Making a transatlantic move to the US can be an exciting but a financially challenging endeavor. To help you minimize the financial challenges of a transatlantic move, consider these six important financial factors.
Individual Savings Accounts (ISAs)
ISAs are not recognized as tax-free by the US Internal Revenue Service (IRS). Interest earned in Cash ISAs and dividend income from collective investments and individual stocks in Stocks & Shares ISAs will be taxed by the IRS. Futher gains in investments will also be taxed and may well be PFICs (see next).
Passive Foreign Investment Companies (PFICs)
A PFIC is a collective investment that does not conform to the US Investment Company Act of 1940. Simply put, non-US collective investments or funds may be subject to additional taxes for US taxpayers. It is important to review what investments and funds you are holding in your ISAs and taxable investment accounts.
Have you consolidated your personal and employer pensions before moving? Can your pensions and their investments be managed from abroad? A common issue we find occurs when US residents start consolidating legacy pensions only to find that UK pension companies have strict internal policies that prohibit them from working with US residents. At worst you will be told that your pension will pay out to your nominated bank account when you reach UK retirement age (currently 66 for both women and men) at best you may be able to work with a UK-based IFA who can help you consolidate your pensions. It is definitely worth reviewing this before you leave the UK.
Foreign Bank Account Reporting (FBAR)
Once you are resident in the US you will need to begin providing information on your non-US bank accounts with balances in exceeded $10,000 at any time during the reporting period. Consider consolidating your UK bank accounts to make reporting easy, and make sure the account you select can be easily accessed from the US. Some banks make it more difficult than others.
Note the different tax years between the US and UK, and be prepared to potentially file two tax returns (one US and one UK). The US also operates a different system where you are obliged to file a tax return, regardless of your income and asset level, as opposed to the UK where PAYE means that many people do not need to submit returns to HMRC.
You will have enough on your to-do without thinking about potential tax-traps that could occur from your life savings. However, it’s extremely important to spend some time thinking about what you have, how the accounts and holdings are positioned and the tax impact once you’ve moved.
Foreign Currency (FX)
The pound sterling / US dollar exchange rate, often referred to as “cable”, will become an obsession. Two tips: first, ensure you avoid high charging banks when planning to convert lump sums to support your new US dollar lifestyle; second, do not delay making investment decisions based on the current exchange rate. Plan for two years of cash flow and ensure you remain invested. Exchange rates fluctuate wildly over time and no one has a crystal ball to predict where they will move.
In summary, planning ahead of time will save you a lot of additional administration and potentially additional and unnecessary tax payments and other costs.
If you can’t engage with a suitably qualified US and UK Wealth Advisor who is also authorised and regulated to provide advice in both jurisdictions prior to moving, then consider the impact of the above, do your research on the tax treaty and try to position yourself appropriately. And finally, make sure you are not moving without taking action yourself, or without being aware of the impacts of your current structure.