Looking to deploy company sale proceeds on the market (UK Non-dom)

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Topic Author
TheHippo
Posts: 4
Joined: Tue Aug 17, 2021 6:30 pm

Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TheHippo »

Looking to deploy company sale proceeds on the market (UK Non-dom)

Country of Residence: United Kingdom (Non-Dom) - French citizenship

International Lifestyle: 30% chance of a move to France in the next 18 months, 50% chance of a move to the US in the next 3 years.

Currency: USD

Emergency funds: $500k'ish.

Debt: None

Age: 30-39

Desired Asset allocation: 80% stocks / 10% PE / 5% cash / 5% ?

Desired allocation to stocks outside your of country of residence: 100%

I'm holding about $11.5M in cash after the sale of my business 6 months ago. I took six months to wrap up anything related to the transaction and started reaching out to wealth management firms in the mean time for the sake of doing my due diligence.

I talked to some of the better known players in the space (Pictet, Julius Baer, Lombard Odier, Cazenove) and no one I talked to felt like they could drive returns a lot higher than what I'd be able to do myself, and the additional services didn't really appeal to me.

I'm more or less ready to pull the trigger on investments and will probably DCA over the next year or so for the sake of feeling better about the process. Nothing fancy on strategy, I'm probably just looking to replicate a fairly basic US-centric portfolio. Anything globally international gets a bit tricky because it would involve UK stocks and could cause issues with my non-dom status.

Pretty much all the money is currently located in Switzerland and I will most likely use Swissquote to handle stock purchases. My country of residence is still pretty fluid, and there's a 50% chance I will end up in the US in the next 3 years. I understand that Ireland-based ETFs (eg. VUSA) are the way to go if I stay in Europe, but I'm unclear on what it means if I were to move to the US.

I have a few questions out to my accountants but I'd actually love to get the community's opinion on my situation, from what I've seen there's some very resourceful people out there.

1. If I hold a lot of Ireland based US ETFs and move to the US, is the only real problem the 15% WHT on dividends?

2. In Europe, can you generally claim the 15% WHT as a tax credit through tax treaties in your country of residence?

3. Would I be able to swap Ireland based US ETFs for US based equivalent ones without triggering capital gains?

4. (This one is probably much better asked to my accountants) Does investing in global/MSCI World ETFs trigger some % of remittance to the UK as a non-dom individual?

5. Is there any red flag I'm missing that is worth bringing up to professionals I'm talking to? This is a very open ended question but this is what I'm the most worried about.
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TedSwippet »

Welcome.
TheHippo wrote: Tue Jan 25, 2022 6:33 pm Pretty much all the money is currently located in Switzerland and I will most likely use Swissquote to handle stock purchases. My country of residence is still pretty fluid, and there's a 50% chance I will end up in the US in the next 3 years. I understand that Ireland-based ETFs (eg. VUSA) are the way to go if I stay in Europe, but I'm unclear on what it means if I were to move to the US.

I have a few questions out to my accountants but I'd actually love to get the community's opinion on my situation, from what I've seen there's some very resourceful people out there.

1. If I hold a lot of Ireland based US ETFs and move to the US, is the only real problem the 15% WHT on dividends?
No. By far your largest problem as a US resident holding non-US domiciled ETFs is the US's PFIC tax rule:

Passive foreign investment company - Bogleheads

Here your best case will be paying annual US income tax on both dividends and any unrealised yearly capital gains. The worst case is US tax that over time consumes your entire gain (if not even more).
TheHippo wrote: Tue Jan 25, 2022 6:33 pm 2. In Europe, can you generally claim the 15% WHT as a tax credit through tax treaties in your country of residence?
Europe is not a single homogeneous tax regime, but in general it seems that the answer, for indirect withholding tax paid internally by an ETF, is no. Most countries only allow tax credits only for direct withholding tax, for example the visible 15% taken by broker when you hold US stocks. You would need to check specifically with every country's domestic tax laws to find the precise answer for your case, though.
TheHippo wrote: Tue Jan 25, 2022 6:33 pm 3. Would I be able to swap Ireland based US ETFs for US based equivalent ones without triggering capital gains?
No. Switching between them involves sale of one thing and purchase of another, and the sale realises any accumulated capital gain. If you live in a country that taxes capital gains, switching like this will create a tax liability.
TheHippo wrote: Tue Jan 25, 2022 6:33 pm 5. Is there any red flag I'm missing that is worth bringing up to professionals I'm talking to? This is a very open ended question but this is what I'm the most worried about.
If you have not already found them, these wiki pages may help answer some questions (or perhaps raise some new ones):

- Non-US investor's guide to navigating US tax traps - Bogleheads
- Nonresident alien investors and Ireland domiciled ETFs - Bogleheads
- US tax pitfalls for a non-US person moving to the US - Bogleheads
Valuethinker
Posts: 49035
Joined: Fri May 11, 2007 11:07 am

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by Valuethinker »

TheHippo wrote: Tue Jan 25, 2022 6:33 pm Looking to deploy company sale proceeds on the market (UK Non-dom)

Country of Residence: United Kingdom (Non-Dom) - French citizenship

International Lifestyle: 30% chance of a move to France in the next 18 months, 50% chance of a move to the US in the next 3 years.

