Interactive Brokers: domicile, insurance, taxes

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Urgestein
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Interactive Brokers: domicile, insurance, taxes

Post by Urgestein »

I have my life savings at Interactive Brokers. Suddenly I discovered that there are many issues that must be discussed. I tried to find some of the answers by contacting costumer support, but they haven't replied in weeks.

As you know, IB LLC is based in the US, but they own a subsidiary in the UK (IBUK). I am a national of an EU country, but I live outside the EU, the UK, and the USA. All of my assets are Irish-domiciled. I would be grateful for suggestions and information related to the following questions, which I'm sure must also affect a lot of other people.

Where is my broker account domiciled?

Are my purchases handled by IB LLC or by IBUK? Does this matter in practice?

Are my assets held by US custodians or by UK custodians?

This must have important practical implications that are difficult to foresee for me.

What kind of broker-failure insurance do I have?

American IB customers are covered by SIPC up to $500,000. But am I covered by the American SIPC, or by the UK FSCS? This matters a lot, because FSCS only insures up to 85,000 GBP.

The IB website says:
United Kingdom

Interactive Brokers (U.K.) Limited

Interactive Brokers (U.K.) Limited is authorised and regulated by the Financial Conduct Authority. FCA Register Entry Number 208159. Products are only covered by the UK FSCS in limited circumstances.

Your account is cleared and carried by Interactive Brokers LLC and for certain limited products by Interactive Brokers (U.K.) Limited. Interactive Brokers LLC is regulated by the US SEC and CFTC and is a member of the SIPC (www.sipc.org) compensation scheme. Interactive Brokers (U.K.) Limited is authorised and regulated by the FCA and regulated products are covered by the UK FSCS.
This suggests that my assets are covered by SIPC and not by FSCS. But how to make sure? What does it mean for an account to be 'cleared and carried'? Does this clearance and carriage entail that my assets are insured by SIPC? What are those 'certain limited products' that are 'cleared and carried' by IBUK?

Is it even possible that my savings aren't insured at all in the event that the broker goes bust?

UK taxation

The following questions only matter if my assets do turn out to be held in the UK.

I don't live in the UK, and anyway there's a more-than-sufficient capital-gains exemption of £12,300. So I guess I wouldn't pay capital gains tax. But what about taxes on interest and dividends? My ETFs are accumulating, but I don't think that matters in the UK.

The UK has an inheritance tax. If my assets grew enough to hit the limit, would I need to worry about it?
TedSwippet
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Re: Interactive Brokers: domicile, insurance, taxes

Post by TedSwippet »

Welcome.

I'm not an IB customer, so I don't know some of the specifics, but I've put a few notes below that should help put your mind at ease.
Urgestein wrote: Fri Sep 11, 2020 5:44 am Are my purchases handled by IB LLC or by IBUK? Does this matter in practice?
Mostly not, but there is one combination to watch out for. If you hold a US brokerage account and live in a country without a US estate tax treaty, you want to avoid holding more than $60,000 in cash in a that account, because the US sees cash in a US broker as 'US situs', putting it at risk of confiscatory US estate taxes. In practice, a broker account is not the place to keep cash anyway, so that should be straightforwards to avoid (although you might need to take care not to die while rebalancing!).

Holding Ireland domiciled ETFs in a US broker account is fine; it is just cash that is the problem. Holding Ireland domiciled ETFs and cash in a non-US broker are both fine.
Urgestein wrote: Fri Sep 11, 2020 5:44 am Are my assets held by US custodians or by UK custodians? This must have important practical implications that are difficult to foresee for me.
I don't see it mattering as much as you might think. For tax, both estate and income, what is important is what you hold, not so much where or how you hold it.

If you hold US domiciled ETFs you could be at risk from confiscatory US estate taxes no matter where your broker or their custodian is on the face of the planet. Conversely, if you hold only non-US domiciled ETFs, the US cannot apply its estate tax to these, even if held in a US broker or custodian. Your heirs may have a long and drawn-out process to go through with a US custodian and the IRS before they can get access to your assets, but there would be no actual US estate tax to pay.
Urgestein wrote: Fri Sep 11, 2020 5:44 am American IB customers are covered by SIPC up to $500,000. But am I covered by the American SIPC, or by the UK FSCS? This matters a lot, because FSCS only insures up to 85,000 GBP.
I guess only IB can tell you for sure. I don't want to sweep this concern away entirely, but overall it seems that the risk of actual losses here is a lot lower than many people suspect. Brokers must ring-fence client assets, so that if the broker fails, goes bankrupt say, then client money and investments are safe.

Beyond this, there is the faint possibility of broker fraud -- you think you hold assets with them, but you don't -- but auditing and government oversight should prevent that. So these coverages exists only as a very last resort. And even for broker fraud, your chance of losing everything seems negligible. Say you invested £800,000 and the broker ran off with 10% of this -- an extreme and unlikely example -- the FSCS would cover your £80,000 loss.

I'm in the UK, and personally I do not worry about this. I do maintain more than one broker account, but only so that if one fails I will still have access to cash while the failed one is wound up. My own feeling is that the risk of real and large financial loss from broker failure is vanishingly remote, particularly when compared to all the other risks of investing.
Urgestein wrote: Fri Sep 11, 2020 5:44 am I don't live in the UK, and anyway there's a more-than-sufficient capital-gains exemption of £12,300. So I guess I wouldn't pay capital gains tax. But what about taxes on interest and dividends? My ETFs are accumulating, but I don't think that matters in the UK.
As a non-UK resident, you can ignore these UK taxes entirely. UK capital gains tax, income tax on dividends and interest, and the UK's 'notional' tax on accumulated dividends, only apply to UK residents. You will pay none of these, no matter how much you realise in capital gains or receive in interest and dividends. Of course, you may well however face these taxes in your own country of residence.
Urgestein wrote: Fri Sep 11, 2020 5:44 am The UK has an inheritance tax. If my assets grew enough to hit the limit, would I need to worry about it?
No. Again, it is what you own, not how or where you own it. And you are not a UK resident. You hold Ireland domiciled ETFs, and just as they are not US situated assets, they are also not UK situated assets. They are shares in Irish corporations, so they are Ireland situated.

