moving to UK. investment and 401K questions.

Hi,
My wife and I are both uk citizens and have been working in the us for the past 8 years. In July we will be returning permanently to the UK. We have significant investments in US mutual funds both in and out of our 401K plans. My questions are as follows.

1. Should be dispose of our mutual funds before we return and pay the capital gains tax in the US as part of our 2006 US tax return or hold on to them.  If we do dispose of them before april,  I assume it will not fall under the 2006-2007 UK tax return. 
2. If we do hold on to them, do we just file a US tax return when we finally dispose of them and have to pay the capital gains tax.  I assume under the us-uk tax treaty I would report the gains in the uk.  pay there and apply for a deduction in the us tax return.
3. Similar questions for the 401k. I'd much prefer to leave this alone and not get smacked with the early withdrawal penalty. I read somewhere that it would be better to roll this over into a roth ira.

Thanks in advance for help.
James

I suspect you may have not fully understood the UK/US treaty and domestic UK tax rules on capital gains.  I cannot tell whether you have US green cards or not as this has a bearing.

The UK tax implications of your proposed strategy could be far worse than you may think, so I would take advice from a UK tax adviser who specialises in Americans before 5th April (i.e an adviser familiar with UK residency, 401(k)s, US mutual funds and the US/UK tax treaty). 

Just to clarify, neither of us are us green card holders. Any recommendations? Should I just keep everything where it is until rertirement?
James

Well, if you ask me, you should withdraw all funds and make the cheques payable to me, c/o the Caymen Islands.  No wait, ask your dog where to invest it.

Seriously, asking a random forum where the people who reply are not held accountable for their advice doesn't really seem to be the best way to get your investment advice.  What is your recourse if the advice you act on ends up costing you more than another option would have?  This is your life savings; you've worked all your life for it!  Why take such a huge risk?  Seek a top UK tax advisor as Guya recommended to you; rather than putting yourself at the mercy of the fickle finger of fate (better known as the web).