Repatriation from USA

fizio

I couldn't find the correct forum so thought I would ask here as a starter. A friend is moving back to the UK after 20 odd years in the USA and is looking for help with all the financial stuff given the move will be permanent and involves investments/house/401k etc and no doubt will have many tax implications. They expect to pay for a service to facilitate all this but I am struggling to see what kinds of company does this sort of thing. I have come across large companies such as gsb capital but suspect they will be piling on the charges as well. Any pointers appreciated 

EdSwippet

The area of international finance advisers appears to be heavily shark-infested water. I would start by doing as much of the groundwork as possible before even thinking about selecting a professional. This will be the best way to separate the good from the incompetent from the downright evil.

Is your friend a US citizen? If yes, then they are yoked to the US tax system for life (or at least, until they renounce their US citizenship). If not, are they a green card holder? If yes, then make certain to ditch the green card using form I-407, otherwise they again remain yoked to US taxes forever.

Beyond this, spend some quality time with the US/UK tax treaty; this will help sort out 401k and IRA questions, and anything to do with cross-border interest and dividends. Beware of the US FIRPTA law for nonresident aliens who sell US real estate, and also the US's limited $250k/person CGT allowance on primary residence gains otherwise. On the UK side, FATCA could be a huge issue if a US citizen or green card holder; because of it, many UK banks and investment platforms now refuse accounts outright for US citizens and other US 'taxable persons'. Note that the UK does not 'step up' an asset's cost for CGT purposes on becoming a UK resident. Finally, be aware of the UK 'reporting status' rule for foreign and non-UCITS funds and ETFs. A decent number of Vanguard's US domiciled ETFs have UK 'reporting status', but outside of these the choices may become a bit more patchy and limited.

bostonerimus

I would point them to the uk-yankee.com tax forum

https://talk.uk-yankee.com/index.php?board=11.0

A knowledgeable tax professional who can help is David Treitel at

http://www.americantaxreturns.co.uk/

If your friend has a 401k, ROTH, IRA etc it's probably best to leave them where they are and talk to the investment company about how to access the funds from outside the USA. If there are issues you can roll them over to a friendlier provider. Such retirement accounts are well covered by the US-UK tax treaty.

Your friend's citizen status is important. If they are a dual US-UK citizen the situation gets more complicated. If they are a Green Card holder they should make sure they relinquish it to cut US tax ties and then they can repatriate their money to the UK and invest it there without worries. If they are a US citizen they have to comply with US tax rules even as a UK resident.

I'm a US/UK dual citizen and have a plan to return to the UK that I can set in motion relatively quickly. I was primed to go in Nov. 2020...

1) I have a real estate agent's number in my phone and I will sell the house asap. I have already decluttered the house and given lots of stuff to charity.
2) I have a few international moving/relocation companies ready to give me quotes on a container of stuff and storage.
3) I have talked to my investment companies and they are all ok with me making withdrawals from my accounts in the US and have set them up to be ok for UK tax purposes ie accounts outside tax advantaged pension wrappers will all be in Vanguard ETFs with UK reporting status. I have researched the tax implications, but will probably go to a tax professional to do the first few tax returns. I have also checked that once I move out of my current state I won't have to file state tax returns.
4) I have my US bank account and the security verification set up so I can transfer money to a UK. So pension deposits will continue being made to the US bank and will then be forwarded to the UK. I will open a UK account once I am there. The new online accounts like WISE might be a good way to go.
5) I have an online account with SSA so I can apply for Social Security and maybe Medicare easily.
6) I know the general area I want to live in the UK and I'm familiar with the cost of housing. I plan to rent or even just stay in a hotel for a few months while I look for a house.
7) I have a US will and will get a UK one made when I arrive and look into cross border planning more deeply.

fizio

The person involved is green card and not US passport holder and remained UK citizen, The plan is to exit US and cut as many link as possible. A US accountant is already engaged due to slightly complex finances such as property income from a UK BTL while being resident in the US etc

Bostoner, the situation is very similar to yours in that the exit is planned for this year with house sale around mid-year and full move at year-end. It may be a coincidence (based on your handle) but person is relocating from Boston. Hope you don't mind if a message you as you are ahead of the game and can maybe help us avoid some pitfalls.

bostonerimus

fizio said:

The person involved is green card and not US passport holder and remained UK citizen, The plan is to exit US and cut as many link as possible. A US accountant is already engaged due to slightly complex finances such as property income from a UK BTL while being resident in the US etc

Bostoner, the situation is very similar to yours in that the exit is planned for this year with house sale around mid-year and full move at year-end. It may be a coincidence (based on your handle) but person is relocating from Boston. Hope you don't mind if a message you as you are ahead of the game and can maybe help us avoid some pitfalls.

Sure, go ahead.

Not being a US citizen makes tax and investing a bit simpler.

