US Green Card Holder moving back to the UK (tax complications)

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CournalCrunch
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Joined: Thu Dec 31, 2020 1:45 pm

US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

Hi all,

Bit of a niche topic today, but I'm sure theres some knowledgeable people out there who have valuable input. Below is my situation, my current assumptions and then some questions I'd love some help on. As a caveat, I have a number of emails out to tax accountants for some professional help but want to understand the implications of some of my actions ahead of time given I'm on such a tight timeline (Explained below). Thanks in advance for all the help.

Situation: Moved from the UK to the US for college in 2008. Since graduation (2012) I have been living and working in the US full time, spending less than 90 days in the UK in any given year. I have been fully compliant with all US taxes but I did NOT submit any UK taxes (as I assumed I did not have to given I had no UK income). Nor did I ever officially confirm to the UK that I had moved abroad. I have always wanted to move back home, and just got a job offer to work in Scotland (starting March 1st) which I have accepted.

Assumptions: As far as I have read, given I was working full time in the US and have not been in the UK over 90 days in any given tax year, I am not required to submit any tax returns in the UK. As such from 2008 - 2019, I am in the clear having not done a return. However 2020/2021 will be a split year, with April 2020 - Feb 2021 being a tax resident in the US and Mar 2021 - April 2021 being a tax resident in the UK.


Questions:

1. Are the above assumptions correct or do I have a nightmare scenario of having to go back for 10+ years and adjust taxes in both countries

2. How should I think about my 401k, IRA, and general investments in the US. There seems to be lots of complexity involved with moving over retirement plans, as well as a lot of issues when incurring capital gains tax. I assume I may have to make some quick decisions before I move to the UK, either selling investments or liquidating IRAs. Any input on what seems like an expensive move would be very helpful. I have a fairly significant capital gains number given I was part of a successful technology company transaction in San Francisco

3. Would any of my capital gains before this tax year be affected by the move? If I need to take the hit by selling before I become a UK tax resident in order to not go back and redo capital gains taxes in all previous years in the UK, I think I would prefer that simplicity.

4. I know there are rules for bringing assets over to the UK. I do not necessarily "need" these assets immediately so am happy to leave them in the US for the time being, but I am not sure what the best strategy is in relation to this.

5. I am also flexible in terms of giving up my greencard officially, as I suspect I will not work in the US again. The 'exit tax' in the US seems quite aggressive, however as I have only been a Green Card holder since 2017 (working under a work visa prior to this) I am unsure whether I qualify

6. Finally, if anyone has recommendations on good dual code tax accountants they would be most appreciated

Thank you all for your input
TedSwippet
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by TedSwippet »

Welcome. Some notes below, based on firsthand experience, albeit somewhat over a decade ago.
CournalCrunch wrote: Thu Dec 31, 2020 2:02 pm 1. Are the above assumptions correct or do I have a nightmare scenario of having to go back for 10+ years and adjust taxes in both countries
As long as you are not resident in the UK, and don't have any UK source income, you don't need to file UK taxes. From the sound of what you wrote, you should be fine. No UK tax entanglements until you return to the UK to live.
CournalCrunch wrote: Thu Dec 31, 2020 2:02 pm 2. How should I think about my 401k, IRA, and general investments in the US. There seems to be lots of complexity involved with moving over retirement plans, as well as a lot of issues when incurring capital gains tax. I assume I may have to make some quick decisions before I move to the UK, either selling investments or liquidating IRAs. Any input on what seems like an expensive move would be very helpful. I have a fairly significant capital gains number given I was part of a successful technology company transaction in San Francisco.
Spend some quality time with the US/UK tax treaty. It treats your 401k and IRA well; tax deferred until withdrawal, then only taxable to the UK. Roths are respected also. I still have my IRA and 401k. These can't realistically be moved out of the US intact.

Unwrapped accounts are more complex. Once a US nonresident alien, you are no longer liable for US tax on capital gains. However, once you become a UK resident you are instantly liable for UK capital gains tax. Tax will be on the full gain, from purchase to sale, even when covering a period long before you became UK resident.

Compare the tax you would pay in the US to what you would pay in the UK, to determine whether to sell up before or after leaving. The UK may offer the lower total tax, because (a) the £12.3k/year tax-free capital gains allowance, and (b) California taxes capital gains as income, which considerably bumps up your potential US capital gains tax liability. But see the note below on UK 'reporting status' funds for wrinkles.

Personally, I moved my taxable account money with me when I returned to the UK. The gains were tiny (it was the start of the financial crisis), and selling up and moving cash to the UK was by far the simplest option. I re-purchased equivalent UCITS funds with this cash after settling back in the UK.
CournalCrunch wrote: Thu Dec 31, 2020 2:02 pm 3. Would any of my capital gains before this tax year be affected by the move? If I need to take the hit by selling before I become a UK tax resident in order to not go back and redo capital gains taxes in all previous years in the UK, I think I would prefer that simplicity.
Realised capital gains? No. The UK won't go back in time and tax prior events, and you have (or will have, by then) drawn a line under all of them for US tax purposes.

The offset tax years across the two countries is the main irritant here.
CournalCrunch wrote: Thu Dec 31, 2020 2:02 pm 4. I know there are rules for bringing assets over to the UK. I do not necessarily "need" these assets immediately so am happy to leave them in the US for the time being, but I am not sure what the best strategy is in relation to this.
As noted, leaving an IRA and 401k is fine. You cannot move retirement accounts out of the US intact anyway (no US QROPS equivalent; the US retirement savings system is fully hermetic), so unless you're willing to take the hit of early withdrawal penalties, best left.

