We just paid for some legal advice from somebody in the UK (attached below-her answer are in red) getting ready for our move back to the UK this coming Spring. I have read through the answers a couple times.....and will have to go through it a few more times before it really starts to sink into this tiny brain of mine. Any advice from the more knowledgeable folks out there would really be appreciated. The ability to flick back and forth from Arising to Remittance basis is especially confusing so far. I had assumed that since we would be living in the UK for good......I would be put on the Arising basis. I hadn't checked before on what it might cost to have someone do our taxes when we move.....but the quoted prices damn near gave me a heart attack.
Thanks to anybody who makes it through all of this...
Fred
Our financial situation is as follows....
*Wife is xxxxxxxxx, British citizen. 54 years old. Spent almost all her life in N. Yorkshire.
*I am xxxxxxxxx, USA citizen. 57 years old. I have lived in the UK two different times for about 7 years each (1980-87 + 2004-2011) while working for the US Govt.
*We are both retired and do not plan on working.
* Current financial situation. £ estimates are as of 11 Nov 2014
- House which we are selling in the Spring. $205,000 = £129,000
-Current cash in the US $129,000 = £81,000
-Vanguard mutual funds $249,000 = £156,000. Probably selling approx $80,000 of that after the first of the year. $62,000 of that is a ROTH so is irrelevant for US taxes.
-$505,000 = £317,000 is in my Govt retirement TSP account. Must pay 15% tax on that when I start withdrawing after age 59.5
-Just moved £40,000 into my wife’s UK bank account a couple of months ago.
-I am currently receiving a pension of $1279 = £875 a month. Health insurance is automatically taken out so I actually “get” only $962 = £605 a month.
-Also receiving an annuity supplement for taking early retirement. $850 = £535 month until I turn 62 (2019) when it will stop.
-Social Security estimate of $1334 = £839 a month at age 62 when I will likely take it.
-My wife “should” get a spousal Social Security of approx $480 = £302 a month if she takes it at 62.
-Wife’s estimated pensions. Age 60 (2020) £1190yr personal pension through Standard Life.
Age 65 (2025) £1988yr work pension/ N Yorkshire county council
Age 67 (2027) £113week? (£5,876 yr) State pension
==============================================
That's perfectly fine and I set out below the advice you are seeking on these areas, against each of your questions:-
1. Arising Basis? I am assuming that if I move to UK permanently (and rarely leave the country) I would be put under the Arising Basis for tax purposes and not Remittance.
If I understand it correctly.....Remittance would be monetarily worse for us. Not entirely sure how the Arising Basis will affect us.
There seems to be rather a lot of confusion here so I will do my best to explain the situation. An individual is only permitted to claim the remittance basis if they are non-UK domiciled and 'domicile' is not necessarily a straightforward matter. You will have a domicile of origin in the USA as you were, presumably, born there and this would only change if you severed your ties with the USA and established new ties in the UK in order to acquire a new domicile of choice. However, it is never disadvantageous for UK income and capital gains tax purposes to have a non-UK domicile as that gives options for tax savings which are not available to someone of UK domicile and estate taxes are also lower in the US because of a wider nil rate band and I would therefore always encourage a US domiciliary to retain their domicile of origin wherever possible. Even if you have decided to remain in the UK for the foreseeable future, you can still claim to have retained your domicile in the US if, ultimately, you have an intention of returning there. Your wife's situation is more problematic as she will have a domicile in the UK although she could claim to have changed this to a domicile in the USA when she first moved over there in the event that she severed most of her ties with the UK and established new ties in the US at that time. Whilst your wife is now moving, with you, to the UK, the onus would be on the UK tax authorities to prove that she has re-acquired a domicile in the UK as opposed to retaining her domicile of choice in the US and your wife's stance on this would obviously be stronger if, ultimately, she has some intention of returning, permanently, to the US. If you believe this stance can be justified then that is the most advantageous position for you both as you can then each consider whether to claim the arising or the remittance basis in your UK tax returns each year and this would also mean only your UK estate becoming subject to UK inheritance tax until you have been back in the UK for 17 tax years, at which point, you would be deemed non-UK domiciled for inheritance tax.
Claiming the remittance basis basically means that you only would need to declare income and capital gains from non-UK sources if the monies are brought into the UK, either directly or indirectly (to include credit card settlement for UK expenditure). The downside is the loss of the UK personal allowance (£10,000 currently) and capital gains exemption (£11,000 currently) but that is quite often more advantageous than having to declare all non-UK income and capital gains and a different choice may be taken each year so you would never be worse off than not having this choice and declaring your worldwide income and capital gains as it arises. Care needs to be taken with non-UK capital losses since, for these to be allowed against UK capital gains in any year, an election would need to be made for the first year in which non-UK capital losses arise.
2. From what I have learned from other people in my situation......I should move what mutual funds I will still have left with Vanguard over to ETF’s which supposedly report
details to HMRC and could have some tax benefits (not sure how). We would be mostly selling these funds over the next few years or so to compliment my pension. I currently have this money in 3 funds with Vanguard (ROTH in Moderate Growth, Dividend Growth + Total stock). After the first of this next year I was planning on selling about $80,000 more to get ready for the move, and then moving whatever money remains (approx $180,000) into just 1 or 2 ETF's and put the account into my wife's name only to take advantage (I hope) of her being able to make up to 10K Pounds on gains without having to pay UK tax.
