Investing for US expats

Keeping you money working for you while you are a US expat seems complex, but there are a few simple things you can do. I won't be talking about pensions in this post, just money that you invest outside of pension schemes.

Before you move to the UK there is some planning you should do.

1) Find out if your US brokerage/mutual fund company will service your account while you are in the UK. Many will not, but Vanguard will as long as you open the account while you are a US resident.

2) If your brokerage won't deal with you while you are abroad you can either keep a US address, making sure you understand any state tax implications of that, or move your money to a company that doesn't mind if you have a non-US address.

3)Assuming you now have a US brokerage/mutual fund account that you can use while in the UK you need to make sure you hold investmensts in it that are tax efficient for both the US and the UK. So that means individual stocks and shares, UK reprting funds such as many Vanguard ETFs or potentially any US mutual fund that is transparent wrt income and reports 100% of its income.

4)You can also invest in the UK, in a cash ISA or savings bonds that pay interest or you can use a UK broker to purchase individual stocks or US domiciled ETFs that are both UK reporting funds and also avoid PFIC issues because they are US domiciled. Just avoid any fund that is not US domiciled.

I moved to the UK some years ago leaving toxic mutual fund investments in the States. Agggg.

Would your advice be:
1. To ask the financial institution to move the money into funds it offers with UK reporting status.
2. To leave the money where it is and not touch it until I retire when I'll be in a lower income bracket and selling them won't give me quite as high a tax bill.
3. To hire a 'wealth manager' here in the UK!

Help!

We have US retirement accounts in mutual funds (401k, SepIra, IRA) Are there any reporting issues with the UK? We will be moving within the next 6 months.

I moved to the UK some years ago leaving toxic mutual fund investments in the States. Agggg.

Would your advice be:
1. To ask the financial institution to move the money into funds it offers with UK reporting status.
2. To leave the money where it is and not touch it until I retire when I'll be in a lower income bracket and selling them won't give me quite as high a tax bill.
3. To hire a 'wealth manager' here in the UK!

Help!

Some research I've done shows that US mutual fund investments are not necessarily "toxic". Ask your mutual fund company whether your funds distribute 100% of their income to investors. If so, leave the money exactly where it is, as the tax treatment will be the same as if it were a UK reporting fund. See http://talk.uk-yankee.com/index.php?topic=81187.0.

We have US retirement accounts in mutual funds (401k, SepIra, IRA) Are there any reporting issues with the UK? We will be moving within the next 6 months.

Nope no reporting issues. If you do a self assessment you could include a note about the accounts and claim tax treaty exemption from any tax on current gains, but often people only mention them to HMRC when they start taking income. If you have a 457 I'm not sure if it's treated like a 401k or IRA though.

I moved to the UK some years ago leaving toxic mutual fund investments in the States. Agggg.

Would your advice be:
1. To ask the financial institution to move the money into funds it offers with UK reporting status.
2. To leave the money where it is and not touch it until I retire when I'll be in a lower income bracket and selling them won't give me quite as high a tax bill.
3. To hire a 'wealth manager' here in the UK!

Help!

First you need to find out if these mutual funds are taxable in the UK ie are you taxed on an arising or remittance basis.

In general I'd make sure your US mutual funds report 100% of their income as then it can be argued that they comply with the reporting funds regime. Very few US funds are officially UK reporting funds, but many Vanguard ETFs are.

Don't hire a wealth manager unless you have a very complicated situation or really significant assets.

@politicfool - Thank you for this suggestion. This is the kind of lateral thinking I like! Will research.

@nun - I pay UK tax on worldwide income so I do have to pay tax on my US mutual funds here. Have you - or anyone else on this forum - had any dealings with UK wealth managers that specialise in US clients? Thanks.

@nun - I pay UK tax on worldwide income so I do have to pay tax on my US mutual funds here. Have you - or anyone else on this forum - had any dealings with UK wealth managers that specialise in US clients? Thanks.

So firstly make sure you are invested in US mutual funds that are either UK reporting or at least pay out 100% of their income and you understand Politicfool's argument about how they therefore comply with the UK reporting rules regime.

