5 financial mistakes US expats in London are making!

You have arrived in London from the US, settled into your career, arranged schooling for the children bought your house and invested your money for your retirement  just like your colleagues at work. All fine so far?

No! Remember you are still a US citizen. And the US is one of the handful of countries in the world that taxes the worldwide income and capital gains of its citizens regardless of where in the world they live. And of course at the same time you are being taxed for the same things in the UK by Her Majesty’s Revenue and Customs.

Marrying these two jurisdictions with all their peculiarities needs careful handling as well as learning a whole alphabet soup full of acronyms . Here’s where many are going wrong –

  1.  Failing to tell the US about your money in the UK

The US Bank Secrecy Act states that every US citizen must file a report of Foreign Bank and Financial Accounts (FBAR) if they have a financial interest foreign accounts worth $10,000 or more during any one tax year.  Also the Foreign Account Tax Compliance Act (FATCA) requires all Foreign Financial Institutions (FFIs) to report all significant accounts held by US Taxpayers to the US Internal Revenue Service (IRS)

2. Investing in UK or offshore funds such as ETFS, unit trusts and OEICS. 

You see an advert on the tube, open an account and buy a portfolio of UK funds. To quote Julia Roberts in Pretty Woman- BIG MISTAKE.

Investing in these type of funds will fall foul of the IRS’s Passive Foreign Investment Company rules (PFIC) -just in case you were worried that you haven’t seen an acronym for a while. These could be taxed punitively  and be subject up to 100% of the growth in the value of the investment and even the capital.

3. Using ISAs – Individual Savings Accounts

ISAs are extremely popular in the UK especially for higher or additional rate taxpayers as a couple can invest up to £40,000 per year with all returns free of UK income and capital gains tax.

If you are a US Citizen however caveat emptor (Buyer beware). These savings arrangements do not necessarily enjoy a tax deferred status in the eyes of the IRS who may well look through them completely and tax them aggressively. Any UK tax savings could be wiped out by the US authorities.

So when investing in the UK, watch your tax wrappers!

4. Failing to report your UK pensions and SIPPS to the IRS

Pensions and SIPPS are also a very popular savings tool in the UK as you can receive up to 45% tax relief for any contributions that you make.

You will need to be  careful here though as although the UK has agreed with the US to treat these as Foreign Pensions and keep their tax deferred status , they may have to be reported every year via a 3520/3520-A form.  Plus there is no guarantee that legislation may not change in the future.

5. Investing in US funds and US ETFs

Here unfortunately you fall foul of the UK authorities or HMRC as the growth is classified as Offshore Income Gains and can be taxed at your marginal income tax rate rather than the lower Capital gains Tax rate- so this could be as high as 45% instead of 20%.

And apart from the above there are a host of issues such as navigating the two different tax years, watching out for US Capital gains if you sell a UK property, estate planning , working out foreign exchange gains and losses. Enough to make someone want to give up their US citizenship.

This should not have to be the case. A partnership with a suitably qualified financial planner can provide peace of mind and take away all the hassle.

As US specialist financial planners we work closely with an expert team of tax and accounting professionals as well as investment managers  to provide robust, joined up and fully compliant investment solutions across both jurisdictions. And as fully independent CFP Professionals, we always put our client’s plan and needs first.

Get in touch with us today for an initial meeting at our expense and without obligation.

Please note

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

The Financial Conduct Authority does not regulate some aspects of Trust, Tax and Estate Planning.

The value of investments may go down as well as up and you may get back less than you invest.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.



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