OldMusicGuy

I repatriated from the US in 1999 after 3 years working there. There weren't any major tax implications, although I didn't have any investments to worry about nor a house to sell in the US. I used my US accountant to prepare the US tax return for my final year there and kept in touch with him, but there wasn't anything I needed to do after I came back to the UK. I left the 401K invested until I was able to take it (you have to be 59 and 1/2 or older) and used it to part fund my early retirement.

I found everything I needed to know about the options for taking the 401K by reading the UK/US tax treaty and frequenting the forum mentioned above. Dealing with the 401K provider was a bit painful but I managed the whole process myself, including filling out the tax return needed to reclaim withholding tax and also pay US income tax on the withdrawal (which I did as a lump sum). It wasn't difficult.

bostonerimus

OldMusicGuy said:

I repatriated from the US in 1999 after 3 years working there. There weren't any major tax implications, although I didn't have any investments to worry about nor a house to sell in the US. I used my US accountant to prepare the US tax return for my final year there and kept in touch with him, but there wasn't anything I needed to do after I came back to the UK. I left the 401K invested until I was able to take it (you have to be 59 and 1/2 or older) and used it to part fund my early retirement.

I found everything I needed to know about the options for taking the 401K by reading the UK/US tax treaty and frequenting the forum mentioned above. Dealing with the 401K provider was a bit painful but I managed the whole process myself, including filling out the tax return needed to reclaim withholding tax and also pay US income tax on the withdrawal (which I did as a lump sum). It wasn't difficult.

It gets more involved the longer you've been in the US. I almost left after 4 years, but met my ex-wife and now I've been in the US for just over 30 years. If you have to sell a house and move a lot of stuff it's probably good to employ an international relocation firm. As the OP is a GC holder I'd advise that they get all their investments outside of tax advantaged wrappers and pensions out of the US to simplify taxes, but keep a US bank account just in case.

OldMusicGuy

bostonerimus said:

It gets more involved the longer you've been in the US. I almost left after 4 years, but met my ex-wife and now I've been in the US for just over 30 years. If you have to sell a house and move a lot of stuff it's probably good to employ an international relocation firm. As the OP is a GC holder I'd advise that they get all their investments outside of tax advantaged wrappers and pensions out of the US to simplify taxes, but keep a US bank account just in case.

I would disagree with taking pension investments out of the US. I liked the ability to have US$ investments that were different from those in my UK pension. There are no UK tax implications of holding a 401K, those only come into play when you make withdrawals, and I didn't find it that difficult to work out the different options. Depending on how you make withdrawals, they are either subject to US tax or UK tax, and the admin for either option isn't too complicated. Although dealing with the IRS from the UK is challenging, due to their lack of familiarity with the concept that some people actually exist outside the US.....

EdSwippet

OldMusicGuy said:

I would disagree with taking pension investments out of the US. I liked the ability to have US$ investments that were different from those in my UK pension. ...

Right. In practice, holding funds that themselves hold US stocks through a US 401k or IRA is more tax efficient than holding the same stuff in a UK SIPP or ISA. If held in the latter, they would have to be (PRIIPs!) through Ireland or UK domiciled funds, and so lose 15% of dividends to US tax, internal to the fund/ETF and unrecoverable. Holding instead through a 401k or IRA means you use US domiciled funds, so no US dividend tax withholding drag.

For additional credit, hold US stocks through a Roth 401k or IRA. No US dividend withholding tax and no UK tax either (treaty!). Bonus!

Do note thought that things have changed a lot since 1999. For example, the US now has a really nasty 'expatriation' tax that covers departing long-term permanent residents, and if caught it can tax your entire 401k, IRA and similar balance as if withdrawn entirely on the day of departure, even though not withdrawn at all. High potential for double-tax and destruction of retirement prospects there, then. Also FATCA, designed to track US taxpayers worldwide and forever.

bostonerimus

OldMusicGuy said:

bostonerimus said:

It gets more involved the longer you've been in the US. I almost left after 4 years, but met my ex-wife and now I've been in the US for just over 30 years. If you have to sell a house and move a lot of stuff it's probably good to employ an international relocation firm.  As the OP is a GC holder I'd advise that they get all their investments outside of tax advantaged wrappers and pensions out of the US to simplify taxes, but keep a US bank account just in case. 

I would disagree with taking pension investments out of the US. I liked the ability to have US$ investments that were different from those in my UK pension. There are no UK tax implications of holding a 401K, those only come into play when you make withdrawals, and I didn't find it that difficult to work out the different options. Depending on how you make withdrawals, they are either subject to US tax or UK tax, and the admin for either option isn't too complicated. Although dealing with the IRS from the UK is challenging, due to their lack of familiarity with the concept that some people actually exist outside the US.....

I advised that they only move investments outside of pensions ie leave 401k, 403b, 457, IRA etc in US because it would be a big tax and penalty fee hit to move them and they are well covered in the tax treaty