I have not....and would never....deal with a wealth manager.

I have not....and would never....deal with a wealth manager.

Why is that?

I noticed the following on the American Citizens Abroad site. It's a "Town Hall Meeting". These are held Switzerland at regular intervals for US expats and concern the tax situation US expats face. According to the announcement, if anyone is interested in listening to a wealth manager, there is one speaker listed as a wealth manager and one listed as working for the HNW (high net worth individuals) section of one of the big 4.

Note the donation of £25.

http://americansabroad.org/files/3113/8265/4470/flyer-london-nov-2013.pdf

 

Thanks for that announcement of the Town Hall meeting. Very useful. And yes, why do you categorically rule out a wealth manager nun?

Thanks for that announcement of the Town Hall meeting. Very useful. And yes, why do you categorically rule out a wealth manager nun?

Because of the fees they charge and that I've always been a DIY investor. Unless you have really significant assets why would you need anything more complicated than some Vanguard ETFs. I can see that advice from a tax specialist might be useful and if you have large foreign pension pots there are fairly complicated tax strategies to reduce US tax, but not many people need those. If you just want to invest a few thousand, or tens of thousands it's pretty easy to DIY.

As one of the wealth managers dealing with UK-US individuals, let me reply on the question of when to hire one.
- Interview wealth managers when you have more than $250k iin investible assets, UK and US including money purchase pensions, excluding houses
- Hire one when you want help in making decisions on (a) asset allocation worldwide, and (b) how to use US pensions while in the UK to maximise the peculair tax advantage of cross border pensions (c) you want assistance in becoming financially independent quickly and effectively and then depleting it. (d) you want to review the brokers that will offer a valuation and dealing service for all your assets UK and US. Before you ask me for details, I'm preparing a brief in PDF, I'll let you know when it's ready
- don't hire one if you're a DIYer. 'Nun' is right that a DIY-er type person will get benefit from a wealth manager only for investment/asset management security selection research. But only 20% of people are DIY-ers. 30% seek control but to validate their planning choices: and 50% are delegators. As it happens my own firm does not offer a service to the delegators because as nun says the fees become so expensive that you have to wonder if the client is better off staying on deposit or in property. But for the rest, one can usually reduce financial service fees by half. I can name some UK US wealth management firms that do take 'delegators'.
- Ask which fiduciary standard they work to. Every wealth manager working under a fiduciary standard will undertake an exercise to ensure the service they have in mind is of value to the client before commencing work and this is extra to the requirement to ensure one can deliver what the client is requesting. So you'd expect a wealth manager to refuse to take you on if they're not actually convinced the result will be to your benefit. But some 'wealth managers' do not work to a high enough fiduciary standard, taking the view that their job is to sell 'approrpriate' products, so you have to ask ' what standard do you work to?'

I think there are four London-based wealth management firms currently offering specialist know-how of value to UK-US persons. Your CPA will know who they are, or you can ask me.

robnw gives excellent advice above. IMHO if you are a top executive with a multinational company you might benefit from some advice, but most people are not in that situation and can address their investing issues on their own with a little planning and research along with some fee based tax advice if they need it.

I'm a bit militant when it comes to DIY investing, but I realize there will be people who want to pay for advice, but be very careful that you understand the advice that you get, how much it costs you and whether you are paying a fixed fee or a percentage of the assets managed. In addition to fees for advice there are the fees charged by the funds that your advisor might recommend or brokerage fees if you buy individual shares. The UK still has a culture of funds that have initial charges and high management fees in the belief that you can beat the market by paying a smart fund manager. As a long time DIY investor I do not agree with this and stick to index funds that charge annual fees of around 0.1%. I have no idea of the types of investments a UK/US wealth advisor would recommend or their costs, but the US expat can buy US Vanguard ETFs either directly from Vanguard if you have planned ahead or through UK brokers like Hargreaves and Lansdown and those would be good from a US/UK tax perspective and are also excellent low cost funds. If you are interested in individual shares and active trading (FYI 180 degs from my investing style) be prepared to deal with greater volatility and transaction costs than you'd pay on ETFs or mutual funds.