Moving country is often an exciting chapter in your life which opens up a whole range of new experiences and opportunities. There can, however, be challenges and in some cases (particularly when moving to the USA), it can be particularly beneficial to get certain investment arrangements in order before your big move.

Often people in the UK will hold investments in the following accounts:

• Stocks and Shares ISAs

• General Investment Accounts (GIAs)

• UK Personal Pensions/Self Invested Personal Pension (SIPPs)

 

This article will go through some key considerations that you should be aware of before making your move to the USA from the UK and then discuss considerations specifically for the three types of account listed above.

Key Terms:

Below are a couple of brief overviews of key terms which will be relevant for this article.

• IRS Filing: Once you are a US resident, you will be required to file your taxes on an annual basis with the IRS (the US equivalent of HMRC). This will include declaring all income from employment and also declaring your worldwide investments, including those back in the UK. It is therefore important to make sure that the investments you hold are compliant and it is often best to do so before moving out.

• Passive Foreign Investment Company (PFIC): In short, a Passive Foreign Investment Company (PFIC) is defined by the IRS as any collective investment i.e. a fund, which is traded on a non-US exchange.

  For example, the investment company Vanguard has a tracker fund designed to track the US S & P 500 fund (the top 500 listed US companies). There is a version of this traded on the New York Stock Exchange and a version traded on the London Stock Exchange.

  Whilst both funds are essentially doing the same thing, the fund sold in London is a PFIC in the eyes of the IRS, whereas the version sold in New York is not.

  Should any PFICs be listed on a tax return, it is seen as non-tax compliant and will be subject to considerably less favourable treatment by the IRS. Therefore, it is important to make sure investments are IRS compliant if you are going to be needing to complete an IRS tax return.

 

Stocks & Shares ISAs:

Stocks and Shares ISAs provide an incredibly tax efficient vehicle for investing in a range of investments. They are designed to allow you to grow your money, free of income and capital gains tax and allow you to contribute up to £20,000 in each tax year.

Stocks and Shares ISAs offer a range of investments, including funds and individual stocks and bonds.

The shares sold within a Stocks & Shares ISA, however, will all be UK domiciled and therefore treated as a PFIC.

Many people will have found themselves with considerable ISA savings before moving to the USA and therefore, can find themselves in a situation where they complete their IRS tax return, only to find out they have fallen foul of the PFIC rules.

In cases like this, we will look to implement a US-Compliant ISA portfolio which is designed to be within the IRS rules and provide the appropriate reporting documentation.

There is the challenge that the only funds that can be purchased will be UK domiciled.

As a result, we will look to build out a well-diversified portfolio with a range of stocks and bonds from a range of sectors and geographical locations across the globe. We are able to do this by moving the ISA saving to a new stocks and shares ISA custodian who can support US residents and allow for a US compliant portfolio to be built.

It is important to get ahead of this before you move as you can only open a stocks and shares ISA when living as a UK resident under the Statutory Residence Test (SRT) for the tax year in question. Unfortunately, people often find out about these rules after they have moved, which greatly limits the options available.

Whilst the IRS will look through the ISA Wrapper, it is still often worthwhile keeping the built-up allowance as this can greatly factor into many medium to long term financial planning decisions. It is therefore worth looking into options with this whilst you are still a UK resident and preparing to emigrate to the States.

 

General Investment Accounts (GIAs):

General Investment Accounts differ from stocks and shares ISAs in that they have no tax wrapper status or tax benefits, however, they are fully flexible accounts in that you can add as much money as you would like i.e. there are no contribution limits.

It is important, as with the stocks and shares ISAs, to remain IRS compliant and to fall on the right side of the PFIC rules to avoid any unwanted surprises from the IRS.

With the General Investment Accounts, there is a greater range of investment choice and US domiciled funds are available. Therefore, it is possible to have a portfolio made up of individual holdings and US domiciled funds for added diversification.

It is possible to have a portfolio made up fully of US domiciled funds, however, this may not be appropriate for investors looking to invest in sterling as the funds will be US dollar denominated. That being said, this approach can provide an option for investors looking for a low-cost solution who may not have £100,000+ to invest, for example.

At CBFP, we can accommodate a range of investing needs by being able to provide a range of different strategies which can fit into your individual financial planning requirements.

 

UK Personal Pensions and Self Invested Personal Pensions:

Thankfully, UK pensions are covered under the US/UK Double Taxation Agreement and by these tax wrappers being recognised by the IRS, this adds a greater level of flexibility by allowing us to consider investment strategies which include PFICs.

The main consideration is whether or not your pension provider is comfortable with providing a pension suitable for a US resident. The main issues here can include being able to offer flexible access to a US resident, beneficiary pensions to US residents or multi-currency options, i.e. the investment infrastructure to allow for building out a US dollar denominated portfolio to mitigate currency risk.

We are familiar with the requirements concerning those based in the US or about to move to the US in regard to UK pensions and with the solutions and strategies that are available to build out a suitable financial plan.

 

Final Thoughts:

With investments in the UK, it is often best to get your financial affairs in order before moving to the US rather than finding yourself in a position of reacting after the event.

This is a specialist area with many considerations, and we recommend that you obtain appropriate financial planning and tax advice from a suitable specialist before making any decisions.

There are a whole range of other considerations when moving to the US, too. Many of these are covered in the article put together by our colleagues at CBFP USA, which can be found here.

 

 

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

The value of your investments can go down as well as up, so you could get back less than you invested.

Please note that the above is for information only and does not constitute individual financial advice.

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