I have money invested in Vanguard funds which I will need to pay CGT on when I draw on it in retirement. I am considering withdrawing it all before leaving the US for the following reasons.
1) I'll be giving up my green card so want to also avoid any estate tax issues in the future. I'd like to get the money out of the US . I could also ask Vanguard to convert them to ETF form which AIUI doesn't trigger a tax event and then transfer them to non US IBR brokerage account
2) I can probably get my taxable income down to a very low level in 2022 and then file married filing separately. I'd then liquidate the funds and bring my cost base up to current while paying a relatively low CGT rate of overall. Certainly lower than the 20%+ 10% social levy I'll be paying in France on CGT
Just wondering what I've not considered in my cunning plan.
Moving to France from US in 2023 - tax optimisation
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Re: Moving to France from US in 2023 - tax optimisation
There is a short list of some of the 'planning points' of leaving the US in the wiki:
US tax pitfalls for a non-US person moving to the US - Permanently leaving the US
Converting Vanguard mutual funds to ETFs is not a taxable event. However, you will want to look closely at French tax law to see if holding what are 'offshore' (to France) funds causes any French tax difficulties, for example some French analogue to the US's appalling PFIC tax rules. Also, PRIIPs may get in your way when it comes to managing or rebalancing holdings in US domiciled funds from an EU country.
In short, you can probably sort-of "function" by continuing to hold these US domiciled assets as a US NRA living in France, but life will be much simpler if you cash in and then reinvest in equivalent EU UCITS ETFs. The change of base or trading currency will not alter your long-term results, and selling up in USD, converting to EUR, and then rebuying equivalents in EUR does not interrupt the 'long-term' of long-term investing. It's just a "reorganisation".
However, it may well be worthwhile. It could take a loooong time for growth on a small amount of avoided tax to overcome a higher CGT rate later on in life. And there's also the general hassle of managing cross-border accounts. US brokers are increasingly reluctant to keep as customers people who leave the US to reside elsewhere (even -- or maybe especially -- US citizens). Even where they don't eject you, many are also simply unwilling to properly apply treaty rates for withholding. IB is probably an exception, at least currently. That may or may not persist.
US tax pitfalls for a US person living abroad - Expatriation tax
Perhaps reasonably readily turned into a non-issue for taxable accounts, but this can be a major nightmare for IRAs and 401ks. Also, FIRPTA if you own a home in the US (sell before surrendering the green card):
Foreign Investment in Real Property Tax Act - Wikipedia
US tax pitfalls for a non-US person moving to the US - Permanently leaving the US
There are plenty of good reasons to want to remove your money from the US when you no longer live there, but unless there is more to the story than you revealed, for you the US estate tax is perhaps reasonably low down the list. France has a decent estate tax treaty with the US, and Article 8 appears to exclude US stock (and by extension, US domiciled ETFs) from the estate tax for France-domiciled non-US citizens. (Maybe watch out for Article 1 Paragraph 4(a)(iii), though; a version of the ugly US treaty 'saving clause'.)rjm_cali wrote: ↑Sat Jul 17, 2021 1:05 pm 1) I'll be giving up my green card so want to also avoid any estate tax issues in the future. I'd like to get the money out of the US . I could also ask Vanguard to convert them to ETF form which AIUI doesn't trigger a tax event and then transfer them to non US IBR brokerage account.
Converting Vanguard mutual funds to ETFs is not a taxable event. However, you will want to look closely at French tax law to see if holding what are 'offshore' (to France) funds causes any French tax difficulties, for example some French analogue to the US's appalling PFIC tax rules. Also, PRIIPs may get in your way when it comes to managing or rebalancing holdings in US domiciled funds from an EU country.
In short, you can probably sort-of "function" by continuing to hold these US domiciled assets as a US NRA living in France, but life will be much simpler if you cash in and then reinvest in equivalent EU UCITS ETFs. The change of base or trading currency will not alter your long-term results, and selling up in USD, converting to EUR, and then rebuying equivalents in EUR does not interrupt the 'long-term' of long-term investing. It's just a "reorganisation".
Including state tax? Just a thought. Overall, a pure tax calculation, dependent on how low is "relatively low". Remember that the tax bill you incur now will permanently reduce your future dividend income, because you'll have less invested going forwards.rjm_cali wrote: ↑Sat Jul 17, 2021 1:05 pm 2) I can probably get my taxable income down to a very low level in 2022 and then file married filing separately. I'd then liquidate the funds and bring my cost base up to current while paying a relatively low CGT rate of overall. Certainly lower than the 20%+ 10% social levy I'll be paying in France on CGT.