Taxable accounts will be problematic if they hold funds or ETFs that are not 'UK reporting status' funds. A decent number of Vanguard's US domiciled ETFs have UK reporting status, but their mutual funds do not. Without reporting status, the UK taxes capital gains at income rates, so you'll want to avoid that. If you hold reporting status ETFs, your optimum move might be to relocate first, and sell after. If non-reporting status though, you could face UK income tax rates, in which case selling up before relocating might be the better bet. It all depends on what you hold, and how much built-in capital gain is in it.
CournalCrunch wrote: Thu Dec 31, 2020 2:02 pm 5. I am also flexible in terms of giving up my greencard officially, as I suspect I will not work in the US again. The 'exit tax' in the US seems quite aggressive, however as I have only been a Green Card holder since 2017 (working under a work visa prior to this) I am unsure whether I qualify
It sounds like you are in the clear on the exit tax. It only catches ex-citizens and former long-term green card holders, where long-term means having held a green card in eight or more years. Prior residence on a work or other visa doesn't count against those years. Also, there are asset and income tax hurdles.

That aside, there's no reason to delay getting rid of the green card (I did mine the day after the plane landed, only because it was too late to catch the post on the same day). Until you have ditched it, you remain a 'US taxable person', meaning that you will have problems with many things you might want to do in the UK; thanks to FATCA, many UK banks and investment platforms now simply flat-out reject US citizens and US green card holders.
Topic Author
CournalCrunch
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Welcome. Some notes below, based on firsthand experience, albeit somewhat over a decade ago.
Thank you - this is all very much appreciated! It is incredibly useful to have a frame of reference going into these discussions with accountants so some of this information is invaluable for my stress levels and making the right decisions. So again, thank you very much!
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Spend some quality time with the US/UK tax treaty. It treats your 401k and IRA well; tax deferred until withdrawal, then only taxable to the UK. Roths are respected also. I still have my IRA and 401k. These can't realistically be moved out of the US intact.

As noted, leaving an IRA and 401k is fine. You cannot move retirement accounts out of the US intact anyway (no US QROPS equivalent; the US retirement savings system is fully hermetic), so unless you're willing to take the hit of early withdrawal penalties, best left.
So the assumption here is that if I give up my Green Card when it comes to withdraw these at retirement age, I will pay a flat 30% non resident tax on any withdrawals? Does the Roth IRA still have zero tax implications since it was post tax funds or does that also get downgraded from a tax advantaged standpoint
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Personally, I moved my taxable account money with me when I returned to the UK. The gains were tiny (it was the start of the financial crisis), and selling up and moving cash to the UK was by far the simplest option. I re-purchased equivalent UCITS funds with this cash after settling back in the UK.
A few follow up questions on this

a) Honestly it seems cleaner just to sell up and move the cash over, particularly given my US taxable income in 2021 will be quite low (I am only working for the month of January) so my tax rate should be fairly reasonable (unless they count foreign income for your tax bracket). Again I know that the green card taints the whole year, so since I have it today, my 2021 tax year will be as a resident in the US. Please correct me if I am wrong here.

b) Assuming I do sell up and I have the cash waiting to be transfered, how does this work. I know I could just wire the funds to my UK account, but are there some rules around that? I was always concerned that the remittance basis here (https://www.gov.uk/tax-foreign-income/n ... -residents) was related to sending money back. The fees listed (30k/60k annual fees) are significant. Other than that, If HMRC suddenly saw a large sum of money in the account of someone who (by their count) hasn't been working for the last 10 years, would this raise suspicions?

c) Related to this, does HMRC have records of my flight details to work out the number of days spent in the UK or is this just based on self reporting. I didn't keep excellent records of exactly what day I landed and left the UK over the past 10 years. However as you are familiar with US vacation policies (or lack thereof), I am very confident I did not get more than 30 days of vacation per year.
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm That aside, there's no reason to delay getting rid of the green card (I did mine the day after the plane landed, only because it was too late to catch the post on the same day). Until you have ditched it, you remain a 'US taxable person', meaning that you will have problems with many things you might want to do in the UK; thanks to FATCA, many UK banks and investment platforms now simply flat-out reject US citizens and US green card holders.
Interesting. As I said above, 2021 will be a green card year regardless of me giving it up. Ideally I would keep it if it didnt have any issues, but looks like its best to get rid. Just means if I get a good job opportunity further down the line then I'd have to go through all the immigration hassle again. I guess another way to ask the question is whether Having a Green Card is beneficial for any of the 401k/ira/general investing tax purposes in the US. I suspect not given it would essentially require me to do ALL my investing in the US with the FATCA issues.
TedSwippet
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by TedSwippet »

CournalCrunch wrote: Fri Jan 01, 2021 11:42 am
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Spend some quality time with the US/UK tax treaty. It treats your 401k and IRA well; tax deferred until withdrawal, then only taxable to the UK. Roths are respected also. I still have my IRA and 401k. These can't realistically be moved out of the US intact.

