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Top Tips for Smart Living in the UK

Top Tips for Smart Living in the UK

A Guide for Newbies, Old Timers & the Curious

A Financial Guide for US Expats compiled from the 39 Steps to Smart Living

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Introduction

Been here forever? Just landed? Wherever you are in the course of your sojourn on the world’s ninth largest island, be sure of this: Your personal finances are top-of-mind for the busy public servants collecting taxes both here and back home. No need to get hacked off; our guide will help ensure your financial life in the UK is as jolly as can be.

Newbie

1

Ready to put down roots in the UK?

Get used to sticker shock. London is now rated the most expensive city in the world.

2

Living outside the city could save you serious cash

Though you’ll need to budget generously for commuting costs.

3

Welcome to the UK!

Good news: in your first 3 years here, with careful planning, HMRC will not currently tax you on your income earned outside the UK. Don’t let this creep up on you, plan for it in advance.

4

Beware the surcharge bandersnatch

If you accumulate funds for a downpayment in the US, HMRC may charge you up to 45% to move your money across the pond.

5

Think before you shut down all your American credit cards

US plastic isn’t always compatible with the European chip and PIN system, but a US credit history is a terrible thing to waste and you’ll want those cards for trips home.

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6

Be careful about falling in love with a British accent

Investing or transferring assets between yourselves can spell a tricky tax situation for bi-national couples. Seeking professional advice will keep you right.

Settling In

7

7 or 8 years into your relationship with old Blighty, you’ll start feeling the 7-year itch

This is when the finger of the UK authorities will suddenly claim a stake on your US portfolio, taxing it mightily and heavily. Don’t let this ruin your relationship with the UK, get yourself to therapy (or an informed tax adviser) to avoid paying too heavily.

8

For Heaven’s sake don’t forget your anniversary

Mark Year 6 on your calendar as a reminder to start planning your tax saving investment strategy.

9

Don’t forget to file your tax returns early

This can help ensure that you can deduct your paid UK taxes from your US returns for the concurrent year.

10

GOOD NEWS

Tax returns in the UK are much simpler than in the US. They are remarkably short, no-nonsense, to-the-point affairs. A bit like your new neighbors.

11

Another important thing to know is that mortgage interest paid on your primary residence is not tax deductible in the UK

However you can usually deduct the interest on your home abroad on your US return. UK mortgage lenders may offer short-term fixed-rate loans, but they’re usually more expensive than variable-rate.

12

Break out the dictionary: Learn the difference between a PFIC, ISA, and SIPP

There are more languages spoken in London than any place on the planet. Time for you to learn a bit of the financial lingo if you want to save efficiently. For the record: PFIC stands for Passive Foreign Investment Company, or, in plain English, the foreign version of a mutual fund-like vehicle. ISA stands for Individual Savings Account. It comes in a child’s flavor known as a Junior ISA. An ISA grows tax-free from a UK perspective and proceeds come out tax-free. Beware: US authorities look ‘inside’ ISAs and tax the underlying investments annually. SIPP stands for Self Invested Personal Pension, and is similar to an Individual Retirement Account in the US.

Long-term Sojourner

BA NK OF EN GL AN D
13

You’ve learned how to drive on both sides of the road

It’s time to learn how to calculate taxes in both currencies. The IRS and Oanda are good ports of call for checking exchange rates, but if in doubt consult an expert.

14

Trust us, you do not want the wrath of the tax authorities visited upon you

The new law on overseas assets -Foreign Account Tax Compliance Act (FATCA) requires banks to report on all earnings of their American guests. Keep good records; do not try to hide assets. It’s not worth it.

15

Now for the Monty Python accounting alert

The Knights Who Say Ni cannot protect you from FATCA. Now that you are a resident, HMRC will apply your personal income tax rate (aka offshore income gains) to your US fund holdings; the capital gains rate will apply only if the funds have UK reporting status. Ni! cannot spare you this attack on your gains.

16

Be warned: Giving up your US passport is costly

You’ll get slapped with exit taxes if your net worth exceeds $2 million. You also lose the might of Uncle Sam. Consider the story of power lawyer William Browder – the man who stood up to Putin. The State Department wasn’t so interested in helping him in his civil rights battles with Russia once he renounced his citizenship.

17

Divorce rates in London are among the highest in the world

We hope you won’t become part of that statistic, however, if you do, you’ll find British courts function differently from those in the US. Our ‘Stepping Towards A New Life’ series can help you understand what to expect.

18

As you build your nest egg, cast your investing net far and wide

Surprisingly, whether you use dollars or pounds from your paycheck to invest isn’t your principle currency risk. Rather, it can be hidden in your cash accounts and in the payment streams you will rely on in retirement. Experts wrestle with this topic. You won’t need to. For more information, read our whitepaper on currency risk. It’s written in Plain English.

19

Do you see yourself in your golden years kicking back on the barcalounger to watch Graham Norton or Jimmy Fallon?

You need to consider saving for retirement in the currency you are likely to use most often, so you won’t be checking the foreign exchange rate every hour on your smartphone.

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20

You always assumed you’d return to the US to be with family

But the family has scattered, your kids have become supra- nationals, and meanwhile, your roots are burrowing deeper into British soil. Odds are that your retirement portfolio should be a blend of currencies to take into account the way you really live.

The Great Unwind

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21

On your 17th anniversary here the British authorities knight you as deemed domicile

Naturally the math on this is anything but straightforward. Only a tax expert can tell you how long you have really been here – just as only Bill Clinton can define the word “is.”
NOTE: in April 2017, the domicile rules will change and non-doms will meet this threshold after UK residency in 15 out of the last 20 years.

22

Once you are deemed domicile and the net value of your estate crosses £325,000 (about $550,000), you may be liable for UK inheritance tax (40% on your global assets)

You might want to consider structuring your assets outside the UK inheritance tax net. Protecting your estate from heavy inheritance tax will take serious care and deliberation - make sure you seek professional help to avoid leaving your family with less than you’d bargained for.

23

To your kids and the IRS, you’ll always be an American

If you sell your main residence, the IRS will send you a bill for the capital gain, but, cheers, currently HMRC will not.

24

What do you want to be when you grow up?  Where will you live?

When you head into retirement, the questions you thought you had resolved years ago suddenly crop up again. It’s time to make a new budget. For American expats, this comes with a twist: Will future estate taxes influence where you officially call home? Or will you select a place you simply love, taxes be damned? We can’t say which choice is right for you – but we can help you understand how to make conscious choices. So if you decide that California will be your residence for the golden years, you may need to sever some ties here. Unfortunately, HMRC may consider you a UK resident if you hold on to your golf club or gentlemen’s club memberships. Pity.

Find Out More

These top tips are a selection from our 39 Steps to Smart Living in the UK.
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The information provided represents our understanding at the current time. The tax treatment depends on the individual circumstances of each client and may be subject to change in the future in line with any regulatory and statutory changes.