I cannot provide you with investment advice although I am not aware of any UK tax benefits from having your funds in ETFs as opposed to leaving them as they are, as most of my US clients have done but you might decide to go down this route for administration purposes as it would mean fewer accounts to keep records on. Furthermore, if the holder of the account claims to be non-UK domiciled then they can choose to claim the remittance basis for the year concerned and therefore only have to declare income and capital gains from non-UK sources where the monies have been brought to the UK or otherwise used for UK expenditure. This would provide you with a cash-flow benefit as you would only be, potentially, subject to UK tax as and when income or gains are remitted to the UK and you could always claim the arising basis when it suits, in order to benefit from the capital gains exemption which would not be available for any year in which the remittance basis is being claimed. In terms of putting the accounts into your wife's name, I am wondering why you would not want them in joint names so that you could both benefit from the capital gains tax exemption each year.
3. Thrift Savings Plan (TSP Govt retirement account). Is this counted/taxed only in the US? From what I have heard the UK is supposed to ignore this and taxed only in the US. Yes? Or do I have it wrong? From what I have seen online from other people, there isn’t much of a “definite” answer and kind of leaves HMRC able to interpret things on an individual basis.
The answer to this depends upon whether a TSP is akin to a pension plan, i.e., you can only take benefits at retirement age. If this is the case then it should be regarded as an IRA in which case it will receive beneficial tax treatment under the UK/US double tax treaty which includes you not being taxed on income until there is a distribution from the fund. If, however, you are able to take benefits from the plan prior to retirement age and it is regarded as more like a long term savings plan then it will be regarded as a normal non-UK investment with income distributed subjected to UK tax on an arising or remittance basis, depending upon your claimed domicile status and whether you are claiming the remittance basis for the year of distribution.
4. Better to file my taxes for the US as single or joint? Wife has US green card only and is not planning on renewing it. Might even hand it in if that is an advantage....
such as if it is better for me to file single. I can see filing single for a few more years until we sell off the Vanguard funds (if they are in my wife's name only) and then go back to joint once those have gone and I start taking money from my TSP Govt account. Once I start taking that in a few years I can see it pushing me over the 15% bracket as a Single (up to $36,250 income) and likely would keep me in the 15% bracket if I file Joint ($72,000+) in the US. Or...is it just easier/simpler to keep filing Joint since any gains on the Vanguard money should be easily contained within the $72,000 income limit to stay in the 15% bracket?
I would suggest you keep filing joint as there is no disadvantage to this and, as you say, there could be an advantage further down the line. Once you are resident in the UK, you will be able to offset UK taxes paid against US taxes payable on the same income/gains which will greatly complicate your annual US return but this will be the case whether you file Single or Joint. The mandatory reporting of financial accounts and assets has a higher limit should you file jointly which will keep professional fees down so that is another potential advantage of continuing to file Joint. Even after your wife's Green Card expires, you may still elect to regard her as a US resident for filing purposes so would continue to be allowed to file Joint.
5. How will the UK treat my US Pension ($15348 yr)+ Annuity Suppliment ($10,212 yr until I turn 62) and eventually Social Security (about $16,000 yr at today's estimates)? And....details on how I will need to file this info with HMRC, and the tax implications? Double taxed in the UK.....but able to write this off on the US taxes?
The tax treatment of pensions and social security is determined by the UK/US double tax treaty. Basically, non-US government employment pension income is taxable in the UK as that is where you will be resident. Your US return also has to declare the pension income and a credit can then be claimed for the UK taxes paid or payable on the same income. With regular pension payments, you will want to apply for exemption from withholding tax to save paying this then claiming it back via your US return. However, any lump sum received is subject to US, not UK tax and does not need to be declared on the UK return. Social security is altogether different from regular pension income and actually is omitted from the US return (this being the only source of income that receives full exemption in this way). It is, instead, to be declared on your UK tax return with tax paid via the Self Assessment system, which is a balancing tax payment each 31 January with payments on account to be made on 31 January and 31 July during and following the UK tax year in question, this being the year ending 5 April. As you will be UK tax resident from the date you arrive here, your UK tax returns will have to declare your worldwide income and capital gains although with the remittance basis potentially applying, on a year by year basis, to income and gains from your non-UK sources. If you end up with a net US tax liability for any year then, to the extent this represents US tax payable on qualified dividends, this may be offset against the UK taxes payable on the same source but this will obviously only be the case where you declare on the arising basis for the particular year or where you declare on the remittance basis but this income is actually remitted to the UK during the year concerned. The filing deadline for the UK tax return is 31 January following the relevant 5 April year end so long as you file electronically, which I am able to do on your behalf once you are registered with the UK tax authorities and have a UTR (unique taxpayer reference).
6. Anything else/recommendations that you can point out.......Compared to a lot of people in our situation I would tend to think that our situation wouldn’t be too complicated.
We are not working. Income/pension is not very high. Total monetary totals with interest etc keeps our income fairly low.
You might be surprised to learn that, because of the interactions between the UK and US tax systems, your situation is really quite complex, regardless of not working (which is actually very easy to deal with) and relatively low income levels (this makes no difference to the complexity of these returns). I have seen US returns prepared by US-based advisers that do not correctly take account of the UK/US double tax treaty and this can result in higher US liabilities than should be the case and, furthermore, not all the US tax is then allowed to offset the UK tax due on the same income/gains as credit is only allowed for foreign sources (in whichever country is the correct one to take the credit) so, unless great care is taken, you can end up paying more tax, globally, than should be necessary. My fees for your required returns are therefore £650 plus VAT for the annual US Federal return, to include consideration of forms 8938 plus £250 plus VAT for each FBAR submission required. On the UK side, your UK return would cost £700 plus VAT and your wife's £450 plus VAT although I would only suggest completing a return for your wife once this becomes necessary, which will only be when a UK tax liability is likely to arise.
In the meantime, I attach my fee for the advice in this email, which I have kept to the amount quoted although the time spent was a little more than envisaged.