If you are not resident there, Ireland will not attempt to apply any of its own taxes to you either. Irish tax laws have some special exemptions for Ireland domiciled ETFs, which make them completely 'tax transparent' when held by non-Irish investors.
Last edited by TedSwippet on Sun Sep 13, 2020 3:02 am, edited 2 times in total.
DJN
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Re: Interactive Brokers: domicile, insurance, taxes

Post by DJN »

Hi,
where are you a tax resident and where are you domiciled?
That would be helpful for some important details.
DJN
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Topic Author
Urgestein
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Re: Interactive Brokers: domicile, insurance, taxes

Post by Urgestein »

Thank you, TedSwippet. I think this clears up most of my worries for now.

DJN, that's not likely to change much in this connection.
occambogle
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Re: Interactive Brokers: domicile, insurance, taxes

Post by occambogle »

I was able to confirm the location/entity of my IB account (US, which i wanted as am US expat) via customer service online chat. I just told them I needed to know where my account was physically located due to various tax and regulatory issues.
I've found the online chat fairly helpful to be honest... though I find sometimes it's better during US market hours.
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galeno
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Re: Interactive Brokers: domicile, insurance, taxes

Post by galeno »

I wish IB had the phone customer service skills of Schwab.

If Schwab International gave us access to UCITS ETFs on non-USA bourses we'd switch back to Schwab yesterday.
KISS & STC.
DJN
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Re: Interactive Brokers: domicile, insurance, taxes

Post by DJN »

The change of domicile for IBKR customers who have accounts in IBUK is important for some investors from a tax point of view. If you have an "expat" account most likely domiciled in the USA then if you return to say Europe after your expat sojourn IBKR will automatically transfer you to either UK, Lux or IE, based upon their understanding of your residency. This may affect you if you are using the non domiciled status to protect your build up of capital gains and you want your account to be based offshore. You have no choice in the allocation of account location.
DJN
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galeno
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Re: Interactive Brokers: domicile, insurance, taxes

Post by galeno »

Will IB (UK Lux or IE versions) lose business to Degiro, Saxo, or other European friendly discount brokers?
KISS & STC.
theresearcher
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Re: Interactive Brokers: domicile, insurance, taxes

Post by theresearcher »

TedSwippet wrote: Fri Sep 11, 2020 6:55 am If you hold US domiciled ETFs you could be at risk from confiscatory US estate taxes no matter where your broker or their custodian is on the face of the planet. Conversely, if you hold only non-US domiciled ETFs, the US cannot apply its estate tax to these, even if held in a US broker or custodian. Your heirs may have a long and drawn-out process to go through with a US custodian and the IRS before they can get access to your assets, but there would be no actual US estate tax to pay.
Although it's assumed that a similar long-drawn out process could apply at a U.K. based custodian, due to United Kingdom (English/Scottish/Northern Irish) probate requirements and at least establishing exemption from Inheritance Tax for the estate. Noted for this purpose that Interactive Brokers U.K. appears to act as an agent for the U.S. parent entity and therefore IB U.K. accounts would normally be located in the United States rather than United Kingdom.

The point being made is that a United Kingdom location for the account is not necessarily ideal unless one is British domiciled and hence liable to Inheritance Tax regardless.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

I am a UK resident and naturalized UK citizen. Lived in the US a long time ago but did not obtain a US green card or citizenship. I still have funds in USA which I am not yet ready to remit to UK.

If I open a Interactive Brokers UK account, and wire my US dollar funds into it from the US bank/brokerage, would that constitute a UK remittance ?

Not fully clear from the thread, hence thought I would ask here. Look forward to any response, altho it is an old thread.

On another note, Interactive Brokers customer service isnt great. Had to wait for an eternity to get thru to someone. Chat seems to work only after I have actually opened the account which itself is a bit of a tedious process.

Thanks all !
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Why do I need to do this (i,e mess around with Interactive Brokers etc) ?

1) My funds are in US dollars in US bank / brokerages that I want to invest but not ready to remit to UK yet due to various reasons

2) Etrade is no longer allowing me to buy US domiciled ETFs such as VTI etc. ETrade does not allow me to purchase UCITS ETF either.

3) Charles Schwab customer service is great and they are not domiciled in UK and they do allow me to buy US domiciled ETFs such as VTI etc and wiring funds into this account from US would not constitute a remittance into UK. But they are a bit expensive and they dont offer UCITS ETF last I checked.

4) I may well go with option 3 but TedSwippet has cautioned us on the estate tax issue with US domiciled funds. This IS a valid concern but perhaps not too much since I dont have any heirs.

Thanks again
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typical.investor
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Re: Interactive Brokers: domicile, insurance, taxes

Post by typical.investor »

bluejeansman wrote: Sun Jul 16, 2023 6:46 pm Why do I need to do this (i,e mess around with Interactive Brokers etc) ?

1) My funds are in US dollars in US bank / brokerages that I want to invest but not ready to remit to UK yet due to various reasons
I would leave them where they are. Once, you are ready, then transfer them to Interactive Brokers.
bluejeansman wrote: Sun Jul 16, 2023 6:46 pm 2) Etrade is no longer allowing me to buy US domiciled ETFs such as VTI etc. ETrade does not allow me to purchase UCITS ETF either.
They don't cater to foreign clients it seems.
bluejeansman wrote: Sun Jul 16, 2023 6:46 pm 3) Charles Schwab customer service is great and they are not domiciled in UK and they do allow me to buy US domiciled ETFs such as VTI etc and wiring funds into this account from US would not constitute a remittance into UK. But they are a bit expensive and they dont offer UCITS ETF last I checked.
Schwab International (it's basically the same as a Schwab account but no mutual funds or brokered CDs and only ETFs) does have UCITS but I think you have to request them by phone and there is an extra fee. And if you switched, they'd likely not be able to offer US domiciled ETFs anymore as that is against UK regulations (since the lack the required documentation to 'protect' retail investors).
bluejeansman wrote: Sun Jul 16, 2023 6:46 pm 4) I may well go with option 3 but TedSwippet has cautioned us on the estate tax issue with US domiciled funds. This IS a valid concern but perhaps not too much since I dont have any heirs.

