US Stocks and Bonds

How would I cash in US stocks and savings bonds? I don't know how to do it in the US, let alone the UK. If I understand it correctly, I'll only get taxed on the profit of my stocks since I acquired them (which would be nil), and the savings bond would count as ordinary income? Or would these be taxed in the UK, since I'm a bona fide resident now?

Cher

There are lots of different kinds of stocks and bonds.

US Savings Bonds:  You can cash these at any US bank (I don't know about non-US banks, but presumably they may charge a large fee to do so).  choices:  1)  If you have a Citibank account, you should be able to cash them in there (it's a US bank).  2)  Cash 'em in at a local bank next time you're on holiday in the US.

US Stocks:  any UK or US broker can help you with this.  UK brokers may charge a higher fee.  choices:  1)  Use a UK broker.  2)  Open up a US-based Fidelity/Schwabb/ETrade/Ameritrade account online and post the documents to them (or deliver in person on your next holiday to the US).  Use a reputable courier such as FedEx.

Other thoughts:

If you are not UK-domiciled, then cashing these investments in outside of the UK will save you significant tax money in the UK.  The bigger the gain, the more important it is to cash them in outside of the UK.  For stocks, there is an £8,000 tax-free allowance, so the gain may not be so big an issue there.  For the bonds, there is no tax-free allowance, so you should do this abroad.

If you do cash them in, you can not remit the moneys to the UK - if you do, you will pay tax on the remittance.  Read about remittances here:  http://www.hmrc.gov.uk/pdfs/ir20.htm

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

So how would this situation be taxed.

A UK/US dual citizen domiciled in the UK has stocks and mutual funds in the US.
he cashes them in and deposits them in a UK bank account

1) What taxes would be due in the US and the UK.

2) would the tax situation be different if they went into an Isle of man Bank vs a
mainland UK bank.

3) Could remittance tax be avoided if the money went to a US bank and
expenses in the UK were charged to a US credit card, the balance being paid
from a US account.

PS. can you cash Isle on Man bank checks on the mainland and use mainland
ATMs to accesss IOM bank accounts?

Let's try to reply:

>A UK/US dual citizen domiciled in the UK has stocks and
>mutual funds in the US.  He cashes them in and deposits
>them in a UK bank account
>
>1) What taxes would be due in the US and the UK?

Income is taxed in the US as the person is a US citizen.  If the income is under the threshold for that year, there may be zero tax in the US.

As the hypothetical person is domiciled in the UK, income earned is taxed on an arising basis in the UK.  Whether the income was remitted or not is immaterial.  The UK will give a tax credit for any US taxes paid.

>2) Would the tax situation be different if they went into
>an Isle of man Bank vs a mainland UK bank?

No.

>3) Could remittance tax be avoided if the money went
>to a US bank and expenses in the UK were charged to
>a US credit card, the balance being paid from a US account.

No, but again, the person is UK domiciled and thus taxed on an arising basis, not a remittance basis.

>PS. can you cash Isle on Man bank checks on the mainland
>and use mainland ATMs to access IOM bank accounts?

Yes, but it does not avoid UK remittance taxation for non-UK domiciled persons.

Query for you:  Are you sure the person we are talking about here is UK domiciled?  Domicile is not the same as resident.  You can be UK resident, but US domiciled.  You should speak with a UK tax advisor to find out your status.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

First apologies to OP for hijacking this post a bit, but I hope my questions and Lizzit's answer's will be
useful to the OP too.

Lizzit, the person we are talking about is me....I am currently domiciled in the US, but I intend to retire
to the UK and make that my perminent home, build a house etc. so I believe that I will be giving up US
domicile and becoming UK domiciled.

Thanks for your answer I think I'm beginning to see some light. Just to confirm my understanding.

As a dual UK/UK citizen resident and domiciled in the UK when I sell some US mutual funds I will
have to pay captial gains tax on them in the US. When I come to do my UK taxes the UK/US tax treaty
will be applied and I'll be able to subtract the tax I've paid in the US from my UK liability.

Another question I have a US ROTH IRA. When I'm 60 and take money from it, it will be free of tax
in the US, will be be free of tax in the UK too?

Okay, I have the more of the story now.  The answer is that you plan to return to the UK at some point and will re-aquire UK domicile upon return.  The bad news is that tax law is likely to change dozens of times between now and then.  Any answers I post are related to the current law, and may change.  You should probably get an annual advice check to confirm these things haven't changed.  If you register as a client with a dual-country tax prep firm, they should update you automatically when laws change (which should give you time to jump if you've only got a small time-frame within which to jump).

>>I am currently domiciled in the US, but I intend to retire
>>to the UK and make that my permanent home, build a house
>>etc. so I believe that I will be giving up US domicile and
>>becoming UK domiciled.

Sounds right to me, but in some cases there could be mitigating circumstances.  Let's go with this for the nonce.

>>As a dual UK/UK citizen resident and domiciled in the
>>UK when I sell some US mutual funds I will have to pay
>>capital gains tax on them in the US. When I come to do
>>my UK taxes the UK/US tax treaty will be applied and I'll
>>be able to subtract the tax I've paid in the US from my UK
>>liability.

Basically right, but it's domestic law, not treaty, that enables you to take a tax credit in the UK for any US taxes paid.

>>Another question I have a US ROTH IRA. When I'm 60 and
>>take money from it, it will be free of tax in the US, will it be
>>free of tax in the UK too?

Under the treaty, a pension that is tax-free in the country-of-pension-origin enables it to be tax-free in the resident country.  Factors that could affect the taxability include whether it's taken out all at once, in period payments over time, or in discrete random occasional chunks.  I can not go into detail regarding this, as the mechanics and research I've done on the topic would start to fall under the definition of a covered opinion (i.e., fees and lots of legalese).  If it's a small sum, it's not worth worrying too much about until you're closer to take it out, but if it's a large sum, it's worth taking the precaution of expert advice and planning at this early stage.  This area of taxation is one of those kinds of things that gets bollixed up when a new law is passed, so it falls under "watch this space". 

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

There are a few incorrect assumtions and phrases in all of the above, including Lizzit's advice.

1. I do not know for certain where you are currectly domiciled.  You talk about US domicile and UK domicile, neither of which exist!  From a UK perspective you can only be domiciled in a place with a separate body of law (eg a US state or Scotland).  What was your domicile or origin, where is it today and on what grounds?

2. Has your domicile been agreed by the UK tax authorities?

3. Gains on US mutual funds are not taxed as capital gains by the UK.  This may cause much greater tax than you anticipate?

State tax and estate planning needs to be added to the mix here; when do you think you will be here?  I would suggest specific professional advice from a dual qualified adviser may be good for you...

3. Gains on US mutual funds are not taxed as capital gains by the UK.  This may cause much greater tax than you anticipate?

as i have sold a bunch of mutual funds in the US and remitted these funds to the UK, i have done extensive research, including talking to two UK accountants.  i have never heard that US mutual funds are not considered capital gains in the UK. 

what are they taxed as and do you have a link which states this?

Unless the fund is approved as a distributor fund by HMRC then the gain is taxable as income under the offshore income gain rules in the UK.

The full manual can be found here:

http://www.hmrc.gov.uk/manuals/immanual/im4075+.htm

For those who are not domiciled here the gain is deemed to be remitted net of US tax so will need to be grossed up for UK tax purposes in figuring the amount remitted.

Many UK accountants are - quite simply - not trained in foreign issues.  Therefore the somewhat obscure offshore income gain (or personal portfolio bond) rules may just not occur to them.