Currency: USD

Emergency funds: $500k'ish.

Debt: None

Age: 30-39

Desired Asset allocation: 80% stocks / 10% PE / 5% cash / 5% ?

Desired allocation to stocks outside your of country of residence: 100%

I'm holding about $11.5M in cash after the sale of my business 6 months ago. I took six months to wrap up anything related to the transaction and started reaching out to wealth management firms in the mean time for the sake of doing my due diligence.

I talked to some of the better known players in the space (Pictet, Julius Baer, Lombard Odier, Cazenove) and no one I talked to felt like they could drive returns a lot higher than what I'd be able to do myself, and the additional services didn't really appeal to me.

I'm more or less ready to pull the trigger on investments and will probably DCA over the next year or so for the sake of feeling better about the process. Nothing fancy on strategy, I'm probably just looking to replicate a fairly basic US-centric portfolio. Anything globally international gets a bit tricky because it would involve UK stocks and could cause issues with my non-dom status.

Pretty much all the money is currently located in Switzerland and I will most likely use Swissquote to handle stock purchases. My country of residence is still pretty fluid, and there's a 50% chance I will end up in the US in the next 3 years. I understand that Ireland-based ETFs (eg. VUSA) are the way to go if I stay in Europe, but I'm unclear on what it means if I were to move to the US.

I have a few questions out to my accountants but I'd actually love to get the community's opinion on my situation, from what I've seen there's some very resourceful people out there.

1. If I hold a lot of Ireland based US ETFs and move to the US, is the only real problem the 15% WHT on dividends?

2. In Europe, can you generally claim the 15% WHT as a tax credit through tax treaties in your country of residence?

3. Would I be able to swap Ireland based US ETFs for US based equivalent ones without triggering capital gains?

4. (This one is probably much better asked to my accountants) Does investing in global/MSCI World ETFs trigger some % of remittance to the UK as a non-dom individual?

5. Is there any red flag I'm missing that is worth bringing up to professionals I'm talking to? This is a very open ended question but this is what I'm the most worried about.
On 4 I think not, as long as you do not remit funds to London. However now that we have Brexited, there may be changes in financial products which bring them "onshore" -- I am thinking divergences between our Financial Services rules and the EU ones.

Anyways, you will need a good accountant. I can give you a name, privately, if you think you need one (they have Non-dom clients, at least - I can't swear they are the best).
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TedSwippet »

TheHippo wrote: Tue Jan 25, 2022 6:33 pm International Lifestyle: 30% chance of a move to France in the next 18 months, 50% chance of a move to the US in the next 3 years.
...
I'm holding about $11.5M in cash after the sale of my business 6 months ago.
Just an additional note that at this asset level, you would also be gliding into the firing line for US estate tax if you become a US resident. And that's at current exemption levels, never mind potential future (perhaps lower) ones.

As a general rule, unless there are significant family or other ties, folk with assets in the range you have would generally want to avoid becoming US tax residents. Perhaps also France, for similar reasons. Have you considered basing yourself in a (tax-haven, say) Caribbean island if you want to regularly visit the US, or in Portugal (NHR tax regime) for a more European base? With this much money at stake, it will be worthwhile avoiding some countries purely on tax grounds.
Topic Author
TheHippo
Posts: 4
Joined: Tue Aug 17, 2021 6:30 pm

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TheHippo »

Thanks for the insightful responses, appreciate it!
TedSwippet wrote: Wed Jan 26, 2022 2:51 am No. By far your largest problem as a US resident holding non-US domiciled ETFs is the US's PFIC tax rule:

Passive foreign investment company - Bogleheads

Here your best case will be paying annual US income tax on both dividends and any unrealised yearly capital gains. The worst case is US tax that over time consumes your entire gain (if not even more).
Well, that's definitely a non starter. Thanks for the callout.
TedSwippet wrote: Wed Jan 26, 2022 2:51 amEurope is not a single homogeneous tax regime, but in general it seems that the answer, for indirect withholding tax paid internally by an ETF, is no. Most countries only allow tax credits only for direct withholding tax, for example the visible 15% taken by broker when you hold US stocks. You would need to check specifically with every country's domestic tax laws to find the precise answer for your case, though.
Good to know, that was a potential side optimization called out by a friend. Ultimately it makes sense that the lack of reporting on an individual level would prevent most claims, but I'll check locally just in case.
Valuethinker wrote: Wed Jan 26, 2022 4:26 amOn 4 I think not, as long as you do not remit funds to London. However now that we have Brexited, there may be changes in financial products which bring them "onshore" -- I am thinking divergences between our Financial Services rules and the EU ones.