Thanks again
Why not just open an account with Interactive Brokers and buy UCITS there with money you are looking to invest now. When you are ready, then transfer your other US holdings to them?

If you really don't want money going to the UK, the keep buying at US ETFs at Schwab (make sure you get UK reporting funds like VTI). You can always start buying UCITS with your cash later and then fund your retirement from the ETFs first such that if there is anything left over, and you do have a heir or someone you want to leave it too, it'd be the UCITS that are still left.

That's my thoughts anyway.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Thanks for your kind response typical.investor

Does this mean that if I open a Interactive Brokers UK account and wire US funds into it, it would constitute a UK remittance ? That depends where the "IBKR UK" account is actually held. I thought it was "offshore" (outside UK), but not sure.

Thanks
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Goinhg thru other UK forums, looks like many others have the same question. https://www.taxationweb.co.uk/forum/us- ... 27420.html - But no easy answers.

I would like to think that "Interactive brokers UK" is actually offshore and outside UK, but I am not 100% sure and the customer service is not exactly 5star.

typical.investor : I have sizeable US dollars in US bank idling in cash that I would ideally like to invest. The easiest way is to remit all of it into the UK. But there is a tax aspect to doing this that stems from the old non dom days, which I will skip explaining now for the sake of brevity. I do pay UK tax on arising basis, so I report any dividends, interest in my US funds to UK HMRC and pay UK taxes even if I dont remit. But I would like to keep the money offshore now, but not idle in cash. I do have a Vanguard US account but it is unfortunately not a brokerage account so I will not get UK HMRC reporting status if I go with VTSMX/VFINX for example as opposed to VTI ETF.

I guess Schwab / UCITS ETF if allowed is the answer as it ticks all the boxes. Expensive but so be it.

TedSwippet, Valuethinker, I hope you get to this message. As always I would appreciate your insight on this.

Thanks a lot
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Called up customer support and they didnt seem very knowledgeable. I mentioned I am UK resident and I have funds in USA that I am not ready remit to UK just yet and I want to keep it *offshore*.

Their answer was that if I am wiring in US dollars, it gets wired to US bank (JP Morgan). It does not come into the UK, even if the account was opened in the UK. If I am wiring in GBP, then they said it does go into a UK bank so it would be a remittance. Now what if I am wiring in US dollars, and then buy a Vanguard Ireland domiciled UCITS ETF whose base currency is *GBP* (such as VWRL) ? The representative sounded hesitant and said the transaction would likely likely go thru a UK bank at some point but wasnt sure. So perhaps I could buy VWRP whose base currency is USD. I dont know.

I could go to a tax lawyer but they will ask me a thousand questions about Interactive Brokers that only IBKR can answer.

oh well.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Called up Schwab International on a whim. Simply outstanding customer service ! Reminded me of the top quality American customer service from my old days in the US. First representative was not so knowledgeable but transferred me to a proper expert who was really good. Answered all my questions with great clarity. Account will be held offshore, not in UK. But just like Etrade they will not allow me to trade US domiciled ETFs (apparently an EU regulation). But I can indeed buy UCITS ETF. $50 a trade. So be it.

I also asked about relocating to India which is one of my other concerns. They said there will be no problem and I can continue to maintain the Schwab International account. Once I am in India, she said I can even buy US listed ETFs such as VTI. The point about estate tax on US domiciled ETFs remains of course. I dont mean to downplay that.
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typical.investor
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Re: Interactive Brokers: domicile, insurance, taxes

Post by typical.investor »

bluejeansman wrote: Mon Jul 17, 2023 9:20 am Called up customer support and they didnt seem very knowledgeable. I mentioned I am UK resident and I have funds in USA that I am not ready remit to UK just yet and I want to keep it *offshore*.

Their answer was that if I am wiring in US dollars, it gets wired to US bank (JP Morgan). It does not come into the UK, even if the account was opened in the UK. If I am wiring in GBP, then they said it does go into a UK bank so it would be a remittance. Now what if I am wiring in US dollars, and then buy a Vanguard Ireland domiciled UCITS ETF whose base currency is *GBP* (such as VWRL) ? The representative sounded hesitant and said the transaction would likely likely go thru a UK bank at some point but wasnt sure. So perhaps I could buy VWRP whose base currency is USD. I dont know.
Not 100% sure, but don't the Ireland UCITS trade on the LSE? If going through a UK bank constitutes a remittance, then I'd be leery about trading on the LSE. But, I really don't know either.
bluejeansman wrote: Mon Jul 17, 2023 10:44 am Called up Schwab International on a whim. Simply outstanding customer service ! Reminded me of the top quality American customer service from my old days in the US. First representative was not so knowledgeable but transferred me to a proper expert who was really good. Answered all my questions with great clarity. Account will be held offshore, not in UK. But just like Etrade they will not allow me to trade US domiciled ETFs (apparently an EU regulation). But I can indeed buy UCITS ETF. $50 a trade. So be it.
Well, why not use both IBKR and Schwab International?

Schwab International --> use for USD *offshore* purchases. This is kind of a lump sum right, so the number of $50 trades will be few.
IBKR --> use for GBP that you are earning now (ongoing contributions) and buy UCITS with the $50 fee. This money is already in the UK so no reason for it not to go through IBKR.

