Moving to a new country can be exciting and at the same time overwhelming. There are many new undertakings, including finding a new home, schools for the children and forming new friendships. It is all too easy to leave some of the financial, legal and tax implications for another day, but the cost of delay can be high. Here are the top three planning areas to address when moving either side of the pond.
Review your Investments – Do not assume your investments retain the same beneficial tax status in each country. The most common UK investments, including ISAs, are treated as Passive Foreign Investment Companies (PFICs) by the IRS. PFICs are tax inefficient investments, and typically income and gains are taxed at the highest rate of US income tax. On top of this, annual US reporting requirements can be tricky as most UK investment firms do not provide the required information that is necessary for US tax reporting. If you wish to retain assets in the UK, there are non-PFIC investments available that provide an annual 1099 for US tax reporting.
The same is true for US mutual funds held by UK residents. Unless these funds have UK Reporting Status, all gains and income are taxed in the UK at the individual’s highest rate of income tax. Also, like PFICs, you cannot offset or carry forward any capital losses.
International Estate Planning – If you hold assets in the UK and USA, you should have a will and power of attorney (POA) for each country. Many people assume a will and POA in one country will be recognized in the other. The UK and USA, however, have a different legal system and process for power of attorney. Work with an estate attorney who possesses an understanding of cross border law as your wills in each country need to acknowledge each other so as not to supersede each other. Country-specific wills are especially important to ensure your families are not left in a vulnerable position and your wishes are followed.
Report Foreign Assets – Having bank accounts in both countries is extremely useful for those who travel between the two. Keep things simple, consider consolidating accounts into one in the country of origin and inform the bank you are living in another country. American taxpayers, be aware you have an annual reporting requirement for all foreign bank accounts if the aggregate values of your bank accounts exceed $10,000 at any point in the year. Each account is reported via the Foreign Bank Account Report, (FBAR) and there are significant penalties for failing to file.
There is an additional US annual reporting requirement for all foreign financial assets where the total value of these assets exceeds $50,000 at the end of the year, or $75,000 at any time during the year, for individuals, and double these thresholds for married couples. If you exceed these,
If there is anything in this article you would like to discuss further please contact me via the details below. For any tax or legal advice we can refer you to a cross border specialist if required.
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