American Expat Finance Question and Answers
Liz from British American Tax has given us some A’s to your Q’s about American Expat Finance, check it out below.
Q: Property and selling property in the UK when one of the property owners is American. We are interested in hearing more about tax implications with our property when we come to sell it and if there are any exemptions to our tax requirements to the US.
A: Tell us six months before the sale! We’ll figure your US capital gains. If tax will be due, gift a part of the house to your spouse.
Q: What do I need to know about buying property in the UK?
You get the mortgage AFTER you find the house, not before.
Q: How do tax codes work
A. That’s your boss’s bookkeeper who has to deal with that. You can ignore them.
Q. Can we take pension if we move abroad and legalities around investing
A. Yes, do… but be prepared to make a treaty claim under the US UK income tax treaty article 18 so that you don’t get taxed on the income and contributions. Other countries have different treaties or no treaty at all, so always check before contributing to any other country.
Q. What are the most important financial issues to be aware of as an expat moving home to the US?
A: The US is still taxing you.
The US has penalties for failure to file “information” forms.
Those penalties start at $10K and go up.
So! File your FBARs, your 8938s, and if you start a business venture, before you do so, contact a dual qualified tax specialist who can tell you whether to go as a UK limited company, a UK partnership, a US company, a company in some third country, or whatever.
Q: What do we need to know about joint filing once we get married? (Wife US Citizen, Husband foreign national)
A. Do if he has a greencard.
Don’t if he doesn’t have a greencard.
Instead, you can be Head of Household since your spouse is an NRA!
Or you can be MFS if you have no children.
Either way, your spouse gets to invest in lots of things you don’t and he can sell your house for no tax. Keep him free of the US tax net for as long as you don’t live in the US.
Q: Implications of holding a UK pension long-term
A. Don’t take money out without getting advice first. Six months in advance is a great rule of thumb.
Q: How to maximize my budget as I get paid in USD
A: If you are an employee, then for the first two years deposit your checks into a US bank account and only send over what you need. This saves you tax in the first two years you are here.
Use TransferWise to move your money from your US bank account to your UK bank account.
Never send over more money than what you earned. Never. That includes using your US credit card in the UK.
Q. What is the impact of new tax rules?
A. You can’t deduct the cost of a move if you pay for it yourself. Get your boss to pay.
If you’re an employee, you can’t deduct your work expenses any more. Get your boss to pay.
You need a Mensa IQ or a PhD in taxation now if you own a UK limited company. Pay somebody to do it for you. That person should know both US and UK tax, not just US and most definitely not just UK.
Q. What approach do you suggest for saving and investments if you’re unsure which country you’ll wind up in?
A. Save. Save. Save. Save whatever way lowers the tax in the country you live in now. You can always move your money later. Thus, here in the UK it’s UK pensions, then ISAs, then in non-pension things like real estate, stocks, and whatever else floats your fancy.
Q. How can we safely invest in ISA’s without incurring US tax liabilities?
A. Invest in actual shares of stocks rather than funds. Most investment brokers won’t let you. You’re down to bank ISAs that invest in savings accounts. You’re better off putting it in your pension. There are workarounds you can do but investment brokers require a large amount before you can do the weird stuff.
Q. What’s the best way to optimize retirement saving while in the UK?
A .Put in what your accountant tells you is the maximum – not the investment broker! Your maximum is hindered by your gross income. If your gross income is £20K, you cannot put in £40K. Your accountant can help you craft the absolute maximum.
What are tax implications of starting a business in the UK?
A. If it’s a limited company and a “passive” business, file a Check the Box form to treat it as a disregarded entity within 30 days of setting it up. “Passive” is things like real estate rentals and holding companies that own other companies.
If it’s a limited company, and you own now or will one day own > 50%, file a Check the Box form to treat it as a disregarded entity within 30 days of setting it up.
If it’s a limited company, and you own now or will one day own ≥10%, but it won’t go over 50% and it isn’t a passive company, you have to file a 5471 form in any year your ownership goes above or below the 10% mark.
Q. Possible to take advantage of ISAs?
A. Absolutely. Just not as awesome as filling up your pension pot.
Q. How can I be most efficient with how I save, invest, keep money in different currencies in the time of brexit, and minimise impacts of living in the UK
A. This is an investment question rather than a tax one. Others can advise on this.
Q. What to do about Health Insurance
A. For the UK, you can buy it if you want it. What that does for you is allow you to skip ahead to the front of the queue in waiting times for bad things like operations and rehab after. If you don’t get any, it’s still all free. For example, in my case, going private or NHS I would have had the same doctor, same hospital, same surgery… but it was a 12 week waiting list on NHS and a few days later by going private.
Q. Should I start a pension fund in the US if there is a possibility of returning to settle?
A. Sure! But max out your UK one first, especially if your employer matches your contributions. The UK makes it easier to contribute larger numbers than the US does so you may prefer the UK for that reason too.
Please note this is education not advice for individual advice we suggest you see the experts like Liz Zitzow from British American Tax or Kris Heck from Tanager Wealth Management.