At some point, I found this list of UCITS at Schwab. viewtopic.php?p=4773429#p4773429. I am no longer a Schwab International customer (just regular Schwab) so I can't see them anymore or know if they still show them.

Vanguard FTSE All-World UCITS ETF look good!
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Hyperborea
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Re: Interactive Brokers: domicile, insurance, taxes

Post by Hyperborea »

TedSwippet wrote: Fri Sep 11, 2020 6:55 am Mostly not, but there is one combination to watch out for. If you hold a US brokerage account and live in a country without a US estate tax treaty, you want to avoid holding more than $60,000 in cash in a that account, because the US sees cash in a US broker as 'US situs', putting it at risk of confiscatory US estate taxes. In practice, a broker account is not the place to keep cash anyway, so that should be straightforwards to avoid (although you might need to take care not to die while rebalancing!).
I wonder if the IB bank account sweep program gets around the estate tax issue for most since cash in a bank account is not subject to US estate tax unlike cash at a brokerage. They will sweep just below US$250K (FDIC limit) into each of 10 different banks. That way up to almost US2.5 million is both FDIC insured and potentially free of US estate tax.

https://www.interactivebrokers.com/en/a ... rogram.php
Our Insured Bank Deposit Sweep Program allows eligible IBKR clients to obtain up to $2,500,000 of FDIC insurance4 in addition to existing $250,000 SIPC coverage4 for total coverage of $2,750,000. Clients continue earning the same competitive interest rates1 currently applied to cash held in IBKR accounts. IBKR sweeps each participating client's free credit balances daily to one or more banks, up to $246,500 per bank, allowing for the accrual of interest and keeping within the FDIC protected threshold. Cash balances above $2,750,000 remain subject to safeguarding under the SEC's Customer Protection Rule 15c3-3, backed by the firm's equity capital, which exceeds $12.2 billion2.
It’s not just that facts don’t seem to matter anymore. It’s that it doesn’t seem to matter that facts don’t matter.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Thanks for replying, typical.investor. much appreciated.
Not 100% sure, but don't the Ireland UCITS trade on the LSE? If going through a UK bank constitutes a remittance, then I'd be leery about trading on the LSE. But, I really don't know either.
Very interesting. So, my money in USD starts its journey from a US Bank to a holding bank account of IBKR also based in US. At this point, it has NOT come into UK just yet. Now, the UCITS ETF such as VWRD has a USD "base currency", so, no conversion to pound sterling or go thru UK bank just yet. But for buying the ETF, if IBKR has to bring the money into UK, I dont know if that is considered a remittance for me the end customer. If everything has to go thru LSE, then how can the UCITS ETF even claim to be "Irish domiciled" and what does "Irish domiciled" even mean ?
Schwab International --> use for USD *offshore* purchases. This is kind of a lump sum right, so the number of $50 trades will be few.
Lumpsum, yes, But Schwab International will not allow me to purchase US domiciled ETF (Such as VTI), since I live in UK. Schwab will of course allow me to buy UCITS ETF but now we are not sure if that would be considered a remittance or not.
IBKR --> use for GBP that you are earning now (ongoing contributions) and buy UCITS with the $50 fee. This money is already in the UK so no reason for it not to go through IBKR.
For UK sourced funds, I dont need IBKR, thanks. There are brokers with outstanding customer service in UK : Hargreaves Landsdown, Charles Stanley Direct.
Vanguard FTSE All-World UCITS ETF look good!
Good, apart from the remittance question which we are not sure about.

So, in short, if you are UK resident non resident alien with funds in US, and ***dont want to remit the money into UK***, then there is no suitable offshore brokerage - i.e *** keeping the money offshore and stay invested *** in some kind of world stock ETF ? Whwat are my options for the offshore money ?
1. In the old days, Etrade allowed me to buy VTI etc but not anymore.
2. Vanguard US still allows me to buy mutual funds but they do not have HMRC distributor status.
3. IBKR/Schwab => UCITS ETF sounds good but may be considered a remittance into UK since they trade on LSE whatever the heck "Irish domiciled" means.
4. None of the above. Keep it in cash in US.

I suppose I could just transfer the cash into UK, pay the old tax and be done with it. At least get rid of the offshore headache.

Thanks
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Going thru UK taxman (HMRC) forums : "Based on the example given under Money Transfer, our advice would be that any offshore monies invested directly into the Irish ETF would not be classed as remitted to the UK, but any offshore money paid to a UK agent/stock exchange to facilitate that investment would be classed as a taxable remittance."

https://community.hmrc.gov.uk/customerf ... 155d9c773c

I guess that nicely addresses my concern. I can happily buy Irish domiciled UCITS ETF via Interactive Brokers or indeed Charles Schwb International from my US dollar offshore funds and it will not be considered a remittance into UK

Q.E.D
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Well, ... Now, is "IBKR UK" a "UK agent" ? I dont know, but when I wire the funds from my US bank into IBKR, it is going into IBKR's US bank account. I guess I need to complete the account application process and print a financial report and see.
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typical.investor
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Re: Interactive Brokers: domicile, insurance, taxes

Post by typical.investor »

Ah, I thought you had said the Schwab International would be offshore. I guess you aren’t sure.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Schwab International is indeed offshore. So, looks like I am safe taking that route and investing in Irish domiciled UCITS ETF

I believe so is IBKR, since I would be wiring my US dollars from my Minneapolis bank into IBKR's holding bank (JP Morgan in New York I believe) so IBKR --> Irish domiciled UCITS ETF should also work. But I have a little nagging doubt since I am going thru their co.uk website.

