My husband and I are in the process of moving from Aberdeen, UK to Houston, Texas. Surprisingly enough, not because of his engineering career in Oil & Gas, but because I am a Chartered International Financial Planner.
So, when we move, there’s a lot to think about – selling your home, your car, and even finding the best wine bars in your new city. But what about your UK investments and pensions?
If you’re planning to move from the UK to the US or have already made the move, I’ve got some tips for you to keep in mind when it comes to your finances.
You might not have thought about it yet, but there are some specific rules for British expats in the US that can result in some hefty penalties if you’re not careful. I’m not a tax advisor, so make sure you seek help from a pro in that area, but let’s talk about what you need to know.
If you’ve got ISAs or Unit Trusts back in the UK, these should be a top priority for you to address, ideally before you move. Whilst ISAs in the UK are amazingly tax efficient, they become surprisingly toxic from a tax perspective when you leave. This is because the US considers most of the assets within these investments to be “Passive Foreign Investment Companies (PFICs)”, and these attract a staggeringly high tax rate. In my opinion, these should most definitely be avoided by anyone connected to the US.
These can often fall by the wayside in general, never mind when planning to relocate! I harp on about this all the time, but it is important to remember that pensions are a big part of our retirement portfolios, and they should always be reviewed.
Unfortunately, most of the pension market in the UK won’t want to deal with you because of your US residency and most UK based financial advisers can’t help you when you leave. This can mean expats are left with no one to help manage their pension and, in turn, end up with a weaker return on assets in the wrong currency; not to mention the possibility of paying high fees for a service you’re not getting.
Regardless of whether you have a defined contributions (money purchase) or a defined benefit (final salary) pension, you have options. You could consider moving your pension(s) into an international SIPP (Self-Invested Personal Pension). This is a UK pension wrapper that allows a wide range of investments, can convert to USD (or other currencies), potentially reduce costs, and provide better management for your legacy UK pensions.
A dual-qualified UK/US Financial Planner will be able to help.
One important thing to note: you are usually able to take 25% of your UK pensions as a tax-free lump sum (PCLS) back in the UK. This doesn’t have an equivalent in the US and falls under the US-UK Double Taxation Agreement. Typically, it qualifies as being tax free at a federal level, but some states don’t follow this rule – so definitely one to watch, and very worthwhile getting some expert tax advice on this from a cross-border Accountant (CPA).
UK State Pension
You need 35 years of national insurance contributions to get the full state pension in the UK. You can check with HMRC to see if you already qualify for the full amount or if you have a shortfall. If you do find yourself a few years short of the full benefit, you can top up your national insurance payments to cover it. Ideally, you’ll want to consider paying any missing years before you go as if you backfill when you are paying into the US system it could impact your US pension entitlement, which kicks in after 10 years of work. It’s easy to check your UK state pension using your online HMRC account; if you don’t have one, you can register for a government gateway ID online and get access easily.
And finally, declare everything! I’ve talked to so many people who are keeping assets or income streams from the IRS. This is a big ‘no no’. Whether you have proceeds from a house sale in the UK (capital gains), UK rental income, UK pension income, or any income you receive into a UK GBP bank account, you must let the IRS know. Failing to do so can result in high penalties and ignorance is not a defence. The IRS will likely find out about your foreign accounts from your financial institution, who are required to report under the Foreign Account Tax Compliance Act (FATCA).
So, there you have it. Moving to the US from the UK can be a little tricky when it comes to your finances, but with the right advice and planning, you’ll be just fine. Make sure you add “check my UK investments and pensions” to your to-do list!
And if anyone knows some good wine bars in Houston, I’d be delighted to get a recommendation!