As noted, leaving an IRA and 401k is fine. You cannot move retirement accounts out of the US intact anyway (no US QROPS equivalent; the US retirement savings system is fully hermetic), so unless you're willing to take the hit of early withdrawal penalties, best left.
So the assumption here is that if I give up my Green Card when it comes to withdraw these at retirement age, I will pay a flat 30% non resident tax on any withdrawals? Does the Roth IRA still have zero tax implications since it was post tax funds or does that also get downgraded from a tax advantaged standpoint.
On the first of these, no. And on the second, zero. Here you need to look to the US/UK tax treaty. Specifically, Article 17 paragraph 1:
ARTICLE 17
Pensions, Social Security, Annuities, Alimony, and Child Support

1. a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State.
b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in the other Contracting State that would be exempt from taxation in that other State if the beneficial owner were a resident thereof shall be exempt from taxation in the first-mentioned State.
Paragraph 1(a) says, after substituting country names in: "Pensions and other similar remuneration beneficially owned by a resident of {the UK} shall be taxable only in {the UK}." So withdrawals from a traditional pre-tax 401k or IRA are not taxed at all by the US, but are treated as taxable income by the UK. Taxed at your UK marginal rate, then -- 20%, 40%, 60% bubble, or 45% in England, and a percent or two higher/lower(?) for some of these for Scotland.

Paragraph 1(b) says, again after substituting country names in: "Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in {the US} that would be exempt from taxation in {the US} if the beneficial owner were a resident thereof shall be exempt from taxation in {the UK}." So Roth withdrawals are both US and UK tax-free (providing you meet all the Roth five year and other holding periods, age requirements, and so on).

Article 18 paragraph 1 prevents the UK from taxing US IRA or 401k accounts until withdrawals are made. Note however that the treaty is silent on any US early withdrawal penalties for IRAs and 401ks, so may provide no protection against these. Not usually a problem, since there is no particular motivation for UK residents holding US retirement account to collapse them early. In many countries, non-US citizens holding these types of US account will risk confiscatory US estate taxes, but UK has a decent estate tax treaty with the US that offers protection from the worst excesses of the US estate tax.
CournalCrunch wrote: Fri Jan 01, 2021 11:42 am
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Personally, I moved my taxable account money with me when I returned to the UK. The gains were tiny (it was the start of the financial crisis), and selling up and moving cash to the UK was by far the simplest option. I re-purchased equivalent UCITS funds with this cash after settling back in the UK.
A few follow up questions on this

a) Honestly it seems cleaner just to sell up and move the cash over, particularly given my US taxable income in 2021 will be quite low (I am only working for the month of January) so my tax rate should be fairly reasonable (unless they count foreign income for your tax bracket). Again I know that the green card taints the whole year, so since I have it today, my 2021 tax year will be as a resident in the US. Please correct me if I am wrong here.
If you're talking about early withdrawal of your IRA or 401k, and before you leave the US rather than after (when these then become UK taxable, see above), don't forget the penalties. 10% federal, 2.5% or so for California, and then ordinary income tax on top. Your non-US earnings would not count towards bumping up your US tax bracket provided you file a split year return, and (of course) ditch the green card before earning anything in the UK.

Taxable accounts are generally best moved with you, but for tax efficiency, leaving your IRA and 401k in the US will generally beat early withdrawal. You do then however have to worry about the considerable political risk of having retirement savings held hostage in a country with a capricious and unreliable approach to nonresident alien tax and regulation issues.

What to do for the best very much depends on the balances (a tiny 401k or IRA wouldn't be worth the paperwork effort), what you plan to do in future (maybe you will move later to a country with much worse, or even no, US tax treaties), and your own tolerance for the general PITA that come from holding accounts across borders, to mention just a few considerations.
CournalCrunch wrote: Fri Jan 01, 2021 11:42 am b) Assuming I do sell up and I have the cash waiting to be transfered, how does this work. I know I could just wire the funds to my UK account, but are there some rules around that? I was always concerned that the remittance basis here (https://www.gov.uk/tax-foreign-income/n ... -residents) was related to sending money back. The fees listed (30k/60k annual fees) are significant. Other than that, If HMRC suddenly saw a large sum of money in the account of someone who (by their count) hasn't been working for the last 10 years, would this raise suspicions?
I used a specialist forex company to move the money. You wire them USD, and they transfer GBP to your UK account a day or two later. It's not risk-free, but if you use a well-known company you should be fine. Someone like Moneycorp, HiFX or Xe. This was in the days before Transferwise and Revolut; these may also be options now. As a general rule, avoid UK bank forex rates; they're almost universally lousy.

The 'remittance basis' stuff you mention is only applicable to UK 'non-doms'. And to be one, I think you generally have to be not a UK citizen, so that might disqualify you (but check this). As you say though, a fee of £30k will probably be unpalatable anyway.

