Originally Posted by durham_lad
That all looks to be a sound plan. You won't be able to open a US bank account until you are resident but you can open a Wise USD account at any time before you move and also get a Wise debit card on that account. That way you can have USD easily available when you arrive and use your Wise debit card to buy things in shops and use at ATMs to get cash, while you open a US bank account, establish a credit record and get a US credit card etc. Our daughter has recently done this in reverse. She moved from California to England 14 months ago and ahead of time opened a Wise GBP account and got a debit card for use when she got here. Like myself she uses her Wise account to transfer USD to GBP. One thing she did better than I managed to do is to use her Wise USD account to pay solicitors and buy her house here in England with direct payments to the solicitors. When I did it in 2016/17 I transferred the funds to our UK bank and then paid for the new house etc from my UK bank. This meant I hit the IRS FATCA threshold for the year and had extra forms to file with my IRS return. No extra taxes but an aggravation and cost I didn't need to have had as tax preparers typically charge on the number of forms they file.

PS
Vanguard US make it easy to manage your account from overseas including accepting a UK mobile number for text verification codes when logging on
Amazing. Thanks so much!
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Old Jan 23rd 2024, 9:55 am
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Default Re: Moving to Florida at the end of the month - what to do with ISA's?

Wow - finance and tax implications for moving to the US seem an absolute minefield 😬

It's great to see people being so generous with their knowledge on the forum 👏

Forum first post - looking at a move to Chicago in the Summer, and getting our ducks lined up ahead of time!
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