Anyways, you will need a good accountant. I can give you a name, privately, if you think you need one (they have Non-dom clients, at least - I can't swear they are the best).
Yeah I feel like things got slightly less clear post Brexit (unsurprisingly), but it's good to know that your gut feeling is that it's probably fine. I wasn't thrilled at the idea of having to run a portfolio that is so close to 100% US. I should be good on accountant, the firm I use runs both US and UK accounting and has been reliable so far.
TedSwippet wrote: Wed Jan 26, 2022 6:23 amJust an additional note that at this asset level, you would also be gliding into the firing line for US estate tax if you become a US resident. And that's at current exemption levels, never mind potential future (perhaps lower) ones.

As a general rule, unless there are significant family or other ties, folk with assets in the range you have would generally want to avoid becoming US tax residents. Perhaps also France, for similar reasons. Have you considered basing yourself in a (tax-haven, say) Caribbean island if you want to regularly visit the US, or in Portugal (NHR tax regime) for a more European base? With this much money at stake, it will be worthwhile avoiding some countries purely on tax grounds.
I mostly hold non UK assets (including one more company that has been doing okay so far) so living in the UK as a non-dom is basically my version of tax optimization for now. I wouldn't really consider a tax-haven because I don't have it in me to shape my future around taxes to that extent, but I'll definitely change plans to aim towards tax-friendly when possible. The main reason why I would consider the US is because from an entrepreneurial point of view, the 20'ish% long term capital gain you'll get hit with during a company sale is more or less equal to the increased valuation/ease of funding you'd get from being in the US. (This is obviously a personal opinion, please don't hurt me)

The choice of country is a hot topic for me, the things I value in my day to day life tend to pull me towards the US but the country itself clearly has some issues that are hard to ignore. Estate tax isn't a big concern right now (we don't have kids yet) but will become more important over the next few years, and will become a battle between the US, the UK, and probably something like Switzerland if I grow old enough to enjoy watching the mountains and the cows all day long.
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TedSwippet »

TheHippo wrote: Thu Jan 27, 2022 2:18 am The choice of country is a hot topic for me, the things I value in my day to day life tend to pull me towards the US but the country itself clearly has some issues that are hard to ignore. Estate tax isn't a big concern right now (we don't have kids yet) but will become more important over the next few years, and will become a battle between the US, the UK, and probably something like Switzerland if I grow old enough to enjoy watching the mountains and the cows all day long.
Of the three, Switzerland is clearly the most tax-friendly. The US's tax system is rabidly xenophobic and wildly complex, but marginally less intolerable in complexity if absolutely everything you have is in the US and you will never, ever leave the plantation. The UK's tax system is not simple except by comparison with the US's, and while the general view is that UK tax is higher than US, the higher and additional UK tax allowances that the US doesn't have can moderate its headline rates into something more or less on par with the US, or even lower than the US when you factor in high state taxes (CA, NY, etc). The UK's inheritance tax is however particularly vicious, when the time comes for that to concern you. It can however be entirely neutered by strategic gifting, because unlike the US, the UK has no gift tax.

If you will move to the US, there is a way to position your portfolio for that. You could perhaps effectively construct your own tracker funds:

Passively managing individual stocks - Bogleheads

Or, if you want the simplicity of funds, the trick is to hold only selected US domiciled ETFs:

Vanguard US domiciled ETFs that are UK HMRC reporting funds - Bogleheads

These won't run into the US's nasty PFIC tax rules (of course), but also won't fall foul of the UK's 'reporting fund' tax regime. The fly in the ointment is an EU/UK regulation called PRIIPs which prevents EU/UK brokers from selling these "complex"(!) products to retail investors. However, you can bypass this if you become a "professional" investor. Qualifying for this is mostly just about having enough assets, and you do. So if you want to follow this route you might start by investigating this with Interactive Brokers, say.

