Bruiser

Hi all,

Currently in the CR-1 process and trying to get my UK affairs in order so as to be the most tax efficient when (if) I get PR. My financial affairs in the UK are quite standard and mediocre but I am looking for someone who can advise me of my best options regarding investments, savings and the like. For example, should I cash in and just move cash, transfer to US, keep in UK, etc.?

So any recommendations for a tax advisor who knows both UK and US rules, ideally in Chicago (but not overly important). Unless I go to a large accountancy firm in the UK, I've drawn a blank.

Thanks!

civilservant

I can save you the tax advisor. If you are intending to remain resident in the US forever, it is far easier in the long run to liquidate all UK assets and move them to the US. This avoids tax complications later and FBAR reporting.

MidAtlantic

Without knowing far more about the OP it is impossible to say this. For example, several times here people have regretted not keeping a UK bank account open; once it is closed it is just about impossible to open one again when resident in the US. If the OP has pensions in the UK they cannot be moved to the US and liquidation may be extremely poor advice.

If the OP is more specific about his investments/savings there are people here who can help.

In answer to the OPs question, at one time Pete Newton was once a contributor to this site and often recommended: https://www.britishexpatstax.com/

tht

No recommendation, I did the analysis myself.

A few areas you may want to look at:

Understanding FBAR.
If you own a property in the UK look at this in detail.
Look at class 2 NIC contributions.

Bruiser

So in summary:

• House (will sell it once visa approved)
• Car (as per house)
• State pension
• A couple of private pensions
• Shares
• ISA and investment trust
• UK bank accounts
• Small UK limited company - sole director, will be closed before I come across

Glasgow Girl

State Pension has no reporting or tax implications until you have an income. Definitely do Voluntary NI’s until you max out the UK state pension.

Private Pensions - Declare on an FBAR to the Treasury every year, and on Form 8938 with your tax return if you meet the thresholds. This applies even if there is no income. If it is a final salary scheme and you do not have a transfer value identify it as $0 but declare it regardless. If you have a transfer value use that. The penalties for not reporting are eye watering so do not overlook this. Ignorance of the law, or making a genuine mistake will not alleviate the penalties.

Shares - Assuming they are single company shares listed on a major stock market and not any kind of mutual fund (like an Unit Trust, Investment Trusts or OEIC) do not need to be reported on an FBAR or Form 8938 with your tax return if they are held directly with the company (no broker) or are held by a US broker. If held by a non US broker then you need to declare them, but otherwise the taxation is the normal US Capital Gains and income tax

ISA and Investment Trust - The Investment Trust is considered to be a foreign mutual fund and must be declared on FBAR and Form 8938 with your tax return. The tax applied to foreign mutual funds is draconian, far in excess of normal US Capital Gains tax, and the paperwork required to calculate the tax due is extremely burdensome and time consuming. The tax will easily exceed 50% of your profit when you include state tax, and if the investment has been held for any length of time it will be far in excess of that because of the fact that they will prorate the profit for every year you have held the investment and add compound interest the tax due for each year. This will apply to all years you held the investment whether or not you were a US resident in that year. Not at all fair, but you have been warned. Sell these investments BEFORE you arrive here, and reinvest in US based mutual funds. The minute you arrive on US soil and become subject to US taxes you will fall into this trap. The IRS will not recognize an ISA so there is no tax protection for anything held within one.

UK bank accounts - need to be reported on FBAR and Form 8938 if you meet the thresholds. Need to pay normal US income tax but no other implications if just cash. As MidAtlanic said, keep at least one UK bank account, preferably savings and checking account.

You probably do not need an international tax advisor, a good domestic CPA should be able to assist with filling out the FBAR and Form 8938, but make it clear that you have foreign investments to report. They are not difficult forms to compete and you could likely do them yourself, but your first year will be more complex because of split year treatment and you might as well use a CPA for that year, and then if you want to do your taxes yourself thereafter you will know exactly how to file in subsequent years.

Bruiser

Glasgow Girl Thank you for a fantastic and thorough response. Very reassuring and sensible. I will certainly be using this advice!

tariqbutt

I am interested in what to do about private pensions when moving to the US. I have three private pensions with maybe £12k value in total. I am moving to the US on a H1B but I have no intention to return to the UK.
What would be the best advice for these?

• Can you liquidate pensions? Is that even possible? How much would I likely get back from them if I do that?
• If I ignore them and just declare them each year as suggested above would that be better?

tariqbutt

Actually I should probably have checked... do work pension schemes fit in the "Private Pensions" category?

Glasgow Girl

All pensions have to be reported on an FBAR if the aggregate total of all your foreign investments exceed $10,000. They also have to be reported on Form 8938 with Your IRS tax return if the aggregate value of all foreign investments exceed $150,000 if married, or $75,000 if single. This applies whether or not you are taking an income. The only pension you would not need to declare until you take it is the UK state pension. It is very easy to complete these forms so it is not a big deal to comply. The first time might take an hour or two while you go through the instructions but they are very clear, and subsequent years should only take about 15 minutes for each form and that includes gathering all the required information.

if you liquidate your pensions before age 55 I believe the UK will take about 55% in taxes, so you do not want to do that. If it were me, I would consolidate them into one fund which will make it easier to manage and report upon, and possibly save you in fees as well. But either way, no big deal to retain them so long as you report them to the IRS as required.

OldJuddian

There has been advice that final salary schemes do not need to be reported. Is your comment due to there being no downside to reporting, so that is the safest approach?

Glasgow Girl

Yes. Final salary schemes have a specific transfer value, and usually have a lump sum amount identified.. That makes them no different than any other foreign financial interest. You may well have been informed of the transfer value on an annual statement, even if you never asked about it, and in any case are highly likely to know the lump sum amount. There is no downside to declaring them, other than the 15 minutes it might take to complete the necessary forms, but lots of downside if they are not declared and the IRS decides they should have been.

MidAtlantic

Good advice. That's what I did by transferring them all into a SIPP with AJ Bell and saved a ton in fees.

trying...

Thank you Glasgow Girl for your thorough response, this is very helpful. I am planning to move from London to NYC around May'22. I may be being dumb but I cannot tell if I should sell the PFIC instruments in my account (ETFs mostly) before 31 Dec'21 or okay to sell anytime before the move in May'22. I ask because substantial presence test in 2022 (May to Dec 2022) would make one a US person for 2022 given their tax year is same as calendar year. Would that mean the capital gains made on sale of PFIC in, say, March 2022 while in London, become liable to US taxation at the said draconian rates? I am aware of split year tax treatment, but based on internet searches, seems this is a UK-specific concept and IRS would not care (just like they don't care about tax wrapper ISA).

Please let me know if question unclear and I can elaborate. Any pointers very much appreciated.

Glasgow Girl

My understanding is that you will not be subject to the PFIC taxation rules until you become subject to US taxes which will be the day you arrive on US soil, so selling them prior to arrival in the US should be ok, but definitely liquidate or sell everything except property, pensions, and shares held directly in a company listed on a recognized stock exchange (i.e. sell everything held in a mutual fund of any kind like an OEIC, Unit Trust or Investment Trust). Make sure the sales have settled the cash before you arrive here.