FOR US CITIZENS LIVING IN THE UK
American in the UK? A service engineered for clarity
FCA
FCA Authorised
Independent
Fully independent advice
Independent
Fully independent advice
FCA
FCA Authorised
Navigating the complexities others fear to tread
With over 25 years of experience between us advising US citizens resident in the UK, and others facing multi-jurisdictional challenges, there is a reason we are the go-to financial planners in this field. Our expertise in financial planning and comprehensive wealth management for US expats in the UK is reflected in the testimonials from our existing clients.
As a general rule, US citizens are assessed on their worldwide income, irrespective of where they live. Many double taxation conventions contain what is known as a "saving clause", which allows US citizens resident in other countries to be taxed on the basis of citizenship.
There are many challenges and complexities that US expats in the UK need to understand.
Passive Foreign Investment Company rules (PFICs)
Investing in non-US domiciled ETFs, unit trusts or other types of collective investment results in additional IRS reporting, which also costs you more through tax adviser fees, higher tax paid, and possible penalties if not reported in time. At N2 Asset Management, all portfolios, including those for personal pensions, are made up of non-PFIC investments.
Personal pension contributions
Personal pensions are seen as foreign grantor trusts for US taxation, which means there is only UK tax relief and no US tax relief on contributions, although there could be enough foreign tax credit that no additional US tax would be paid. The gains and income of the trust are reportable to the IRS and would be taxable in the US. There is, however, a double taxation treaty between the US and the UK which allows the US taxpayer to defer the tax. This decision needs to be taken based on personal circumstances.
US Social Security and the UK State Pension
The interaction is complex when people have earned benefits in both countries. You could be paid benefits from each country, or there may be cases where you use the social security agreement between the US and the UK, sometimes known as the "totalisation agreement", and receive benefits from only one country.
UK reporting funds
Most US domiciled ETFs and unit trusts are not reporting for HMRC purposes, and as a result realised gains are not subject to the lower capital gains tax rates but to the marginal income tax rate, which is a lot higher at 40% and 45%. Portfolios made up of US domiciled ETFs, held to meet the non-PFIC rules, therefore need to be constructed carefully from reporting ETFs.
Sale of a UK main residence
US citizens are taxed on the gains from selling their UK main residence, although an exemption of $250,000 will apply.
Claiming the arising basis or the FIG regime
The Foreign Income and Gains (FIG) regime enables qualifying new residents to claim UK tax relief on foreign income and gains arising during their first four years of UK residence.
Becoming a UK long-term resident and subject to UK Inheritance Tax
The matter is complex, but as a rule, once you have been resident in the UK for ten years and are treated as a long-term resident, your worldwide estate becomes subject to UK Inheritance Tax on death. Funds settled in discretionary trusts, including non-UK trusts, where the settlor becomes a UK long-term resident, will also become subject to the ten-year periodic charge of 6% on the amount above the nil rate band, currently £325,000.
Other common issues
There are other issues, such as letting your US credit score lapse by not using US credit cards, assuming US trust and estate planning works in the UK, and neglecting to make UK National Insurance contributions.
This information should not be considered UK or US tax advice.
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What to expect when working with us
Financial planning with N2 follows a clear path — from an initial conversation to a written plan built around your life, and an ongoing relationship that keeps it on track as things change.
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What our clients say
"Eugen delivered calm, professional guidance that gave me clarity and confidence. Eugen has a very good understanding of the US and UK legal and tax issues regarding international divorces and I now have a plan I trust and a much stronger sense of financial security."
— Verified client, Surrey
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"Eugen and team build a view on of our financial acumen and situation, and from there, provide guidance which is accessible (at our level) to us, practical, and considered in context of macro economic and political dynamics influencing long term investments."
— Verified client, London
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