There's no problem bringing post-tax money back to the UK. No large transfer 'information reporting' or any such nonsense. And HMRC are well aware that people moving (back to) to the UK might bring a chunk of money with them. I moved a considerable amount in one go, and raised no eyebrows anywhere.
CournalCrunch wrote: Fri Jan 01, 2021 11:42 am c) Related to this, does HMRC have records of my flight details to work out the number of days spent in the UK or is this just based on self reporting. I didn't keep excellent records of exactly what day I landed and left the UK over the past 10 years. However as you are familiar with US vacation policies (or lack thereof), I am very confident I did not get more than 30 days of vacation per year.
All self-reporting. Just keep (or reconstruct) records to produce if challenged. It's highly unlikely anyone will ask for these unless there's visibly something else untoward going on somewhere.
CournalCrunch wrote: Fri Jan 01, 2021 11:42 am
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm That aside, there's no reason to delay getting rid of the green card (I did mine the day after the plane landed, only because it was too late to catch the post on the same day). Until you have ditched it, you remain a 'US taxable person', meaning that you will have problems with many things you might want to do in the UK; thanks to FATCA, many UK banks and investment platforms now simply flat-out reject US citizens and US green card holders.
Interesting. As I said above, 2021 will be a green card year regardless of me giving it up. Ideally I would keep it if it didnt have any issues, but looks like its best to get rid. Just means if I get a good job opportunity further down the line then I'd have to go through all the immigration hassle again. I guess another way to ask the question is whether Having a Green Card is beneficial for any of the 401k/ira/general investing tax purposes in the US. I suspect not given it would essentially require me to do ALL my investing in the US with the FATCA issues.
If you read the conditions of green cards closely, you'll see that after a year living outside the US your green card effectively becomes invalid for immigration purposes. However, it never becomes invalid for tax purposes if you do not affirmatively surrender it (form I-407). Not even on physical card expiry (it's only the card that expires, not the permanent residency status). So it'd be worth keeping only if you have firm plans to move back to the US inside of one year, or at most two years with a 're-entry permit'. Keeping it 'just in case' has limited or no upside, but all of the downsides associated with endless US tax on your worldwide income, limitations on using things like ISAs, difficulties getting a local mortgage, hassles with FATCA, voluminous and excruciating annual US tax reporting requirements, and on and on and on.

If you are absolutely certain you will move back to the US, your best bet would be to take out US citizenship before leaving. However, that will leave you cursed with US tax hassles forever and no matter where on (or off) the planet you are living, so not something to take out without hefty consideration.

Otherwise, holding a green card while not living in and not planning to return to the US is a pure US tax ball-and-chain, and has no upside whatsoever.
Wannaretireearly
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by Wannaretireearly »

Tag. Great info for the OP. I may be in a similar spot, someday.
My only advice? Perhaps don't cut the US cord immediately? After 3-6 months back in the UK, you may want to reconsider and keep your US/SF options open. Good luck!
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
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CournalCrunch
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

Wannaretireearly wrote: Fri Jan 01, 2021 1:06 pm Tag. Great info for the OP. I may be in a similar spot, someday.
My only advice? Perhaps don't cut the US cord immediately? After 3-6 months back in the UK, you may want to reconsider and keep your US/SF options open. Good luck!
Yea its been in the back of my mind. But ultimately I am not looking to move back in the next year or two at minimum so it doesnt sound like it would really help me out keeping a hold of it anyway
mushripu
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by mushripu »

You can apply for a reentry permit which can keep your green card status in tact for 2 years. I would strongly suggest to keep the return bridge open. There are more than a few stories of people not adjusting to life back in other countries after a long US stint and wanting to come back to US.
Topic Author
CournalCrunch
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

TedSwippet wrote: Fri Jan 01, 2021 12:53 pm Spend some quality time with the US/UK tax treaty
Wise words! Here are my takeaways from the discussion

1: Filings - I don't need to adjust/file any UK returns before this coming split year
2: Retirement Accounts - I will keep my 401k, IRA and Roth IRA in my US Schwab account as is. I won't have any tax implication on these accounts should I physically move, rescind green card or start investing in the UK. I will only have a tax implication upon retirement / withdrawal.
3. General Investing Accounts - I will (likely) liquidate my Schwab investing account and wire funds to a new bank account in the UK. Schwab has a good process for converting funds from $ to pounds and then sending so I am fortunate I have a good bank in that regard. Honestly it is this part that was worrying me the most. I had some folks in the UK suggest that this is what would catch HMRCs eye given they would see interest accumulating in an account suggesting a large amount of funds that were not there before. I suspect if they do spot something they may investigate and I would have to explain all the above to them, but at the end of the day fingers crossed they will see it being all above board.
4: Green Card - I will run this one by the tax accountant but as far as the research and from what you have said, there are essentially two approaches

a) If I have a nagging suspicion I may want to go back to the US > I can only maintain the immigration benefits of the green card for a year (2 if I enact the re-entry permit). HOWEVER during this time I would still remain taxable in the US for global income. Again what I have read is that even though there are tax credits for taxes paid in the UK, much of the time the taxes are not 100% covered (I will be in a high income bracket so suspect this will be an expensive payment in return for 2 years of flexibility). It will also not allow me to use the UK based trading platforms for US stocks given the FATCA issues.

b) I do not have plans to move back to the US > makes no sense to hold onto the green card. Recinding will give me a split year tax return and so long as I liquidate my general investing account (and transfer to the UK), theoretically I will have no other tax dealings (and no tax returns after CY 2021) with the US until I retire and liquidate my 401k and IRAs.

