American citizen problems!

[itsallaboutschmoo]

Hello! Does anyone have any experience of being a US citizen in the UK and how to invest/make money work?

DP is a UK/US dual citizen (lived here all her life) and used to filing tax returns etc although doesn't currently pay anything. She has a good amount of savings (in the 10s of 1000s) through inheritance and aggressive saving whilst living at home. She currently doesn't own property but lives in my house (where she contributes to costs but can continue to save.) we are mid/late 20s.

Does anyone have any idea where we should start to look for information on how she can invest? I use a stocks and shares ISA and naively assumed she could too but we've found that no one will deal with her due to FATCA reporting.

She's keen to make her money work (especially in the light of inflation etc) but no idea where to start! We've looked at financial advisers but they seem to be looking for clients with much more money. Any advice/experiences/ ideas very welcome.

Have you tried an investment company like Raymond James who are US in origin or HSBC who have a more global presence than most U.K. banks? They'd probably be more au fait with global reporting requirements. Also, Fidelity operate in both the US and U.K.

Hargreaves Lansdown will let her open an account, but steer clear of ISAs or she'll get taxed heavily in the US for investing in foreign mutual funds. Best bet is investing in the US stock market instead. For retirement savings she can max out UK pensions though; those are protected by the tax treaty so no need to avoid them.

One word:

Vanguard.

As a US citizen she can open an account with the US side of Vanguard.

Look into Roth IRAs and SEP pensions, as well as mutual funds.

Thanks all that's super helpful. Will definitely look into the things you've mentioned.

We'll be looking to buy a house together in the next couple of years so she will need some of it relatively accessible but good to know re pensions for long term saving as well.

It's just such a minefield and one neither of us, nor her US family feel equipped to understand!

Hi! I am American, living in the UK and have US citizenship and leave to remain in the UK and am really experienced with this.

It is very complicated.

First off, any US citizen has to file something called an FBAR with the IRS which shows any money held in a foreign account or offshore investments. Hopefully she has been doing this because the penalties are severe if she hasn’t.

You can hold 10k in a calendar year outside the US without getting taxed by the IRS, but you have to disclose it.

I am not sure how the HMRC treats money held in US accounts but it is worth talking to a tax advisor who specialises in US - UK taxes. I have spoken with Tax Advisory Partnership based in the UK - they specialise in US - UK taxes.

Now onto investing.

Personally, I only invest in US based investment because any income I make from them will go into my US accounts and remain in the US and therefore will only be taxed in the US.

However, I have recently learned that as soon as I start to file in both the US AND UK (currently I do not have to file in the UK and I won’t for another few years) - then I am subject to UK taxes on worldwide income. Which presents a problem for my US investments.

There is a company called Thunn Financial which specialises in US - UK investing. I have not spoken to them yet but I will.

My understanding from researching is that there are only a handful of funds that are NOT subject to dual taxation. A lot of these are vanguard index funds. It really limits your options.

If you google “US and UK investments that aren’t double taxed” you will get a lot of good information about it.

The most important thing is that she continue to file with the IRS and talk to a tax advisor! Because the worst thing would be if she invested in a fabulous fund and then got hit with 40-50 percent taxation when she sells because of dual US / UK tax.

Good luck, please feel free to PM me if you have more questions.

DH is US/UK as well, and files taxes in US and UK. He invests in US investments via a US brokerage, all taxable. He can't contribute to US tax-advantaged products like the Roth IRA. ISAs aren't tax-free for him, so he doesn't have them - we fill up my ISA and pensions in my name.

The US taxes gains on a primary residence so our home is in my name only. There's a reasonable exemption but we're in London so we're likely to breach it one day. Our DCs were US citizens from birth so we have to be careful about saving on their behalf - they can't have JISAs.

It's a bit of a pain to be honest, and it's worth looking into renouncing if your DP doesn't have any actual ties to the US, or any desire to work/move there.

Thanks all- we've been researching a fair amount in the last day or so and she's definitely considering renouncing among other options. It appears you can't currently do so (due to Covid?!) so no rash decisions to be made but she has no intention of living or working there so wondering if it's more hassle than it's worth keeping hold of it

This is such a headache for us as well. The kids and I are UK/US duals so we have to put a lot in just DH’s name. I wish we’d realised about the house earlier, because just my half has already breached the reasonable exemption by quite a lot and we will owe the IRS a bundle we sell.

Would be very interested to know which vanguard funds don’t double tax! I am at a loss for how to save for our kids tbh, nothing seems efficient for putting funds in their names with the dual tax residency; all the children’s savings vehicles are double taxed!

I have also thought very seriously about renouncing. If your net worth is close to 4m (her half being near 2m) then it would really be worth renouncing as you will have to pay exit fees on assets over that threshold. For me, it’s not worth it right now because of the virus. Having US citizenship has meant that we can still visit family in the States even though the rest of the world is locked out. However, once this all blows over, I might. It would save a ton in capital gains tax when we eventually sell our house. You need to have reported taxes properly for the past 5 years and it costs a few thousand dollars, so that will all need to be in order.

One thing to think about is children. I wish someone had told me about how complicated all of this was when I had my kids, because I never would have reported their birth to the US embassy. You don’t have to report it and can always claim the citizenship at a later date if you want it, but once you’re on the radar you’re screwed and can’t renounce until you’re legally an adult. Personally, if it were a choice between me or my kids having the citizenship, I would rather stay American to make sure that my kids were free of the burden but had the option to acquire the US citizenship later. If she renounces now, my understanding is that she cannot pass down her citizenship at a later date. That might matter in terms of potential opportunities for your kids, especially if things in geopolitics or something shifts dramatically in the next 20-40 years and the US becomes a place you really want to be. If the kids were already there and had the dual, then the damage would already be done, but right now you have the choice. If they are in encumbered by the dual tax residency then you can save aggressively for them in ISAs etc without worrying, and then they can always apply for the passport later on if they want to move there.