Tax due upon remittance from US to UK ?

I am UK resident, but used to work in US long time back, so still have investments there. I am non domiciled but cannot afford to pay 30 grand, so have to be UK-taxed on arising basis. I am permanent resident in the UK but do not have British passport yet. I do NOT have a US green card or US citizenship.

Lets say I have a total net worth of $120,000 in the US [outside of 401k/IRA] - lets say $100,000 of this in in a US bank and the rest $20,000 is tied up in Vanguard Total Stock Market Index fund.

My problem is that I need to invest this money. If I keep the money in US and invest in US mutual funds, the UK tax treatment is not favourable, so considering moving it here into UK and invest.

If I move it to UK, there is a tax liability. [It is being forked in chess. Either way, I have a problem]

I have been to 3 UK tax attorneys so far and none of them seem thorough. They could not answer many questions and none of them mentioned the exchange rate stuff that Guya mentioned to Judy.

I have broken my timeline as follows :

I) Before 2001, I had no UK history.

II) From 2001 to 2005, I was a US expat in UK. I got my salary in the US and got living allowances in the UK. My company did the "tax equalization" stuff and they basically paid my UK tax liability on my total salary plus benefits. They filed my UK and US tax return, but from my standpoint, I could "imagine" as if I just paid normal US tax on my US salary. This is known as hypothetical return. I was non domiciled at that time and the old non-dom laws were valid then. I did not remit any US funds into UK, so I simply paid US taxes on my US bank interest, investments etc.

III) In 2005 I relocated to UK on UK pay. I was getting US bank interest but since I did not remit anything, I did not pay UK tax. My US tax was almost zero, since my total US investment income per year (which was mostly bank interest) was less then $5000.

Questions :

*) So, if I now bring the whole lot of $120,000 into the UK, what will be the UK tax due ? I am now a high rate tax payer in the UK.

*) Basically remittance will treated as income in the year of remittance ? so I might have earned the interest in 2002, but because I am remitting it this year, it will be treated as income this year and taxed accordingly ?

*) I need to determine how much of the $100,000 is income and how much is principal. I could look at all my US tax returns from 2001 to 2008, add up all the bank interest (dividends are very small and can be ignored for this discussion), and this total comes to say $25,000. Out of this, I have already paid US tax of 25% or so during the period 2002 to 2005 so I will get credit for that. So my tax liability will be basically 40% of this $25,000 less US tax paid ?

*) Does currency come into this ? This was not money taken out of UK.

*) In 2007, my US bank went bust, so say I had $115,000 in the bank, I lost $15,000. Will I get any credit at all for this ? I mean, yes, my bank interest was $25,000 and I am happy to pay tax on this however, $15,000 out of this vaporized and I ain't gettin it back, so its not fair to ask me to pay tax on something that doesnt exist in this material world anymore ??!!

*) My total investment in the Vanguard muutal fund was $27,000 which is now worth $20,000. Because the Vanguard mutual fund does not have distributor status, if I sell it at a loss, can I treat it as income loss to offset my remittance this year which is going to be treated as income ?

*) Instead of bringing it to UK, can I move the money to Ireland or Switzerland and are there any tracker/ETF type of simple mutual fund which has UK distributor status ? does Barclays iShares ETF work from Ireland or Switzerland ? I would still pay tax on arising basis but would hopefully receive favourable tax treatment as if I had invested in the UK itself. Is this possible at all ?

I am UK resident, but used to work in US long time back, so still have investments there. I am non domiciled but cannot afford to pay 30 grand, so have to be UK-taxed on arising basis. I am permanent resident in the UK but do not have British passport yet. I do NOT have a US green card or US citizenship.

Lets say I have a total net worth of $120,000 in the US [outside of 401k/IRA] - lets say $100,000 of this in in a US bank and the rest $20,000 is tied up in Vanguard Total Stock Market Index fund.

My problem is that I need to invest this money. If I keep the money in US and invest in US mutual funds, the UK tax treatment is not favourable, so considering moving it here into UK and invest.

If I move it to UK, there is a tax liability. [It is being forked in chess. Either way, I have a problem]

I have been to 3 UK tax attorneys so far and none of them seem thorough. They could not answer many questions and none of them mentioned the exchange rate stuff that Guya mentioned to Judy.

I have broken my timeline as follows :

I) Before 2001, I had no UK history.