Hopefully I interpreted your advice correctly. And please let me know if there are any other issues I may have missed beyond these implications. I do not have any property or other assets / ties to the US (with the exception of a domestic partner who is going to remain for some period of time).
Topic Author
CournalCrunch
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

mushripu wrote: Fri Jan 01, 2021 4:48 pm You can apply for a reentry permit which can keep your green card status in tact for 2 years. I would strongly suggest to keep the return bridge open. There are more than a few stories of people not adjusting to life back in other countries after a long US stint and wanting to come back to US.
Thanks Mushripu. Just to confirm, during the period of the reentry permit, would I still be considered a US resident? So for those 2 years. I would pay UK Tax on my UK Income, and then US taxes on my global income (which will ultimately be the difference between the tax rate and the credits)
TedSwippet
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by TedSwippet »

CournalCrunch wrote: Fri Jan 01, 2021 4:53 pm Wise words! Here are my takeaways from the discussion

1: Filings - I don't need to adjust/file any UK returns before this coming split year
2: Retirement Accounts - I will keep my 401k, IRA and Roth IRA in my US Schwab account as is. I won't have any tax implication on these accounts should I physically move, rescind green card or start investing in the UK. I will only have a tax implication upon retirement / withdrawal.
3. General Investing Accounts - I will (likely) liquidate my Schwab investing account and wire funds to a new bank account in the UK. Schwab has a good process for converting funds from $ to pounds and then sending so I am fortunate I have a good bank in that regard. Honestly it is this part that was worrying me the most. I had some folks in the UK suggest that this is what would catch HMRCs eye given they would see interest accumulating in an account suggesting a large amount of funds that were not there before. I suspect if they do spot something they may investigate and I would have to explain all the above to them, but at the end of the day fingers crossed they will see it being all above board.
Right.
CournalCrunch wrote: Fri Jan 01, 2021 4:53 pm 4: Green Card - I will run this one by the tax accountant but as far as the research and from what you have said, there are essentially two approaches

a) If I have a nagging suspicion I may want to go back to the US > I can only maintain the immigration benefits of the green card for a year (2 if I enact the re-entry permit). HOWEVER during this time I would still remain taxable in the US for global income. Again what I have read is that even though there are tax credits for taxes paid in the UK, much of the time the taxes are not 100% covered (I will be in a high income bracket so suspect this will be an expensive payment in return for 2 years of flexibility). It will also not allow me to use the UK based trading platforms for US stocks given the FATCA issues.
The specific problem with ISAs is that the US simply does not recognise them as tax-deferred. So any interest, dividends and capital gains that you make in an ISA, not taxable to the UK, would be fully taxable to the US. Worse, any ETFs or funds you hold in an ISA (or for that matter in a UK taxable account) will be US PFICs, and so subject to highly punitive US tax rates. You can read all about PFICs here:

Passive foreign investment company - Bogleheads

Beyond this, many UK platforms will simply reject you outright, as a US permanent resident, for any type of account. Take a look at the Youinvest Terms and Conditions, 11.2 and 12.3:

https://www.youinvest.co.uk/sites/defau ... itions.pdf

Or these from Vanguard UK:

I'm a US citizen or tax resident. Can I apply for an account? | Vanguard UK Investor
Am I eligible to apply for an account? | Vanguard UK Investor

And the following wiki page lists all the ways in which holding US permanent residency will crimp your ability to function financially outside the US:

US tax pitfalls for a US person living abroad - Bogleheads

It makes for ugly reading, so you would want to be sure of your future intentions before subjecting yourself to all of this. Even though you might live outside the US, re-entry permit or not, you are a 'US resident for tax purposes' until you affirmatively rid yourself of the green card. Even an expired physical green card leaves you still subject to US tax, if you haven't filed the paperwork to formally give up your permanent resident status.

Also, if you think you might keep the green card even after leaving the US, you will have to modify your view on how much protection the treaty might offer you. The US inserts a 'saving clause' into its treaties. This negates large parts of the treaty for US citizens and green card holders. US/UK tax treaty, Article 1 paragraph 4:
4. Notwithstanding any provision of this Convention except paragraph 5 of this Article, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if this Convention had not come into effect.
This means that in general, as a green card holder living in the UK, you probably cannot use most of the treaty to protect you from US tax. There is a handful of exceptions to this in Article 5, but most are likely not to be relevant to you.
CournalCrunch wrote: Fri Jan 01, 2021 4:53 pm b) I do not have plans to move back to the US > makes no sense to hold onto the green card. Recinding will give me a split year tax return and so long as I liquidate my general investing account (and transfer to the UK), theoretically I will have no other tax dealings (and no tax returns after CY 2021) with the US until I retire and liquidate my 401k and IRAs.
Actually, ideally no dealings with the US or IRS on retiring and making 401k or IRA withdrawals either, once you ditch the green card. Because these withdrawals would be taxable only to the UK (though see lump-sum exception below), you have no US taxable income, at least not on these withdrawals, and so no need to file any tax paperwork to the IRS regarding them.

I say 'ideally' because some 401k and IRA providers are known to ignore the W-8BEN tax treaty rates, and withhold US tax at 30% anyway, and even though the IRS instructions for handling withholding on payments to nonresident aliens tell them to use applicable treaty rates. In that case, you'd have to file a 1040NR to recover the 30% from the IRS, leaving you a potential 18 month hole in your withdrawal (the full 100% would still be taxable to the UK).

One final point I didn't mention earlier but probably should have. A full lump-sum withdrawal of a US pension is an exception to the 'only taxable by the UK' rule. This is instead only taxable to the US, under treaty Article 17 paragraph 2:
2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.
Interpolated: "2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in {the US} and beneficially owned by a resident of {the UK} shall be taxable only in {the US}." It's a weird exception, but might be useful, again depending on how much you have currently in your retirement accounts.
mushripu
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by mushripu »

CournalCrunch wrote: Fri Jan 01, 2021 4:56 pm
mushripu wrote: Fri Jan 01, 2021 4:48 pm You can apply for a reentry permit which can keep your green card status in tact for 2 years. I would strongly suggest to keep the return bridge open. There are more than a few stories of people not adjusting to life back in other countries after a long US stint and wanting to come back to US.
Thanks Mushripu. Just to confirm, during the period of the reentry permit, would I still be considered a US resident? So for those 2 years. I would pay UK Tax on my UK Income, and then US taxes on my global income (which will ultimately be the difference between the tax rate and the credits)
You are us tax resident as long as you have green card. There is a form to renounce green card. Unless you file that 407 form you are us tax resident. If you stay outside us for 6 months that is considered intent to give up green card but there is no automatic revocation. The revocation may happen when you try to reenter US later after 6 months.