US domiciled ETFs would also I believe be fine to hold if you then change your mind and move to Switzerland instead. I don't know about France; it may or may not have some punitive 'offshore' fund tax rules, so you'll probably want to check that before proceeding.
Topic Author
TheHippo
Posts: 4
Joined: Tue Aug 17, 2021 6:30 pm

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TheHippo »

TedSwippet wrote: Thu Jan 27, 2022 3:18 am Of the three, Switzerland is clearly the most tax-friendly. The US's tax system is rabidly xenophobic and wildly complex, but marginally less intolerable in complexity if absolutely everything you have is in the US and you will never, ever leave the plantation. The UK's tax system is not simple except by comparison with the US's, and while the general view is that UK tax is higher than US, the higher and additional UK tax allowances that the US doesn't have can moderate its headline rates into something more or less on par with the US, or even lower than the US when you factor in high state taxes (CA, NY, etc). The UK's inheritance tax is however particularly vicious, when the time comes for that to concern you. It can however be entirely neutered by strategic gifting, because unlike the US, the UK has no gift tax.
Yeah I actually spent 10 years working in the US (California, of all places) and got a taste of the tax system a couple of times, 4 of these years were handled by PwC because my situation got more complex than "here's your W2" and started involving international tax treaties (which CA never recognizes). I think you perfectly summarized my view of the US tax system with "it's tolerable if you plan to never leave".
TedSwippet wrote: Thu Jan 27, 2022 3:18 am If you will move to the US, there is a way to position your portfolio for that. You could perhaps effectively construct your own tracker funds:
This is an interesting approach, I think this is something that Schwab and a couple of other brokers started offering recently in an automated way. At least I feel like I read something about it. I wonder if anyone outside of the US does this for S&P 500 replication.
TheHippo wrote: Thu Jan 27, 2022 2:18 am Vanguard US domiciled ETFs that are UK HMRC reporting funds - Bogleheads

These won't run into the US's nasty PFIC tax rules (of course), but also won't fall foul of the UK's 'reporting fund' tax regime. The fly in the ointment is an EU/UK regulation called PRIIPs which prevents EU/UK brokers from selling these "complex"(!) products to retail investors. However, you can bypass this if you become a "professional" investor. Qualifying for this is mostly just about having enough assets, and you do. So if you want to follow this route you might start by investigating this with Interactive Brokers, say.
I didn't know Vanguard had the main US ETFs are UK HMRC reporting as well, this is actually really good to know. IBKR is a non starter as a non-dom because in my experience after a couple of discussions with their support, they have no way to guarantee that your funds won't be domiciled in the UK. It's only an issue between the moment where I transfer cash to the account before buying ETFs, but it's still an issue I didn't want to deal with in case the HMRC ever comes knocking.

However, your post saying "EU/UK regulation" lit up a lightbulb in my head and made me realize that I never checked Swissquote for US ETFs since I got my account activated with them. As far as I can tell, I can totally buy Vanguard US ETFs there and I feel 80% stupid for not checking earlier.

Assuming this works, I guess then the question is only to figure out what are the tax implications of holding those in the UK and in France (30% WHT on dividends?), and then balancing out the decision with the massive estate tax risk of holding those as US assets?
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TedSwippet »

TheHippo wrote: Thu Jan 27, 2022 9:46 am Assuming this works, I guess then the question is only to figure out what are the tax implications of holding those in the UK and in France (30% WHT on dividends?), and then balancing out the decision with the massive estate tax risk of holding those as US assets?
The standard treatment is for US withholding tax, unrecoverable from the US, at the prevailing US/<country> treaty (or treaty protocol) rate on dividends. Currently that would be 15% for both the UK and France, treaty articles 10(2) and 10(2)/2P2 respectively. A UK investor can claim up to this 15% as a credit against UK tax, to the extent that their UK tax liability is 15% or higher. I would assume (guess!) that the same is true of France, though no direct experience or knowledge.

A couple of notes though. Firstly, I don't know how, or if, this all interacts with UK non-dom status. As a UK citizen, non-dom is well outside my experience. And secondly, I know nothing about France, and have extrapolated UK tax credit rules in a way that might not be correct, but only because it seems to be a sort-of normal thing for most countries to do, if only because other clauses in tax treaties usually require it. In particular, France might have something similar to HMRC 'reporting status' that I've entirely missed here.

Finally, you'll want to confirm all of this with a proper adviser before proceeding, not least because of the sizeable sums involved here. Remember that I'm just some random stranger on the internet.
Topic Author
TheHippo
Posts: 4
Joined: Tue Aug 17, 2021 6:30 pm

Re: Looking to deploy company sale proceeds on the market (UK Non-dom)

Post by TheHippo »

TedSwippet wrote: Thu Jan 27, 2022 10:09 am Finally, you'll want to confirm all of this with a proper adviser before proceeding, not least because of the sizeable sums involved here. Remember that I'm just some random stranger on the internet.
I definitely will confirm with my tax firm and probably Swissquote as well to figure out how they deal with the actual WHT on dividends.

I do like internet strangers though, they have a much smaller incentive to go "oh yeah we can do a risk analysis for you and it will be £10k". This happens a lot in London when you're shopping around for a 2nd opinion, and realistically the only thing I'm looking for is a few more point of views along with enough data to target my questions to tax professionals better. Otherwise you end up with a 15 pages document that still didn't give you a proper answer. That's why internet strangers are awesome.
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