As per https://www.reddit.com/r/interactivebro ... ited_ibuk/, "assets (stocks, funds, cash etc.) in IBUK accounts are all managed by IBLLC (US) " so I think I am good. But just not 100% sure. There is certainly no money coming into UK.
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typical.investor
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Re: Interactive Brokers: domicile, insurance, taxes

Post by typical.investor »

bluejeansman wrote: Thu Jul 20, 2023 6:23 am Schwab International is indeed offshore. So, looks like I am safe taking that route and investing in Irish domiciled UCITS ETF

I believe so is IBKR, since I would be wiring my US dollars from my Minneapolis bank into IBKR's holding bank (JP Morgan in New York I believe) so IBKR --> Irish domiciled UCITS ETF should also work. But I have a little nagging doubt since I am going thru their co.uk website.

As per https://www.reddit.com/r/interactivebro ... ited_ibuk/, "assets (stocks, funds, cash etc.) in IBUK accounts are all managed by IBLLC (US) " so I think I am good. But just not 100% sure. There is certainly no money coming into UK.
I highly recommend Schwab International and don't think the one time charge on a couple of funds will make any difference.

That said, IBKR may work too. Read their customer agreement ...
Notwithstanding any other Services provided by IBLLC to IBUK or to you in accordance with Section B1, you shall be a client of IBLLC, and not of IBUK, for the purposes of the provision of the Client Money and Custody Services. The terms and conditions of this Agreement shall apply to IBLLC's provision of the Client Money and Custody Services to you. Notwithstanding the foregoing, IBLLC may be a third-party beneficiary to any portion of this Agreement or any other agreement between IBUK and you.

IBLLC is located outside of the United Kingdom and IBLLC may deposit and hold money, securities, and other assets (including, but not limited to, collateral and safe custody investments) on your behalf in accounts that are located outside of the United Kingdom. The legal, regulatory, and settlement regime applicable to IBLLC and to the entities in which your money, securities and other assets will be held will be different from that of the United Kingdom (i.e., any client money and custody Rules promulgated by the FCA will not apply). Among other things, different practices for the separate identification of your money, securities, and assets may apply and, in the event of a default of IBLLC or the entity in which your money, securities and other assets are held, your money, securities and assets may be treated differently from the position that would apply if the money, securities or assets were held in the United Kingdom.
I would infer that your money would still be offshore. But if there is any concern, Schwab International seems more clear. And there are a bunch of customer agreements there .... I didn't go through them all but that is where I'd look.

See https://www.interactivebrokers.co.uk/en ... ements.php

And tell the truth, you miss Minneapolis (not the winter but the people).
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Great response, thanks typical.investor. The customer agreement point of IBKR certainly helps, thanks for pointing it out.

Couldnt agree more about the comment about Minneapolis. amazing people. I have fond memories of my time there, except the bitter bitter cold :) - I think we even had a snowfall in the month of May once while I was there. Not to mention sleet and experiencing at least one skid/fall per year. Thankfully the parka provided good cushion. Good old days :)
masni
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Re: Interactive Brokers: domicile, insurance, taxes

Post by masni »

Hmm, I have a concern too, as for an investor in the EU, my account it with their Hungarian branch, and I am a bit worried about Hungary leaving the EU.

I think I might balance my stock account with my bank. They have a bit of higher fees, but I use them just to hold the bigger block of ETF, and leave IB for the more individual stock purchases
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Suddenly concerned about a new point I had not thought of.

When I buy a UCITS ETF (such as VWRL) in a US broker such as Interactive broker or Charles Schwab, would I not fall foul of PFIC rules ?

I am a non resident alien (NRA), but I list all my US investments to my US tax accountant (My US bank account, Etrade USA, Vanguard USA).

Normally I file a W8-BEN so there is no tax to pay plus NRAs are not taxed on US bank interest and US capital gains but I still file a US tax return even though Pub 519 says I dont need to, but I still do every year based on my tax accountant's advice and to get good sleep.

Wondering if PFIC rules will get me in trouble.

Thanks
TedSwippet
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Re: Interactive Brokers: domicile, insurance, taxes

Post by TedSwippet »

bluejeansman wrote: Mon May 13, 2024 1:36 pm Wondering if PFIC rules will get me in trouble.
About Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
A U.S. person that is a direct or indirect shareholder of a passive foreign investment company (PFIC) files Form 8621 if ...
You are not a US person.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Thanks TedSwippet, that makes it "crystal clear" as Tom Cruise would say in A Few Good men :)

On another note, will the broker (Charles Schwab) withhold 15% ? (Assuming US - UK Tax treaty) ? None of that would change right ? I mean, as UK resident I would pay the normal dividend tax and get credit for the 15% I have paid to the US IRS.

Thanks
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

On another note, just had the most disappointing customer service experience with Charles Schwab international. A far cry from when I called them last year. Spoke to 3 different representatives today, all equally clueless. For every question, they would say "let me check that" and take their own sweet time. When I told them I am not a US person and I am based in UK, one even said that I will not be allowed to buy VWRL ETF or any ETF for that matter. I had to spell VTI, VWRL letter by letter - V for victory etc.

For Charles Schwab international if there is any other phone number where you get to talk to a knowledgeable person directly, do let me know. I dont mind paying for good service.

Customer service thruout the world is a race to the bottom these days - in comparison IBKR doesnt look too bad after all.

Thanks
NHRinvestor2024
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Re: Interactive Brokers: domicile, insurance, taxes

Post by NHRinvestor2024 »

I much appreciate the good quality of comment here by TedSwippet » typical.investor » and others.

I am a non American, recently started living in Portugal under NHR Tax status. I have UK as well as European citizenship. I put $800K into Schwab when I moved here, and have been buying T Bills , but am about to move them into Irish Domiciled UCIT purchase via Degiro IE which is Dutch.