For tax it is the way you understand it is correct. You should also lookup foreign income exclusion permitted by IRS. Some 100k usd foreign income is excluded from tax by IRS so US taxation might not be too bad.

So plan would be get reentry permit which keeps door open for 2 years. File uk income tax. File US income tax and use the foreign income tax exclusion and I am sure there would be credit for taxes paid to UK. IRS filing can be done over the net using software so should not be more than a few hours work.
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CournalCrunch
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Compare the tax you would pay in the US to what you would pay in the UK, to determine whether to sell up before or after leaving. The UK may offer the lower total tax, because (a) the £12.3k/year tax-free capital gains allowance, and (b) California taxes capital gains as income, which considerably bumps up your potential US capital gains tax liability. But see the note below on UK 'reporting status' funds for wrinkles.
So I spent a fun evening in excel today doing just this. And it makes for some interesting waterfall calculations. The optimal situation I believe is what I have below, given the various factors involved. The summary is as follows:

Key Numbers
[*]US W2 Income in US 2021 Tax Year = $10k
[*]US Short Term Capital Gains to be liquidated = $65k
[*]US Long Term Capital Gains to be liquidated = $50k
[*]UK PAYE Income for 2020/2021 = £15k

Optimal Tax Waterfall

[*]All Long Term Capital Gains are sold in January while a US Tax Resident. Reason being $30k of the gains fall under the 0% LTCG rates, so even with California being aggressive, this still works out fairly well. The remaining 20k is taxed at the ~9% california rate, but we are still in relative low federal bracket.

[*]First Tranche of Short term Capital Gains are sold in March while a UK Tax Resident. Reason being £12.3k is at 0%, and I can realize another £22.5k at 10% since the combined income of £22.5k+£15k of salary is less than the basic rate before I would have to pay 20%

[*]Second Tranche of Short Term Capital Gains are sold in April/May. Reason being is £12.3k is again at 0% and that just about makes up the total $65k of short term gains needed to be liquidated.

Assumptions

Some big assumptions here:

1.The biggest one - In split years, do you get the full capital gains personal allowance or is it calculated based on the # days you are a resident. I.e. if you are a resident for 10% of the tax year, do you only get 10% of the allowance. If so, the numbers above would not hold.
2. Assuming these adjustments are something the IRS are familiar with, given Schwab, Robinhood and eTrade will report ST gains for all the sales I want to be considered in the UK
3. No different treatment with the Bitcoin sale which I considered as ST Gains
4. I don't know if there is any way to reduce my taxable income in the 2020/2021 month I am in the UK. In my understanding a SIPP would not help gain more room for me, rather it will simply attain a small boost from the government.
5. Reporting Status funds - this I need to dig into. Half of my funds are in tech stocks, the other half in Schwab ETFs (SCHM, SCHF and SCHX). When I search the list (https://www.gov.uk/government/publicati ... ting-funds) I do not see these schwab funds listed. If I am paying regular income tax on these it may be worthwhile me selling these in the split year in the UK where my tax rate will be low.
6.My math is correct (this might be the biggest assumption of them all....)
TedSwippet
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by TedSwippet »

CournalCrunch wrote: Sat Jan 02, 2021 1:01 am
TedSwippet wrote: Thu Dec 31, 2020 4:57 pm Compare the tax you would pay in the US to what you would pay in the UK, to determine whether to sell up before or after leaving. The UK may offer the lower total tax, because (a) the £12.3k/year tax-free capital gains allowance, and (b) California taxes capital gains as income, which considerably bumps up your potential US capital gains tax liability. But see the note below on UK 'reporting status' funds for wrinkles.
So I spent a fun evening in excel today doing just this.
Fun?!
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am [*]All Long Term Capital Gains are sold in January while a US Tax Resident. Reason being $30k of the gains fall under the 0% LTCG rates, so even with California being aggressive, this still works out fairly well. The remaining 20k is taxed at the ~9% california rate, but we are still in relative low federal bracket.
This looks about right to me. Or at least, I can't see anything immediately wrong with it. That said, I'm out of practice dealing with the interplay of US federal and state tax -- it's been more than a decade since I had to think in this contorted way -- so don't necessarily trust me on that.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am [*]First Tranche of Short term Capital Gains are sold in March while a UK Tax Resident. Reason being £12.3k is at 0%, and I can realize another £22.5k at 10% since the combined income of £22.5k+£15k of salary is less than the basic rate before I would have to pay 20%
Hmm. This would hold if you happened to have UK reporting status funds, but from what you write below it appears not. I don't think the UK gives you any leeway on having held these for some time before becoming a UK resident, so you probably face income tax rates on the gains from them. Do check this with your professional, a good web search, and so on, though.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am [*]Second Tranche of Short Term Capital Gains are sold in April/May. Reason being is £12.3k is again at 0% and that just about makes up the total $65k of short term gains needed to be liquidated.
As first tranche above, I think.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am 1.The biggest one - In split years, do you get the full capital gains personal allowance or is it calculated based on the # days you are a resident. I.e. if you are a resident for 10% of the tax year, do you only get 10% of the allowance. If so, the numbers above would not hold.
I am pretty sure that you get the full allowances for part years; I certainly don't recall any limitations when I did this. So moving back to the UK close to the end of a UK tax year is decent timing for UK tax purposes. You should be able use the full ISA allowance, pension allowance, capital gains tax allowance, income tax allowance, and so on. Something else to check on, though.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am 2. Assuming these adjustments are something the IRS are familiar with, given Schwab, Robinhood and eTrade will report ST gains for all the sales I want to be considered in the UK
Not quite sure what this means. In practice, you're personally responsible for tracking gains in both the US and the UK anyway, so broker reports are not definitive.

