durham_lad

Thanks for the correction. I meant to say “and” and not “as”.

Danny1c1

Cheers.

My company provide free tax advice/services for the first two years, so it should all be covered, I just want to make sure I use the equity from my house sale in the UK wisely and make sure it doesn't trip me up at some stage.

Thanks

plastics

Interesting and useful thread thanks. I'm also getting tax advice as part of the company relocation but may have missed this. So we will have a reasonable sum sitting in NS&I awaiting transfer to US account should we decide to buy. This will generate little interest so presumably the issue is just ensuring it is correctly declared? We also have a stocks and shares ISA - an individual share and an ETF tracker, and a junior ISA with several funds. So will the growth of the unit trusts in the JISA or any dividends that are re-invested, attract significant US taxes or have I misunderstood this?

Glasgow Girl

Any type of foreign pooled investment like unit trusts or EFTs are subject to PFIC taxes. Dividends from such investments are taxed at the highest marginal rate of income tax (currently 37%) plus state tax, unless they are considered to be excess dividends in which case they are taxed as a PFIC capital gain, as is any profit made from the sale of a PFIC. PFIC Capital gains are calculated as the dividend amount, and/or the sale price minus the purchase price and that amount is then prorated across all the years you have held the stock, including all years prior to you being subject to US taxes. They then calculate tax due on each of those years at the highest current marginal tax rate which today is 37% (not your personal marginal tax rate) PLUS compound interest for every year you held the stock. Those rates may well increase in future years. The interest rate is set by the IRS for each year and have averaged out at about 4% per annum in the recent past. The effective tax rate is currently 37% plus your state tax rate and the applicable compound interest which can add up fast. You will easily reach a tax rate of 50%, and somewhat higher if you held the stock for a number of years. The forms required to calculate if your dividends are excessive or not, and the tax due on a sale are mind boggling and unbelievably time consuming. You have to report annually on each PFIC and these are very complex forms. This is in addition to and a totally separate requirement from the FBAR and Form 8938 reporting requirements.

Almost anything that is not a share held in a single company listed on a major stock exchange, or cash is considered to be a PFIC. The IRS does not recognize ISAs so you cannot shield anything in an ISA from these taxes.

Unless you are 100% confident you would not sell any of those investments while you are subject to US taxes you should liquidate them before you arrive here unless your are prepared to hand over much of your profit to the IRS and your state. Even then take a look at the forms required to report annually on these investments, Form 8621, and decide if that is something you want to mess with. In the event you make a loss when you sell, that is not tax deductible. As you can tell they seriously discourage holding any type of foreign pooled investment.