Retiring to UK: Taxation Nightmare?

My husband is a dual citizen of an EEC country and the US, and is currently working in the UK with his US based company.  I am a UK/US dual citizen, and am not working.

We are approaching retirement age, and would prefer to retire here in the UK rather than return to the US.
 
After a lifetime of saving for retirement, our assets in the U.S. are substantial, including a house which is currently rented out, mutual funds in taxable accounts, and ROTH IRAs.  The issue bothering us is taxation, and difficulty in understanding to what extent we would be taxed on our hard-earned savings if we remained in the UK instead of returning to the U.S.  Will we be taxed in the UK on after-tax money brought over from the US?

Can anyone who has dealt with a similar situation comment? Any advice or comments would be most gratefully received.

My husband is a dual citizen of an EEC country and the US, and is currently working in the UK with his US based company.  I am a UK/US dual citizen, and am not working.

We are approaching retirement age, and would prefer to retire here in the UK rather than return to the US.
 
After a lifetime of saving for retirement, our assets in the U.S. are substantial, including a house which is currently rented out, mutual funds in taxable accounts, and ROTH IRAs.  The issue bothering us is taxation, and difficulty in understanding to what extent we would be taxed on our hard-earned savings if we remained in the UK instead of returning to the U.S.  Will we be taxed in the UK on after-tax money brought over from the US?

Can anyone who has dealt with a similar situation comment? Any advice or comments would be most gratefully received.

If you are UK residents you should already be paying UK tax on your worldwide income and assets if it is more than some minimum amount or unless you have chosen (and paid) to be taxed on a remittance basis. Also if your US mutual funds are not UK reporting funds you won't have any CGT allowance on them and any proceeds will be taxed by the UK at your marginal income tax rate. You will get a tax credit for US tax you pay on them.

As far as the US retirement funds go under the treaty they can grow tax free, but will be taxed as income by both the US and the UK. The same goes for your UK state pension. Your ROTHs will be tax free in the UK and the US.

If you are UK residents you should already be paying UK tax on your worldwide income and assets if it is more than some minimum amount or unless you have chosen (and paid) to be taxed on a remittance basis. Also if your US mutual funds are not UK reporting funds you won't have any CGT allowance on them and any proceeds will be taxed by the UK at your marginal income tax rate. You will get a tax credit for US tax you pay on them.

When you say "any proceeds will be taxed by the UK at your marginal income tax rate" do you mean the entire amount, or gains only?

My understanding is that currently we qualify as non-residents or non-domiciled and pay UK taxes exclusively on income earned in the UK, though of course that would change if we decided to settle here permanently.

When you say "any proceeds will be taxed by the UK at your marginal income tax rate" do you mean the entire amount, or gains only?

My understanding is that currently we qualify as non-residents or non-domiciled and pay UK taxes exclusively on income earned in the UK, though of course that would change if we decided to settle here permanently.

If you are taxed on a arising basis or if you remit proceeds from the mutual funds to the UK you'll be taxed on the gains as if they are income.

Non-domiciled is different from non-resident. You can claim to be taxed on a remittance basis if you are UK resident, but not ordinarily resident and/or non-domiciled. Where were you and your family born, where do you live, how long have you lived there, what is your visa status and what are your intentions? You need to know the answers to those questions to figure out your UK tax liability.

http://www.hmrc.gov.uk/cnr/hmrc6.pdf

Nun,  Thanks so much for the link.  Plenty of information there for me to get stuck into and understand the whole situation better. 

I was born here, husband in the EEC, but we have lived in the US for 18 years and are also USCs.  We have done nothing yet to suggest that our intention is to put down roots in the UK, and want to understand in depth what that would mean for us financially before we make any decisions.  DH is currently seconded here with his company.  We'll be here for 2-3 years, and then return to the US.  We are simply thinking ahead to retirement which will be in about 8 years time.

Nun,  Thanks so much for the link.  Plenty of information there for me to get stuck into and understand the whole situation better.  