However, it may well be worthwhile. It could take a loooong time for growth on a small amount of avoided tax to overcome a higher CGT rate later on in life. And there's also the general hassle of managing cross-border accounts. US brokers are increasingly reluctant to keep as customers people who leave the US to reside elsewhere (even -- or maybe especially -- US citizens). Even where they don't eject you, many are also simply unwilling to properly apply treaty rates for withholding. IB is probably an exception, at least currently. That may or may not persist.
The US's Soviet-style 'expatriation tax'? A huge tax landmine if you have the misfortune to trigger it.
US tax pitfalls for a US person living abroad - Expatriation tax
Perhaps reasonably readily turned into a non-issue for taxable accounts, but this can be a major nightmare for IRAs and 401ks. Also, FIRPTA if you own a home in the US (sell before surrendering the green card):
Foreign Investment in Real Property Tax Act - Wikipedia
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Re: Moving to France from US in 2023 - tax optimisation
I am in a similar situation; I reside in the US and plan to go back to France in couple of years). Here are my two options:
- Option 1: Selling all my US funds/ETF while I am a US tax resident before leaving then transfer to an European broker when I can reinvest in US UCITS ETF. Tax rate on capital gains should be around 15% while I am in the US and it will reset the cost basis. Tax on capital gains in France is for now 30% but I can only see it going up in the next few years. There are also complexities and uncertainties in having assets in the US while residing in France as highlighted by TedSwippet above.
- Option 2: Leave the US and go for couple of weeks on vacations in a country where there is no tax on capital gains. Give up my green card (I have been less than 8 years with green card in the US so I would not be subject to the US exit tax) then sell all my assets while I am in this country and transfer the money to an European broker where I buy the equivalent UCITS ETFs. Then move to France (without going back to the US).
During this couple of weeks of vacations, I am neither a US resident nor a French resident, so I don’t have to pay tax on capital gains. I do not see anything illegal in this plan and please let me know if I am wrong.
Any feedback on Option 2 would be appreciated?
- Option 1: Selling all my US funds/ETF while I am a US tax resident before leaving then transfer to an European broker when I can reinvest in US UCITS ETF. Tax rate on capital gains should be around 15% while I am in the US and it will reset the cost basis. Tax on capital gains in France is for now 30% but I can only see it going up in the next few years. There are also complexities and uncertainties in having assets in the US while residing in France as highlighted by TedSwippet above.
- Option 2: Leave the US and go for couple of weeks on vacations in a country where there is no tax on capital gains. Give up my green card (I have been less than 8 years with green card in the US so I would not be subject to the US exit tax) then sell all my assets while I am in this country and transfer the money to an European broker where I buy the equivalent UCITS ETFs. Then move to France (without going back to the US).
During this couple of weeks of vacations, I am neither a US resident nor a French resident, so I don’t have to pay tax on capital gains. I do not see anything illegal in this plan and please let me know if I am wrong.
Any feedback on Option 2 would be appreciated?
Re: Moving to France from US in 2023 - tax optimisation
I'm actually doing something sort of similar as I'm moving back to the UK for a tax year before establishing actual residency in France. If one could just be "non-resident anywhere" for a few weeks everyone would do it. If you sell your assets from your broker in the US they'll report the sale to the IRS surely ? In my case I actually need to prove to the HMRC that I am re-establishing residency in the UK so I get taxed by them and can show a clean break from the US. I don't want to go into retirement with an IRS hanging over my head. Especially as I expect to visit the US regularly.investisseur wrote: ↑Sat Jul 17, 2021 3:16 pm
- Option 2: Leave the US and go for couple of weeks on vacations in a country where there is no tax on capital gains. Give up my green card (I have been less than 8 years with green card in the US so I would not be subject to the US exit tax) then sell all my assets while I am in this country and transfer the money to an European broker where I buy the equivalent UCITS ETFs. Then move to France (without going back to the US).
During this couple of weeks of vacations, I am neither a US resident nor a French resident, so I don’t have to pay tax on capital gains. I do not see anything illegal in this plan and please let me know if I am wrong.
Any feedback on Option 2 would be appreciated?
