Keep it simple.......

I've been posting here for a couple of years as I plan to return to the UK at some point. I'm a UK/US dual citizen working in the the US so when I come back to the UK I'll have to deal with cross border tax issues. My focus has mostly been on the taxation of US retirement funds and after tax investments for a US/UK citizen resident in the UK and I thought it might be useful to outline some of my conclusions for people who might find themselves in the situation of being a US citizen taxed on worldwide income by both the UK and the US.

1) Owning pooled investments (mutual funds, unit trusts etc) in taxable accounts is a bad thing. The US has complex PFIC rules with lots of penalties and the UK will tax US funds dividends and capital gains at your marginal tax rate, not so bad if you are in the 20% bracket, but still a pain in the neck. Owning individual stocks is better as far as tax goes, but that has it's own headaches and as I'm a "lazy investor" in index or tracker funds I haven't really considered that avenue.

2) Pooled investments are ok in US retirement accounts. The tax treatment of such accounts is quite sensible and well covered in the UK/US tax treaty. So US retirement accounts can grow tax free. Withdrawals are then taxed as income and you can use tax paid in one country as a credit against tax in the other. Also ROTHs are tax free in the US and the UK under the treaty.

3) Before you move to the UK sell all your US taxable mutual funds and your house etc to realize the capital gain. Then a simple thing to do is to put the money in CDs or a saving account. For the US saver the dogma is to keep CDs and other income producing investments in tax advantaged accounts, to limit taxation, but as I've decided to avoid pooled investments in taxable accounts I'm just going to increase the percentage of equity mutual funds in my retirement accounts and put the fixed income on the taxable side. That way my mutual funds can grow tax free, I keep my returns relatively simple and I keep my asset allocation where I want it. It may not be the best as regards tax, but it does keep things simple as I'll only have foreign interest to declare until I tap the retirement accounts when I'll also have foreign income.

4) Your SS payments are only taxed in the UK.

5) Make sure you file TDF9.22-1 if you have more than $10k in foreign accounts.

I may start a blog as I get closer to my move so I can write about the practicalities of leaving the US and retiring in the UK. It will give me something to do!

Owning pooled investments (mutual funds, unit trusts etc) in taxable accounts is a bad thing. The US has complex PFIC rules with lots of penalties

What about Investment Trust companies? Presumably they would be OK?

What about Investment Trust companies? Presumably they would be OK?

From an investment perspective they may be OK.  From a US tax perspective they are as nun wisely observes caught by the PFIC regime.

I've been posting here for a couple of years as I plan to return to the UK at some point. I'm a UK/US dual citizen working in the the US so when I come back to the UK I'll have to deal with cross border tax issues. My focus has mostly been on the taxation of US retirement funds and after tax investments for a US/UK citizen resident in the UK and I thought it might be useful to outline some of my conclusions for people who might find themselves in the situation of being a US citizen taxed on worldwide income by both the UK and the US.

1) Owning pooled investments (mutual funds, unit trusts etc) in taxable accounts is a bad thing. The US has complex PFIC rules with lots of penalties and the UK will tax US funds dividends and capital gains at your marginal tax rate, not so bad if you are in the 20% bracket, but still a pain in the neck. Owning individual stocks is better as far as tax goes, but that has it's own headaches and as I'm a "lazy investor" in index or tracker funds I haven't really considered that avenue.

2) Pooled investments are ok in US retirement accounts. The tax treatment of such accounts is quite sensible and well covered in the UK/US tax treaty. So US retirement accounts can grow tax free. Withdrawals are then taxed as income and you can use tax paid in one country as a credit against tax in the other. Also ROTHs are tax free in the US and the UK under the treaty.

3) Before you move to the UK sell all your US taxable mutual funds and your house etc to realize the capital gain. Then a simple thing to do is to put the money in CDs or a saving account. For the US saver the dogma is to keep CDs and other income producing investments in tax advantaged accounts, to limit taxation, but as I've decided to avoid pooled investments in taxable accounts I'm just going to increase the percentage of equity mutual funds in my retirement accounts and put the fixed income on the taxable side. That way my mutual funds can grow tax free, I keep my returns relatively simple and I keep my asset allocation where I want it. It may not be the best as regards tax, but it does keep things simple as I'll only have foreign interest to declare until I tap the retirement accounts when I'll also have foreign income.

4) Your SS payments are only taxed in the UK.

5) Make sure you file TDF9.22-1 if you have more than $10k in foreign accounts.

I may start a blog as I get closer to my move so I can write about the practicalities of leaving the US and retiring in the UK. It will give me something to do!

nun - I admire you for setting out your thoughts so clearly.   You may not be married or in a civil partnership but many on this Forum are.  If so & one spouse/partner is not a US citizen there are extra layers of planning needed.  You have ignored gift taxes, estate taxes and inheritance taxes as well, probably because that is not your main focus right now.

1) From a tax perspective this is pretty damn well said
2) I can't agree that US tax-deferred retirement/savings plans are well covered under the treaty.  The treaty became effective from 2004 but the UK re-wrote much of the UK pension law from 2006 & a great number of tax issues remain unresolved.
3) Because you are keeping currency in US dollars the UK may tax you on foreign currency gains.
4) I don't understand this comment, sorry!

Guya thanks, you have identified my biases, I'm not thinking about inheritance yet and there are no spouses or children in the picture.

1) this is praise indeed.

2) well everything is relative, at least there is some structure and there has been some attempt to recognize retirement funds. I won't be making contributions once I'm in the UK so it's just the withdrawal phase from my IRA, and government service defined contribution plan, 403b and 457 accounts. I'm putting as much in to my ROTH as I can and I'll probably spend a couple of years unemployed in the US prior to retiring back to the UK so I'll use those low income years to rollover some of my IRA into the ROTH.

3) My retirement stuff will stay in the US so I'll just have to deal with tax on currency gains on the income I take out of it. I'll probably put most of my cash reserves in the UK as that's where I'll need it and set up a saving account and the UK equivalent of a 5 year CD ladder, prevailing interest rates will dictate exactly how I do this.

4) I was just saying that, as I understand it, a UK/US dual citizen resident in the UK is  only taxed in the UK on US social security and UK state pension. If I was to stay in the US they would only be taxed in the US. I think that's right.

is the above still relevant by and large?

I believe so. What are your questions?