Once you've ditched the green card, if you file the appropriate W-8BEN with all of these before taking taxable actions, they should then report these as required on 1042-S forms, rather than 1099s. The function of a 1042-S is for the IRS to pass this information on to HMRC (assuming FATCA reciprocity, and that's a huge assumption). A 1042-S form is definitionally an indication of income paid to a non-US person, so the IRS should not expect to see a resident 1040 filing associated with it (unlike a 1099, then).

In practice though, you have to be careful filing W-8BEN forms with US brokers. Most are not used to handling nonresident alien accounts. Some may well immediately limit your actions, typically to sale-only. And a few may simply unilaterally close out your accounts. Make sure that you understand what all three will do before acting.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am 3. No different treatment with the Bitcoin sale which I considered as ST Gains
No idea. Absolutely not my area.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am 4. I don't know if there is any way to reduce my taxable income in the 2020/2021 month I am in the UK. In my understanding a SIPP would not help gain more room for me, rather it will simply attain a small boost from the government.
Payments into a UK pension will effectively reduce your UK taxable income. Payments made by a UK employer into their group personal pension scheme can be entirely omitted from a UK tax return. Payments into a SIPP or other non-employer personal pension go on a tax return, but only so they can be subtracted from taxable income to arrive at a final tax liability.

Note however that you can only make pension contributions out of 'pensionable' income, primarily salary and bonus. You won't be able to make pension contributions out of investment income such as capital gains, dividends, or interest.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am 5. Reporting Status funds - this I need to dig into. Half of my funds are in tech stocks, the other half in Schwab ETFs (SCHM, SCHF and SCHX). When I search the list (https://www.gov.uk/government/publicati ... ting-funds) I do not see these schwab funds listed. If I am paying regular income tax on these it may be worthwhile me selling these in the split year in the UK where my tax rate will be low.
This is where I think you will miss out on an optimisation. Many Vanguard ETFs have UK reporting status, but most other ETF providers' offerings are not. With foresight, you could have used Vanguard equivalents and so been able to use UK capital gains tax rates here.

Possibly water under the bridge now, then. I guess switching to these before moving to the UK would simply create the same large US capital gains tax liability that you're aiming to avoid to the maximum possible. Do check on whether the UK gives any leeway on moving in while holding non-reporting things, though. My sense is that it does not, just at the US does not for any PFICs a person might hold long before becoming a US resident, but it's a squirrelly area of tax law, so worth investigating.

No problems with individual stocks, though. It is only 'offshore' (to the UK) funds and ETFs that run into potential 'reporting status' issues.
CournalCrunch wrote: Sat Jan 02, 2021 1:01 am 6.My math is correct (this might be the biggest assumption of them all....)
You're on your own with this one.
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CournalCrunch
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by CournalCrunch »

TedSwippet wrote: Sat Jan 02, 2021 4:16 amFun?!
haha I am trying to think of it as a math puzzle rather than a "if you get this wrong you are throwing away your money" gambit.
TedSwippet wrote: Sat Jan 02, 2021 4:16 amfile the appropriate W-8BEN with all of these before taking taxable actions
So I checked, and Robinhood for instance does NOT accept W-8BEN. So will sell sell and get a 1099 from my sale here. Etrade holds all my LTCG so will be sold in the US so no issues there. And Schwab have a good process (fyi and i checked the UK government list and none of my Schwab ETFs have reporting status). So the only issue is my Robinhood account here. If they do submit the 1099 then I assume its a lot of paperwork by my US accountant to get that fixed manually in the next years tax return? If it creates a lot of complexity it sounds like I may be better off just selling these and taking the hit on the tax in the US.A

Okay so I think I'm comfortable presenting the following plan to my accountant.

[*]LTCG - sold in the US this month
[*]STCG (single stocks) - sold in the UK between March and May (taking advantage of the £24.6k of allowances over the two years)
[*]STCG (Schwab ETFs) - sold in the UK in March (my marginal tax rate in the US will be 26%+ including CA (even with the low salary for the year) the UK income tax rate should still be below this. (my total gains here are only about £20k)
[*]Given I have a £15k salary in this UK tax year, I assume I am best to put the whole amount into a SIPP, therefore giving me back the full £12.5k personal allowance of regular income to be used for the non-reporting status fund sales (and also giving me more room for STCG sales below the basic rate? (My work pension has a three month start date so cannot access this year)
[*]Leave all 401k, IRAs as is.