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Re: Moving to France from US in 2023 - tax optimisation
Yeah. I have a recollection that the US won't let you become non-resident for tax purposes until you become a full tax-resident of some other country. In other words, taking a vacation to somewhere in between leaving the US and moving to France (or wherever) won't cut it. I haven't been able to find any actual hard detail on that though, bar a passing reference in (I think) information on the US 'substantial presence test'.rjm_cali wrote: ↑Mon Jul 19, 2021 9:58 amI'm actually doing something sort of similar as I'm moving back to the UK for a tax year before establishing actual residency in France. If one could just be "non-resident anywhere" for a few weeks everyone would do it. If you sell your assets from your broker in the US they'll report the sale to the IRS surely ? In my case I actually need to prove to the HMRC that I am re-establishing residency in the UK so I get taxed by them and can show a clean break from the US. I don't want to go into retirement with an IRS hanging over my head. Especially as I expect to visit the US regularly.investisseur wrote: ↑Sat Jul 17, 2021 3:16 pm
- Option 2: Leave the US and go for couple of weeks on vacations in a country where there is no tax on capital gains. Give up my green card (I have been less than 8 years with green card in the US so I would not be subject to the US exit tax) then sell all my assets while I am in this country and transfer the money to an European broker where I buy the equivalent UCITS ETFs. Then move to France (without going back to the US).
During this couple of weeks of vacations, I am neither a US resident nor a French resident, so I don’t have to pay tax on capital gains. I do not see anything illegal in this plan and please let me know if I am wrong.
Any feedback on Option 2 would be appreciated?
Something to investigate, anyway. If there is a loophole to exploit here, you want it to be watertight (hmm ... can a hole be watertight?!).
Re: Moving to France from US in 2023 - tax optimisation
TedSwippet wrote: ↑Sat Jul 17, 2021 2:53 pm
There are plenty of good reasons to want to remove your money from the US when you no longer live there, but unless there is more to the story than you revealed, for you the US estate tax is perhaps reasonably low down the list. France has a decent estate tax treaty with the US, and Article 8 appears to exclude US stock (and by extension, US domiciled ETFs) from the estate tax for France-domiciled non-US citizens. (Maybe watch out for Article 1 Paragraph 4(a)(iii), though; a version of the ugly US treaty 'saving clause'.)
Converting Vanguard mutual funds to ETFs is not a taxable event. However, you will want to look closely at French tax law to see if holding what are 'offshore' (to France) funds causes any French tax difficulties, for example some French analogue to the US's appalling PFIC tax rules. Also, PRIIPs may get in your way when it comes to managing or rebalancing holdings in US domiciled funds from an EU country.
In short, you can probably sort-of "function" by continuing to hold these US domiciled assets as a US NRA living in France, but life will be much simpler if you cash in and then reinvest in equivalent EU UCITS ETFs. The change of base or trading currency will not alter your long-term results, and selling up in USD, converting to EUR, and then rebuying equivalents in EUR does not interrupt the 'long-term' of long-term investing. It's just a "reorganisation".
Including state tax? Just a thought. Overall, a pure tax calculation, dependent on how low is "relatively low". Remember that the tax bill you incur now will permanently reduce your future dividend income, because you'll have less invested going forwards.
The US's Soviet-style 'expatriation tax'? A huge tax landmine if you have the misfortune to trigger it.
Perhaps reasonably readily turned into a non-issue for taxable accounts, but this can be a major nightmare for IRAs and 401ks. Also, FIRPTA if you own a home in the US (sell before surrendering the green card):
Estate management is complicated enough for a Brit living in France with French inheritance rules. No - I think for peace of mind we'll be moving all assets to Europe and buying EU UCITS. Thanks for the reminder on state tax. I also have to check out our situation re: CGT on sale of primary residence in the US. We may need the married filing jointly allowance for that. Like you say - it will end up being a pure tax calculation. And yes house will be sold before surrendering GC. That said the house is in my wife's name and we're still working on the timing for her to give up her naturalised status.
Expat tax - will need to take some advice on this. I qualify (if that's the right word) as covered expat on the basis of time as LTR but not on the basis of assets. That said if we liquidate all holdings in the US and pay the CGT/reset basis then it amounts to the same as a goodbye and farewell tax grab.
Appreciate your thoughts.
Re: Moving to France from US in 2023 - tax optimisation
No offense: there may be reasons for moving from the US to France, but tax optimization is definitely not one of them. Thinking long term, did you check the Estate tax situation? La succession de Johnny lol
Better lucky than smart.
Re: Moving to France from US in 2023 - tax optimisation
Oh yes. Tax optimisation is about bringing our cost basis *up* before heading into the land of 30% effective tax rates on CGT. Re: estate taxes - yes also aware of that. We'll be giving up GC and citizenship which solves some problems but then we have to work out the real implications of the news this week that France is double downing on inheritance rules. A right PITA as British citizens we were hoping to keep the UK as the primary legal authority.