Thanks for all the previous advice in this forum. Here's my current plan (and some open questions). I know this is a lot of detail, but if anyone can have a look and let me know if you see anything wrong, we'd greatly appreciate it.
We are moving in one week. We aren’t sure if we will stay in the UK for a few years, or forever. We also aren’t sure if we will be using “arising” or “remittance” basis. So I want to be prepared for any of these cases.
Assumptions:
- It’s important to get rid of “non-reporting” funds, because any capital gains and capital gains distributions are treated as ordinary income instead of capital gains.
- Money market funds do not have this “non-reporting penalty,” they don’t have capital gains.
- Individual stocks do not have this “non-reporting penalty,” because the penalty only applies to pooled investments like mutual funds.
- Because we may choose “remittance” basis, it’s important to “ring fence” or “sequester” new income into separate “dirty funds.” We will avoid bringing money from this dirty fund into the UK, but it’s OK to bring in money from the other funds.
(1) Goal #1: Get rid of all non-reporting funds.
(1a) Keep Berkshire Hathaway, because it’s not a fund, so this problem does not apply.
(1b) Three of our Vanguard funds have ETF equivalents (which are reporting). So we can directly convert them, which is not a taxable event.
(1c) Our other mutual funds don’t have ETF equivalents, and so we need to convert them by selling them and buying ETFs. I believe that there’s no way to do this directly -- it has to be done as two separate transactions (sell, then buy). I think it’s crucial that the sale happens before we arrive in the UK on Dec 4th, but I think it’s OK if the buying happens a few days or weeks later.
(2) Goal #2: “Sequester” new income into one or more “dirty” funds.
(2a) Open two brand-new funds A and B.
(2b) Configure all the ETFs in section 1 so that dividends go into brand-new fund A, and capital gains go into brand-new fund B. (I'm not sure if it's too important to separate these into two different funds, but the idea is that if we eventually do have to bring this money into the UK, it will give us more control.)
(3) Open questions
(3a) In section 2a, what kind of funds should I create? I assume the easiest thing would be to use money market mutual funds. Is it possible to use another kind of fund/ETF?
(3b) In section 2b, is it possible to do this? i.e. automatically move dividend and capital gains into other funds, rather than reinvesting them?
(3c) I have an existing money market fund. As mentioned above, I think it’s OK to not convert this to a reporting ETF, because money market funds don't create capital gains. But, this is a "clean" fund, so I can't use it as one of the "dirty" funds mentioned in 2a above.