Things to me to double check
[*]Full allowance on split year
[*]Robinhood throwing a spanner in the works with their 1099
henry.krappa
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by henry.krappa »

[*]Robinhood throwing a spanner in the works with their 1099
Sorry to revive an old-ish thread but did you get any further information on that?
I'm in a similar situation :)
fonziguy
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by fonziguy »

Lots of great info in this post thank you!

In a similar situation, I moved back to the UK after 10 years in San Francisco. I had many similar questions, thank you for answering them.

A couple of follow-ups:

1. After moving to the UK and closing a US bank account, have people had any issues getting money/investments out of the US due to lack of a US bank account, or do they typically support international banks and transfers?

2. Similar question about IRAs, 401ks, and 529 college funds. Does anyone have experience actually taking the money out when they reach the appropriate age or using the 529 to pay for education in the UK? I'm curious if there are any hurdles or surprises to plan ahead for here.
TedSwippet
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by TedSwippet »

Welcome.
fonziguy wrote: Mon Dec 12, 2022 5:37 am 1. After moving to the UK and closing a US bank account, have people had any issues getting money/investments out of the US due to lack of a US bank account, or do they typically support international banks and transfers?
US banks and brokers don't exactly not support international transfers, but what they can do though is to put barriers in place that can be expensive and hard or even impossible to work around.

Direct experience. Vanguard US will not wire to a non-US bank without a 'medallion signature guarantee'. These are a bit of a pain to acquire even when in the US, and are pretty much non-existent outside. A handful of UK companies might be able to provide one, but often only at a cost of hundreds to even thousands of pounds, along with (of course) a heap of paperwork and ID verification. And my US credit union will not wire to a non-US bank without me jumping through a similar amount of account verification hoops, although at least no 'medallion signature guarantee' requirement.

The solution in both cases was a Wise 'borderless' account. This is a single account with Wise that offers both UK and US facets. On the UK side, a UK bank sort code and account number, and on the US side, a US ACH routing number and account number. This lets me make payments into and out of this account in GBP using UK faster payments, and into and out of it in USD using US ACH. As far as Vanguard and my credit union are concerned then, this is just another normal US bank account. Once the USD or GBP are in Wise, converting between these currencies within the account is trivial, and at a competitive rate.
fonziguy wrote: Mon Dec 12, 2022 5:37 am 2. Similar question about IRAs, 401ks, and 529 college funds. Does anyone have experience actually taking the money out when they reach the appropriate age or using the 529 to pay for education in the UK? I'm curious if there are any hurdles or surprises to plan ahead for here.
For IRAs and 401ks, the answer would be to action the withdrawals so that the money flows into a taxable account, one set up for Wise as above, and then simply ACH from that account to Wise, convert to GBP, and then transfer to your local UK current account.

No particular issues with the mechanics of this, though you want to be certain that the provider has a W-8BEN on file so that you don't suffer US tax withholding (which you'd then have to claim back from the US, 1040-NR plus a quintessential IRS long wait). If everything's working as it should, you'll then get a 1042-S from the IRS at year end, and use that for UK tax.

No experience with 529 plans. My sense though is that they will be painful from the UK tax perspective -- not retirement savings plans, so not protected from UK tax by treaty, and likely to contain things that are not 'UK reporting status' funds -- and awkward to use for education in the UK due to the US's parochial approach to such things generally.
Last edited by TedSwippet on Mon Dec 12, 2022 1:33 pm, edited 1 time in total.
Stork
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by Stork »

mushripu wrote: Fri Jan 01, 2021 4:48 pm You can apply for a reentry permit which can keep your green card status in tact for 2 years. I would strongly suggest to keep the return bridge open. There are more than a few stories of people not adjusting to life back in other countries after a long US stint and wanting to come back to US.
I second that. I think the term is reverse culture chock, I experienced it returning from UK to Denmark.
tubaleiter
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Re: US Green Card Holder moving back to the UK (tax complications)

Post by tubaleiter »

fonziguy wrote: Mon Dec 12, 2022 5:37 am 1. After moving to the UK and closing a US bank account, have people had any issues getting money/investments out of the US due to lack of a US bank account, or do they typically support international banks and transfers?

2. Similar question about IRAs, 401ks, and 529 college funds. Does anyone have experience actually taking the money out when they reach the appropriate age or using the 529 to pay for education in the UK? I'm curious if there are any hurdles or surprises to plan ahead for here.
Slightly different situation for me (I'm a US citizen in the UK, wife is a Danish citizen, US green card holder, now UK resident), but close enough to shed some light.

1. TedSwippet is all over this, with Wise being a very convenient solution (there are competitors, like Revolut & Atlantic, but Wise has worked well for me). Interactive Brokers is another option, more complicated but possibly cheaper. They will happily accept deposits and withdrawals on both the US and UK side (just do some investing through them too, or they get rather cross being treated as only a currency conversion service).

2. IRAs and 401k are fine - I have not withdrawn at age yet, although I have withdrawn Roth contributions with no issues (not taxable in either country). You may get some brokerages that make things more complicated, enforcing withholding taxes that you then have to claim back from the IRS.

529s are pretty UK toxic. There are very few, if any, that offer HMRC reporting funds. They are tax un-sheltered from a UK perspective. And they're probably trusts, which add further complications. In retrospect, I would have been better off liquidating my 529 prior to leaving the US and paying the penalty. I wound up liquidating it a few years later, paying UK income tax on the capital gains (from purchase, not from the date of moving), and some US penalties. 529s are about as UK friendly as ISAs are US friendly - that is to say, not very much at all!
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