Planning return from US to UK

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
wilberforce
Posts: 2
Joined: Mon Jan 11, 2021 8:26 pm

Planning return from US to UK

Post by wilberforce »

In 2003, we moved to the US to live and work. Now, almost 20 years later, we're starting to plan and prepare to return to the UK to retire and be closer to family and friends by/around 2025.

While working here in the US as Green-Card holders (not citizens) we've amassed a pretty substantial collection of investments and would appreciate the guidance and recommendations of other British ex-pats who've returned to the UK at/near retirement, esp. regarding what to do with our assets which currently all reside here in the US:
  • Tax-advantaged retirement investments in 401Ks & Roth.
  • Taxable investments in joint and personal brokerage accounts
  • HSAs
  • Main US Residence that we plan to sell before leaving the US
With this in mind, what should we be doing to prep for moving back to the UK in order to minimize taxes.

Retirement Assets
I believe we can transfer tax advantaged QROP funds (i.e. 401Ks and Roth) into SIPP or similar UK retirement funds without penalty. Any complications here?

Other Assets
But what to do with our non-tax advantaged brokerage accounts? Should we
* Liquidate all non-retirement investments in one go prior to returning to the UK, pay US CGT, transfer the proceeds and re-invest in the UK?
* Liquidate investments in stages, paying US CGT etc., and periodically transfer the proceeds to the UK as cash? I believe we'll have to account for the UK CGT difference when doing this?

Offshore?
Also, wondering if its worth considering moving our assets to Isle of Man, Jersey, etc.?

Any guidance, advice, similar experiences, etc. much appreciated.
Last edited by wilberforce on Tue Jan 12, 2021 8:21 pm, edited 1 time in total.
TedSwippet
Posts: 3356
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Planning return from US to UK

Post by TedSwippet »

Welcome. I moved back from the US to the UK in 2008. Some notes below, then.

Firstly though, a crucial question. Have you taken out US citizenship during your stay? For the moment, I've sort-of assumed no. If yes, some of the answers below may change.
wilberforce wrote: Tue Jan 12, 2021 1:06 pm Retirement Assets
I believe we can transfer tax advantaged QROP funds (i.e. 401Ks and Roth) into SIPP or similar UK retirement funds without penalty. Any complications here?
Almost certainly not possible, I'm afraid. Traditionally, the US simply does not permit retirement accounts to move outside of its borders intact. Any company claiming that they can do it for you will very likely embroil you in a heap of tax costs and/or pension limitations that you would rather avoid.

That aside, the picture for UK residents holding US retirement accounts such as 401ks and IRAs is actually pretty good.

The US/UK tax treaty prevents the UK from taxing US pensions until withdrawals, so they retain their tax-deferred nature. On withdrawal, the standard treaty treatment is for this to be taxable as income to the UK only (although if you are a US citizen, the US bypasses this, making withdrawals taxable to both countries, with credits where necessary to avoid actual double-tax). The treaty also recognises Roth accounts, so that a Roth IRA or 401k retains its Roth-ness.

Also, the UK has a decent estate tax treaty with the US, so non-US citizens domiciled in the UK don't have significant worries about confiscatory US estate taxes. And a FATCA IGA, so there should be no nonsensical US FATCA withholding either.

All in all, this is about as good as things get in tax-treaty-land.
wilberforce wrote: Tue Jan 12, 2021 1:06 pm Other Assets
But what to do with our non-tax advantaged brokerage accounts? Should we
* Liquidate all non-retirement investments in one go prior to returning to the UK, pay US CGT, transfer the proceeds and re-invest in the UK?
You might. Or you might choose to wait until after leaving the US. If non-US citizens, once out of the US (and with any green cards safely surrendered, form I-407), you are then entirely free of US tax obligations. The UK has a sizeable capital gains tax allowance that the US does not have, and that can make it more tax efficient to realise gains as a UK resident rather than as a US 'taxable person'. It depends how much gain is involved though, and whether short-term or long-term (the UK does not differentiate on that, but the US does). Running the numbers both ways should help tell you the answer.

Pay close attention to any fund or ETF holdings that do not have HMRC 'reporting status'. A lot of Vanguard US domiciled ETFs have this, but their mutual funds do not. And while a few non-Vanguard US domiciled ETFs also have it, the list there seems rather short. If you sell a fund or ETF that lacks this, the UK taxes the capital gains at income tax rates. Depending on what you hold in these accounts, that could change the calculus.
wilberforce wrote: Tue Jan 12, 2021 1:06 pm * Liquidate investments in stages, paying US CGT etc., and periodically transfer the proceeds to the UK as cash? I believe we'll have to account for the UK CGT difference when doing this?
As already noted, once you leave the US, and provided you are not US citizens and do not retain green cards, you would be outside the US tax net. And in the UK, within the UK tax net. If you are US citizens or retain green cards, you will face tax from both countries, with credits to alleviate actual double-tax.
wilberforce wrote: Tue Jan 12, 2021 1:06 pm Offshore?
Also, wondering if its worth considering moving our assets to Isle of Man, Jersey, etc.?
Unlikely. Unless you can use the UK's 'non-dom' tax status (Google this -- it's not my area, but I have a recollection that UK citizens cannot use it), then this will over-complicate your future UK tax position, but likely without any compensatory benefit.

Finally, again assuming non-US citizenship, FIRPTA (Google this also) very much suggests that you should sell your US home before dropping your US 'taxable person' status. As for HSA, no idea; never had one. Worst case, the UK would probably view it as an unwrapped trading account. No idea how you would use it from the US perspective once in the UK, though. Knowing the US, unlikely to be anything close to straightforward.

Oh, and if total assets top $2mm and you have green cards, watch out for the US's spiteful and appalling Soviet-style 'expatriation tax'. If triggered, this nasty provision has the potential to entirely destroy your retirement prospects.
Topic Author
wilberforce
Posts: 2
Joined: Mon Jan 11, 2021 8:26 pm

Re: Planning return from US to UK

Post by wilberforce »

No, we're not citizens, but are Green Card holders. Updating original post accordingly.

Alas(?), yes, our non-retirement assets exceed $2M, and we're both pretty high earners, so will research Exit Tax extensively.

Many thanks for the great feedback. Lots to digest here.
TedSwippet
Posts: 3356
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Planning return from US to UK

Post by TedSwippet »

wilberforce wrote: Tue Jan 12, 2021 8:21 pm No, we're not citizens, but are Green Card holders. Updating original post accordingly.
Thanks for the update. Are you planning to surrender these on departure from the US, or to keep them 'just in case'? You can get up to two years of validity while not living in the US (with a so-called 'reentry permit'), but after that they're likely invalid. Plus, of course, while you keep them all your worldwide finances are still subject to US tax, and probably not what you want.

Also, you don't mention children, but if you have any, and they were born in the US, they are automatically US citizens, and that comes with a lot of tax baggage. So if applicable, you'll need to watch out here too. Especially if you are 'covered expatriates' under the execrable US expatriation tax.
wilberforce wrote: Tue Jan 12, 2021 8:21 pm Alas(?), yes, our non-retirement assets exceed $2M, and we're both pretty high earners, so will research Exit Tax extensively.
The asset limit is $2M per person, never uprated for inflation. If subject to this tax though, you'll want to exercise extreme caution; as already noted, this can be entirely retirement-destroying. There are possible workrounds, but they take some finessing.

Finally, the wiki offers some 'CliffsNotes'-style information on the US exit tax, and on US/other country cross-border tax issues in general. Some possible pages/sections of interest, for you:
Post Reply