The Timeline of a US Expat Living in the UK: Part 1
Pre-arrival: What can you do before coming to the UK?
One of the things I have become increasingly sure of over the past few years is that I have no ability to predict the future. This even applies to things we think we have a fair degree of control over - like the direction of our own life.
The unpredictable twists and turns of life
Life is full of funny little unpredictable twists and turns that end up changing the entire direction of your life.
In the fall (autumn for you Brits) of 2014, I thought I knew what the next few years of my life would look like. I was living in Baltimore, Maryland (yes, the same Baltimore from the acclaimed show The Wire), had just bought a small starter home in the city, was comfortably close to family and friends, and had a stable job at a great investment firm. I thought I had it all mapped out.
Then I met my (now) wife who, luckily for me, was visiting from England for a few months. And just like that life changed forever.
Fast forward two years: we were engaged and planning a move to London. Jump forward another few years, and I find myself living in the English countryside about 100 miles north of London.
Six years ago, sitting at one of my favourite Baltimore spots (Thames Street Oyster House), could I have predicted that I would be married to a Brit with an array of farm animals as neighbours? Not a chance.
One might assume I thoroughly researched everything I needed to know and do in order to move my financial life over to the UK. After all, I’ve spent my career helping people build and execute sensible long term investment plans.
The old saying ‘do as I say not as I do comes to mind’.
Anyway, I did what most people do when life is moving fast and financial decisions are on the line…nothing.
At this point, a bit of background on the UK tax system is probably helpful.
The UK tax year runs from 6th April to 5th April.
The UK has a residency based taxation system meaning that it taxes all individuals who are considered tax resident in the UK for the tax year in question, regardless of citizenship.
As a non-UK domiciled individual, you have the option of being taxed on all worldwide income and gains (called the Arising Basis) or you can be taxed only on UK source income and gains and certain assets you bring into the UK (called the Remittance Basis).
The Remittance Basis is ‘free’ for the first 7 years and costs between £30,000-£60,000 per year between years 8-15.
Beginning in your 16th tax year, you are broadly taxed in the same way as someone who has lived in the UK their entire life.
What can you do before you move?
With the benefit of hindsight - and working closely with many people who have moved from the US to the UK - I can tell you what I should and could have done to help you avoid some common mistakes expats make before moving over.
1. Figure out the date you will become officially tax resident in the UK
Knowing the date you will become (or became) tax resident in the UK is the starting point to understanding the potential planning opportunities you have available to you.
In most cases, this will be the start of the tax year in which you move to the UK.
Depending on your circumstances, you may be able to receive ‘split year treatment’ to be considered tax resident on the day you arrive in the UK or even to delay becoming tax resident until the next year. You should speak to an accountant if you think you may be in this position.
2. Setup new account structures
Work with your bank and existing investment manager to setup new account structures that preserve your ability to bring assets into the UK without having to pay additional tax. This is one of the easiest and most often missed opportunities for basic planning before moving the UK.
It involves having an understanding of what assets you may want to bring to the UK in the future and separating original capital (clean capital) from any future income or gains that are produced.
3. Review your current ‘hats’ (caps)
Assess what current roles you are bringing over from the US that may cause adverse UK tax consequences. This includes if you are a current or pending trustee on any revocable or irrevocable trusts and an active member of any LLCs or family partnerships.
In addition, if you are the beneficiary of any US or foreign trusts, review the tax implications of current and future distributions with your accountant or lawyer to avoid potential double taxation.
4. Take stock of what you own
Have a good understanding of what assets (and liabilities) you own or have beneficial ownership over. This includes cash in the bank, property, investments, debt, and insurance - held outright in your own name or in trust.
It may make sense to sell or restructure assets that will be taxed inefficiently from a UK tax perspective once you move to the UK.
Fin
If you’ve made it this far, let me be the first to congratulate you!
Please reach out directly (contact information in the About page) or in the comments below with any questions or feedback.
Until next time.
Billy
(This has been part 1 in a series of posts on The Timeline of a US Expat Living in the UK)
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Disclaimer
All views expressed are those of Billy Mathews and do not represent the views of Brown Advisory. This material has not been approved or endorsed by Brown Advisory. It is not intended to be, and shall not be construed as being, investment or tax advice. Investment decisions should not be made on the basis of it. The information contained herein is based on materials and sources believed to be reliable, however, no representation, either express or implied, is made in relation to the accuracy, completeness or reliability of that information.