II) From 2001 to 2005, I was a US expat in UK. I got my salary in the US and got living allowances in the UK. My company did the "tax equalization" stuff and they basically paid my UK tax liability on my total salary plus benefits. They filed my UK and US tax return, but from my standpoint, I could "imagine" as if I just paid normal US tax on my US salary. This is known as hypothetical return. I was non domiciled at that time and the old non-dom laws were valid then. I did not remit any US funds into UK, so I simply paid US taxes on my US bank interest, investments etc.

III) In 2005 I relocated to UK on UK pay. I was getting US bank interest but since I did not remit anything, I did not pay UK tax. My US tax was almost zero, since my total US investment income per year (which was mostly bank interest) was less then $5000.

Questions :

*) So, if I now bring the whole lot of $120,000 into the UK, what will be the UK tax due ? I am now a high rate tax payer in the UK.

*) Basically remittance will treated as income in the year of remittance ? so I might have earned the interest in 2002, but because I am remitting it this year, it will be treated as income this year and taxed accordingly ?

*) I need to determine how much of the $100,000 is income and how much is principal. I could look at all my US tax returns from 2001 to 2008, add up all the bank interest (dividends are very small and can be ignored for this discussion), and this total comes to say $25,000. Out of this, I have already paid US tax of 25% or so during the period 2002 to 2005 so I will get credit for that. So my tax liability will be basically 40% of this $25,000 less US tax paid ?

*) Does currency come into this ? This was not money taken out of UK.

*) In 2007, my US bank went bust, so say I had $115,000 in the bank, I lost $15,000. Will I get any credit at all for this ? I mean, yes, my bank interest was $25,000 and I am happy to pay tax on this however, $15,000 out of this vaporized and I ain't gettin it back, so its not fair to ask me to pay tax on something that doesnt exist in this material world anymore ??!!

*) My total investment in the Vanguard muutal fund was $27,000 which is now worth $20,000. Because the Vanguard mutual fund does not have distributor status, if I sell it at a loss, can I treat it as income loss to offset my remittance this year which is going to be treated as income ?

*) Instead of bringing it to UK, can I move the money to Ireland or Switzerland and are there any tracker/ETF type of simple mutual fund which has UK distributor status ? does Barclays iShares ETF work from Ireland or Switzerland ? I would still pay tax on arising basis but would hopefully receive favourable tax treatment as if I had invested in the UK itself. Is this possible at all ?

You already have opinions from 3 lawyers.  You make statements above which are factually incorrect such as being subject to US tax on US bank interest as a non-resident alien.  You also confuse tax equalization as a process - with hypothetical tax withholding and the theoretical stay at home tax obligation you once had.  I realise these are difficult terms and concepts, however there is no better way to get these addressed than seeking an opinion from a qualified adviser.

Indeed, you provide a great deal of detail here which you have chosen to post on a public forum, so it is now in the public domain - and indeed available for inspection by HMRC.  I suggest you return to one of your chosen 3 solicitors and ask them to provide a written opinion taking into account the legislation in the 2008 Finance Act and your personal circumstances.  If it helps, I estimate it should take roughly 3 to 5 hours to draft a response to your questions - at the hourly rate of one of your 3 chosen advisers.


 

Guya, Thanks for the responses.

> You make statements above which are factually incorrect such as being subject to US tax on US bank interest as a non-resident alien.

Sorry, but could you please explain the above ? Are you saying I did not owe any US tax on my US bank interest ? I was advised by US tax attorney to file 1040 NR even after I localized to UK.

Okay, after some googling I found out that I was totally wrong. It appears that non-resident aliens do not have to pay US tax on their US bank interest. This site explains it all quite well : http://invest-faq.com/articles/tax-non-us-nat.html [nofollow]

I erroneously thought that since I had investments in the US, I was supposed to file US tax returns as well. I paid a tax "expert" to file my US tax return in 2005,2006 and a different tax "expert" file my 2007 return. But none of them even told me about this. Since I dont have a Bachelors degree in tax law, I just took their word for it. You pay an expert and you think they should know. I have now challenged the "expert" with this information and she is going to redo my return.

However, one thing I dont understand is : Non-resident aliens pay no tax on their US bank interest, no tax on their US capital gain, but dividends are taxed at flat 30% ? Why only dividends are taxed ? Whats special about dividends ?