The reason for the move is US Estate Taxes - My Chat GPT non-professional research led me to the conclusion that over $60K in the US is too risky
I asked
"If a non American non American resident has $60,000 or more in a US account, they are said to be subject to US Estate Taxes. If they have the money invested in stocks and bonds in the US, is it the cash or the value of the holdings that is material ?"
the answer

"it is the value of the holdings (stocks and bonds) that is material, not just the cash in the U.S. account. Here’s a breakdown of how this works:

Stocks and Bonds: If a non-resident holds U.S. stocks or bonds, the market value of these securities at the time of the individual’s death is included in their U.S. situs assets. For instance, if they have $60,000 or more in U.S. stocks, this amount would be considered when calculating potential U.S. estate tax liability.

Cash: If the individual has cash in a U.S. bank account, it typically would not be subject to U.S. estate taxes. However, cash held in a U.S. brokerage account or certain investment accounts could be considered U.S. situs property and thus subject to estate tax.

To summarize, it is the value of the holdings in U.S. stocks and bonds that is critical in determining the estate tax obligation, not merely the cash in the U.S. account. If the total value of these U.S. situs assets exceeds the threshold (typically $60,000), the estate may be liable for U.S. estate taxes. It is advisable to consult with a tax professional who specializes in international estate planning to ensure compliance and explore potential strategies to minimize tax liability."

There are other considerations, (amongst which is how far the UK authorities can go after my estate if I have no assets in the UK, and I don't have a UK will), but I would really like to see in black and  white proof of the $60K being a cash rather than "value of estate in the US" issue.

Additionally as I am buying and holding T Bills to maturity... and there is no automated ladder reinvestment option, do my heirs not run the risk that as the bonds matured after I died, the cash would go over the $60K thresholds?

I've other questions, but this one I have to resolve when the T Bills mature at the end of May.

I have a feeling that international type like me - people whose net wealth is in the $2-10 million zone are kind of "stuck in the middle". (a real rich person's problem , I don't expect sympathy). Easily wealthier enough to make it a good idea to take advice, but but not able to afford the kind of lawyers who can handle multi jurisdictional wills, trusts and assets.
DoctorE
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Re: Interactive Brokers: domicile, insurance, taxes

Post by DoctorE »

bluejeansman wrote: Tue May 14, 2024 12:08 pm On another note, just had the most disappointing customer service experience with Charles Schwab international. A far cry from when I called them last year. Spoke to 3 different representatives today, all equally clueless. For every question, they would say "let me check that" and take their own sweet time. When I told them I am not a US person and I am based in UK, one even said that I will not be allowed to buy VWRL ETF or any ETF for that matter. I had to spell VTI, VWRL letter by letter - V for victory etc.

For Charles Schwab international if there is any other phone number where you get to talk to a knowledgeable person directly, do let me know. I dont mind paying for good service.

Customer service thruout the world is a race to the bottom these days - in comparison IBKR doesnt look too bad after all.

Thanks
Schwab will do LSE based UCITS via phone orders.

Undertakings for Collective Investment in Transferable Securities (UCITS) are a packaged investment product authorized in the E.U. They meet relevant E.U. requirements and offer investment strategies similar to those of their U.S. counterparts. UCITS ETFs are intended only for non-US residents.

SCHWAB International Support
1-415-667-7870
1-877-853-1802
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Thank you DoctorE
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

have a feeling that international type like me - people whose net wealth is in the $2-10 million zone are kind of "stuck in the middle". (a real rich person's problem , I don't expect sympathy). Easily wealthier enough to make it a good idea to take advice, but but not able to afford the kind of lawyers who can handle multi jurisdictional wills, trusts and assets.
Well said NHRInvestor2024.

Regarding US estate tax, as a non resident alien I also have plenty of assets in the US brokerages consisting of US domiciled ETFs, funds, and one Nasdaq stock. Definitely a risk of holding such a large amount (almost million USD) of "US situs" assets, as non resident alien.

What is home country tho ? I live in UK but seriously thinking about going away to India for good. I am a non resident alien with UK passport. Is my home India or UK ? cant find that table listing which countries have estate tax treaty with US.

I dont have any heirs and my wealth goes to charity after I am gone. I would prefer to give to charity of my choice rather than govt, but money going to govt of any developed civilized country is also not such a bad thing I suppose, except that I dont want it to happen by force.

Moving all my US situs assets to Irish domiciled UCITS ETF will trigger a Capital gains of almost $400,000 so, The only way I see around this is me escaping to Dubai and sorting this all out.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

You are not a US person.
Thanks Tedswippet.

If I liquidate my US domiciled holdings in Etrade/Vanguard (ignoring tax consequences for now) and move the dollars to Interactive Brokers or Charles Schwab Intl and buy only Ireland domiciled ETFs such as VWRD, I then have 3 questions : probably silly questions.

(a) will the broker send me a 1042-S ?
(b) will I need to have a W8-BEN on file ?
(c) will broker withhold 15% on VWRD as they do for my US domiciled funds ?

I think the answer is No to all 3 but I would really like your reply please. Thank you.
TedSwippet
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Re: Interactive Brokers: domicile, insurance, taxes

Post by TedSwippet »

bluejeansman wrote: Fri May 17, 2024 4:02 am If I liquidate my US domiciled holdings in Etrade/Vanguard (ignoring tax consequences for now) and move the dollars to Interactive Brokers or Charles Schwab Intl and buy only Ireland domiciled ETFs such as VWRD, I then have 3 questions : probably silly questions.

(a) will the broker send me a 1042-S ?
(b) will I need to have a W8-BEN on file ?
(c) will broker withhold 15% on VWRD as they do for my US domiciled funds ?

I think the answer is No to all 3 but I would really like your reply please. Thank you.
Certainly no to (a) and (c).

For (b), it depends. Some brokers only insist on a W-8BEN if/when you buy US stocks or US domiciled ETFs. Others, particularly those that are US based or US owned (like the two you list), tend to insist on it anyway. If they do then they will tell you; it will be an upfront requirement of opening the account.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Thanks a lot TedsSwippet !

