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Us tax implications of UK tax free investements

Us tax implications of UK tax free investements

Old Jul 29th 2011, 1:13 am
  #1  
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Default Us tax implications of UK tax free investements

Firstly, I am sorry if there is already information on this subject but I couldn't find much of it and nothing specific.
Here's the story, I am a British Citizen, green card holder and have recently become a dual resident after living almost entirely in the US since 1990.
As I am now a UK resident for income tax purposes, I understand that I am eligible to take advantage of some UK tax free savings and investment products namely cash and/or stocks & shares ISA's and NS&I tax free savings certificates.

I suspect that these will not be tax free in the US and was wondering what the exact tax implications would be. The cash ISA would seem to be simple, just declare the annual interest, right? That would be for an easy access cash ISA, what about a fixed term, would tax not be due until you cash it in?
Stocks and shares ISA's seem more complicated, I did find one post related to this but I really did not understand the answer, although, please note I have made my bank aware of my dual residency status as this seems to be very relevant.
The other option I am considering is the NS&I index linked savings certificate
http://www.nsandi.com/savings-index-...s-certificates.
It has a 5 year term. Again, would I just declare interest annually, they said I could call to get a valuation, or would it not be payable until I cashed it in? if so would it be income, or capital gain? I just don't know.
It may seem silly to be thinking about these options but as I see it, I plan to end up back in the UK and apart form some interest here have no income in the UK, I do have a job in the US so if I was to be paying US taxes on UK interest, in effect, I would just be earning less pay. Is this right?
I would really appreciate any input/information/advice.
Thank you.
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Old Jul 29th 2011, 4:56 am
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Default Re: Us tax implications of UK tax free investements

Well I think your first problem is that you cannot move your tax home to the UK as a US LPR. As an LPR your tax home must be in the US, and therefore you are taxed on your worldwide income in the US. I'd worry about that one before anything else. Read the instructions for IRS Form 2555 also. Under US law (and actually case law) a declaration of permanent residency is exactly that. The way around it is to become a US citizen, but you are still subject to the foreign exclusion limit on your income if you are resident abroad as explained on form 2555.

Anyway, ISAs - a benefit accorded to UK tax residents, not UK citizens per se, so if your tax home is the US, you pay tax on them as you would any other investment, whether it be tax on the interest or capital gains tax when you dispose of them.

If you have more than $10,000 abroad you have to file the FinCEN FBAR form every year to declare them to the Treasury Dept. also.

Just as a general point - being tax resident in two places at the same time is a very unwise move.
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Old Jul 29th 2011, 10:53 am
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Default Re: Us tax implications of UK tax free investements

Thank you for confirming that Steve, and for the general information and advice.
I know that it is certainly very complicated to be a tax resident in two places, is this why you said it was unwise?
I looked at the instructions for form 2555 this confirms as you said that my tax home is the US according to US law. However according to UK law HMRC6 states that I am liable to pay taxes here on my worldwide income too. Hence I am eligible for the ISA's etc.
Any ideas on the specifics of the question?
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Old Jul 29th 2011, 11:00 am
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Default Re: Us tax implications of UK tax free investements

Your residency and citizenship are vital for determining your tax status. I don't know your plans, but your tax life would be made simpler if you could get rid of the Green card and any US tax requirements.

http://www.taxamerican.com/green_card.html

But given that you have US and UK tax liability then you are correct that ISAs are not US tax free, tax on gains and interest have to be paid according to the US tax year. However, if you use tax credits for UK tax paid rather than the FEIE you may well have excess credits that can be used to pay the US tax on something like a cash ISA. Stocks and shares ISAs and unit trusts etc are to be avoided as they come under US PFIC rules which are draconian and arcane.
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Old Jul 29th 2011, 12:23 pm
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Default Re: Us tax implications of UK tax free investements

Originally Posted by larrabee View Post
I am a British Citizen, green card holder and have recently become a dual resident after living almost entirely in the US since 1990.
Be very careful that you don't accidentally abandon your status as a US PR which, by the way, is quite easy to do if you're not actually resident in the US.

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