I was born here, husband in the EEC, but we have lived in the US for 18 years and are also USCs.  We have done nothing yet to suggest that our intention is to put down roots in the UK, and want to understand in depth what that would mean for us financially before we make any decisions.  DH is currently seconded here with his company.  We'll be here for 2-3 years, and then return to the US.  We are simply thinking ahead to retirement which will be in about 8 years time.

If you were born in the UK and most of your family were also born in the UK then you are probably UK domiciled and you sound as is you are UK resident, and will be ordinarily resident if there is evidence of your intent to to stay longer than 3 years.

As USCs you will always be taxed on your worldwide income, your residency status in the UK will determine whether you are also taxed on your worldwide income by the UK.  If you are not ordinarily resident you can claim the remittance basis for UK taxation so they'll be no tax on your US mutual funds as long as the money stays in the US.

If you decide to retire to the UK you will obviously become UK ordinarily resident and will have to pay UK tax on your worldwide income. Here are some rules to follow if your are a US citizen retiring to the UK with US retirement and mutual fund accounts.

1) Your retirement accounts are well covered by the US/UK treaty. Growth is free of tax in US and UK, but income from them will be taxed by both the UK and the US, but you can use tax paid in one country as a credit towards tax due in the other.

2) As a USC it's a bad idea to own foreign pooled investments like UK stocks and shares ISAs, tracker funds etc. So your foreign taxable investment options are really limited to individual stocks and bonds, savings accounts, real estate, precious metals and expensive and complicated things involving insurance wrappers. HMRC will also tax gains from foreign mutual funds as income if they are not "UK reporting" funds. So the path of least resistance for the USC is to invest in US based mutual funds that have UK reporting status. Vanguard ETFs are a good for this.

3) The IRS does not treat UK based pension funds as simply and generally as HMRC does US funds. If you have a UK pension that you pay more into than your employer then your tax will get a bit complicated because tax professionals argue about it's status under US law. Some take a straight forward application of the Treaty and say that it covers such pensions.....others say that they are are foreign grantor trusts, which opens up a complex tax situation.
 

2) As a USC it's a bad idea to own foreign pooled investments like UK stocks and shares ISAs, tracker funds etc. So your foreign taxable investment options are really limited to individual stocks and bonds, savings accounts, real estate, precious metals and expensive and complicated things involving insurance wrappers. HMRC will also tax gains from foreign mutual funds as income if they are not "UK reporting" funds. So the path of least resistance for the USC is to invest in US based mutual funds that have UK reporting status. Vanguard ETFs are a good for this.

3) The IRS does not treat UK based pension funds as simply and generally as HMRC does US funds. If you have a UK pension that you pay more into than your employer then your tax will get a bit complicated because tax professionals argue about it's status under US law. Some take a straight forward application of the Treaty and say that it covers such pensions.....others say that they are are foreign grantor trusts, which opens up a complex tax situation.
 

I'm glad I've started to look into this now, as I can see it's going to be quite a learning curve.  We have no UK pensions, so at  least don't need to worry about #3.

As for #2, if we convert Vanguard mutual funds to their corresponding ETFs, will those receive better tax treatment over here?  Instead of gains being taxed at marginal rate, will they be subject to capital gains tax in the UK instead? 

I assume you have dealt with all of these issues yourself.   Do you feel that you have had to pay a high premium to return to the UK?  Has it been worth it for you?

As for #2, if we convert Vanguard mutual funds to their corresponding ETFs, will those receive better tax treatment over here?  Instead of gains being taxed at marginal rate, will they be subject to capital gains tax in the UK instead? 

Yes, HMRC will tax the Vanguard ETFs just like UK based funds. So you get your capital gains allowance etc. Vanguard mutual funds don't have UK reporting status.

I assume you have dealt with all of these issues yourself.   Do you feel that you have had to pay a high premium to return to the UK?  Has it been worth it for you?

I'm not in the UK yet, but I've researched how I'll organize things myself. I don't want to have to pay investment and tax advisors if I can do it myself. I've budgeted what I think it will cost me to live in the UK vs the US and the UK is a bit cheaper, mostly because there's no medical insurance to pay.

Nun,  Your posts have been really helpful.  Thank you so much.