I opened an account with IBKR, it directed me to .co.uk but then I funded it with US dollars from my Minneapolis bank using ACH transfer, just to try it out. Account got funded. IBKR's holding bank (for USD) is Citibank New York. So far they did not ask me to file W8-BEN. Just wanted to add this point to this thread thats all !

as always your feedback is highly appreciated TedSwippet !
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Still havent got my head around US estate tax. All my US assets are US domiciled : ETFs, mutual funds (stocks, bonds, money market), Nasdaq company shares, money market funds totalling $ 1 million

Questions :

- I am a UK naturalized citizen and resident for last 20 years. If I pass away today, will the US UK estate tax treaty provide cover to $11 million or so ?
- otoh If I move to India and then pass away, will it be covered only up to $60,000 ?
- Is it is the citizenship or domicile of the deceased Non resident alien that comes into question ?
- I am not even sure what my domicile is. It is supposed to be the country where "you wish to die". Well, I dont want to die :) As Woody Allen said — I don't want to achieve immortality through my work; I want to achieve immortality through not dying :)

- If I write a will, will that help get around this so that IRS does not confiscate US situs assets ? : All your things are belong to us :)
- Would it make a difference if I wrote a will where the beneficiaries were charities ? How about American charities ? How about my alma mater (A US University) ? How about NASA or Wikipedia :) ? LOL
TedSwippet
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Re: Interactive Brokers: domicile, insurance, taxes

Post by TedSwippet »

bluejeansman wrote: Fri May 17, 2024 2:38 pm - I am a UK naturalized citizen and resident for last 20 years. If I pass away today, will the US UK estate tax treaty provide cover to $11 million or so ?
US estate tax treaties usually turn on your domicile. Domicile is a slippery concept, with no bright-line test (unlike residency, then), and worse, varies from country to country, but if you are -- by whatever passes for some set of rules -- "domiciled" in a US estate tax treaty country then you have cover from that treaty. The UK has a US estate tax treaty. India does not. (And neither does Dubai, before you ask!)

If you're still domiciled in the UK, you get cover from the US/UK estate tax treaty.
bluejeansman wrote: Fri May 17, 2024 2:38 pm - otoh If I move to India and then pass away, will it be covered only up to $60,000 ?
This is where things turn interesting. The US/UK tax treaty has a special clause, one that I've not come across in any other US estate tax treaty, that appears to cover UK citizens up to US citizen level exemptions but without particular regard to domicile; instead it refers to "United Kingdom nationals" (essentially, UK citizens). From the horse's mouth:
A special exemption rule under Article 8 (Deductions, Exemptions, Etc.) of the Treaty allows a U.K. citizen, who was neither a U.S. resident nor a U.S. citizen, who has taxable property in the United States to limit U.S. estate tax to the amount of tax that the U.S. could impose on such decedent if such decedent were treated as a U.S. resident immediately before death.
If you're going to rely on this, which is what you might have to do if you move out of the UK, you'll want to take proper advice on it. Do not under any circumstance rely on me. I'm an amateur.
bluejeansman wrote: Fri May 17, 2024 2:38 pm - Is it the citizenship or domicile of the deceased Non resident alien that comes into question ?
Usually the domicile. Although the weird case of the UK above also appears to encompass citizenship.
bluejeansman wrote: Fri May 17, 2024 2:38 pm - I am not even sure what my domicile is. It is supposed to be the country where "you wish to die". Well, I dont want to die :) As Woody Allen said — I don't want to achieve immortality through my work; I want to achieve immortality through not dying :)
As above, slippery. It hinges on subjective things, such as your future intentions. For some people it's clean and clear; for others, it's remarkably woolly.
bluejeansman wrote: Fri May 17, 2024 2:38 pm - If I write a will, will that help get around this so that IRS does not confiscate US situs assets ? : All your things are belong to us :)
Not in and of itself. You'd have to write the right type of will, so that assets held in each country escape their respective estate/inheritance taxes ...
bluejeansman wrote: Fri May 17, 2024 2:38 pm - Would it make a difference if I wrote a will where the beneficiaries were charities ? How about American charities ? How about my alma mater (A US University) ? How about NASA or Wikipedia :) ? LOL
... such as, perhaps, something like this. Although again, don't take my word for this. All of this discussion has moved well outside my limited knowledge base.
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Re: Interactive Brokers: domicile, insurance, taxes

Post by glorat »

bluejeansman wrote: Fri May 17, 2024 2:38 pm Still havent got my head around US estate tax. All my US assets are US domiciled : ETFs, mutual funds (stocks, bonds, money market), Nasdaq company shares, money market funds totalling $ 1 million
Ted's given the best answer you're going to get from an internet forum. Given the murkiness involved, it seems worth trying to find a way to exit US domiciled assets and make them non-US domiciled (i.e. Ireland domiciled) assets. You're probably not dying soon so there ought to be a way to optimise your capital gains allowances to execute this over time.
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Re: Interactive Brokers: domicile, insurance, taxes

Post by seajay »

glorat wrote: Fri May 17, 2024 8:07 pm
bluejeansman wrote: Fri May 17, 2024 2:38 pm Still havent got my head around US estate tax. All my US assets are US domiciled : ETFs, mutual funds (stocks, bonds, money market), Nasdaq company shares, money market funds totalling $ 1 million
Ted's given the best answer you're going to get from an internet forum. Given the murkiness involved, it seems worth trying to find a way to exit US domiciled assets and make them non-US domiciled (i.e. Ireland domiciled) assets. You're probably not dying soon so there ought to be a way to optimise your capital gains allowances to execute this over time.
Both the US and the EU (that includes Ireland) have more recently sought to confiscate/redirect assets. Having accumulated significant capital gains enforced sales/moves might be a expensive operation. Optimizing CGT allowances should also incorporate consideration of liquidity - reducing the potential cost of having to sell/move entire holdings in a particular region/country at any single point in time.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

TedSwippet : Terrific response ! simply amazed at the level of research you have done on this. Interesting subtlety about "UK national". But what you quoted has a clause "who has taxable property in the United States " which I dont have. At any rate, this is professional advice territory.

Glorat : There are a few problems in exiting the US domiciled assets. They are :
0) CGT allowance is quite low in UK these days.
1) $140,000 gain in VTSMX which does not have UK HMRC distributor status. The gain will be taxed as income.
2) $60,000 gain in things like VTI, VEU which does have UK HMRC distributor status.
3) Former employer company stock gain of $200,000

Regarding 3, I will keep selling as it gets too frothy and becomes a bigger portion of my portfolio. Right now it is 15% of my stocks allocation and 5% of entire portfolio. I will keep selling but still keep some powder to fire

Regarding 1 and 2 the funds are not a true world ETF but still almost as good as VWRD/VWRA. US Domicile is the only reason to get out of them. I may be tax resdent in both UK and India this financial year 2024-2025. India tax is not bad on 1,2,3 : 20%. I am not employed in UK so far this year. I get a health problem only in UK so trying to delay the trip. So if I am unemployed in UK, then the "income tax" on (1) will not be so bad

I guess I am possibly looking at about 0.2 * 400 = $80,000 cost. Thinking of moving to Dubai for a year so I avoid tax residency in UK and India to get out of this problem tax free but living costs in Dubai itself might be $40,000 per year. Ideally if I get a job in Dubai or Singapore that might be one way.
Both the US and the EU (that includes Ireland) have more recently sought to confiscate/redirect assets. Having accumulated significant capital gains enforced sales/moves might be a expensive operation. Optimizing CGT allowances should also incorporate consideration of liquidity - reducing the potential cost of having to sell/move entire holdings in a particular region/country at any single point in time.
seajay, could you please elaborate ? It went over my head. Am I likely to face problems liquidating my US holdings in ETrade, Vanguard, Morgan Stanley and getting them out to say Charles Schwab international / Interactive brokers ?

Thanks !
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Re: Interactive Brokers: domicile, insurance, taxes

Post by TedSwippet »

bluejeansman wrote: Sun May 19, 2024 1:13 pm TedSwippet : Terrific response ! simply amazed at the level of research you have done on this. Interesting subtlety about "UK national". But what you quoted has a clause "who has taxable property in the United States " which I dont have.
In this recent post you say that you hold US 401K, IRA, and Roth IRA accounts. The US treats these accounts as 'US situs' for its confiscatory estate tax, no matter what you happen to hold internally within them.

Do you plan to empty these entirely before moving to India or Dubai? If not, then even if you move everything else out of the US, you will have a residual, and potentially hard to handle tax-efficiently, (US estate-)taxable property in the US. In which case, cover from a UK estate tax treaty as a 'UK national' may well be useful. Perhaps even crucial.
bluejeansman
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Tedswippet, No, I do not have a US 401k/IRA. I completed Roth conversion many years ago while resident in the UK.

I mentioned 410k/IRA in viewtopic.php?t=431791 for completeness (you could say academic interest), so that the India tax treatment of all these buckets are addressed in a single post.
Do you plan to empty these entirely before moving to India or Dubai?
No I do not want to empty them out when I am UK resident or India resident. I would prefer to do it whilst tax-resident in a place like Dubai for obvious reasons.
you will have a residual, and potentially hard to handle tax-efficiently, (US estate-)taxable property in the US
When you use the word "property" as in above, you are referring to 401k not residential property, correct ? Well I dont have a 401k/IRA so that settles that.

Thanks.
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Re: Interactive Brokers: domicile, insurance, taxes

Post by TedSwippet »

bluejeansman wrote: Sun May 19, 2024 2:49 pm No, I do not have a US 401k/IRA. I completed Roth conversion many years ago while resident in the UK.
... Well I dont have a 401k/IRA so that settles that.
These two statements seem to contradict each other. Either that, or you closed out the Roth IRA entirely after completely converting? If not, well, a Roth IRA is still an IRA. If yes, why?
bluejeansman wrote: Sun May 19, 2024 2:49 pm When you use the word "property" as in above, you are referring to 401k not residential property, correct ? Well I dont have a 401k/IRA so that settles that.
I didn't use it; the IRS did, and I quoted them. 'US situs' "property" is many things, including but not limited to US real estate.

US Estate Tax for non-American owners of US assets - Buzzacott LLP
As a non-US domiciliary, you’re taxed on the value of your US situs assets. Here are some of the most common US assets subject to US Estate Tax:

US situs real estate property
Shares in US corporations
Tangible personal property
Interests in partnerships that do business in the US
Partnerships or trusts that own US situs assets
Bank accounts connected to a US trade or business (but not personal bank accounts)
US pension plans such as IRAs or 401ks
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Re: Interactive Brokers: domicile, insurance, taxes

Post by bluejeansman »

Tedswippet, thanks again.
These two statements seem to contradict each other. Either that, or you closed out the Roth IRA entirely after completely converting? If not, well, a Roth IRA is still an IRA. If yes, why?
Ok, I used the word 'IRA' to mean 'Rollover IRA'. I should have been more specific.

So, yes, I HAD Rollover IRA with Fidelity and Vanguard. But I finished all Roth conversions in Dec 2019. So, at this point I do not have a Rollover IRA. I only a (substantial) Roth IRA with Vanguard and a (small : $3000) Roth IRA with Fidelity. I maintained 2 accounts just in case one shuts the door.

I have not closed out the two Roth IRAs just yet. If I am UK resident on/after 2025 I may just do it and take the 10% hit (I'm 55). It may be higher than 10% for early withdrawal, not sure. I need to read up Roth 5 year rule, taxes on earnings etc. If I am India resident, Roth closure / withdrawal may become a nightmare. If health permits and if I go back to UK, I may just take it all out post 60.

Yes, Roth IRA is an IRA. Agree. Great clarification thank you. On a positive note, UK nationality and US estate tax looks promising.
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