Bespoke Financial Advice For UK Citizens In The US
This article outlines the key areas of financial planning that British expats encounter during their stay in the United States, whether temporarily for work or permanently during retirement.
- Understand how UK pensions work in the United States and how pension benefits can be maximised
- Learn how UK assets are treated in the US
- Discover what a passive foreign investment company (PFIC) is and why it’s so important to avoid them
- Financial planning best practice for British expats in the United States
UK-US Cross Border Wealth Management
Moving to the United States can be equally daunting as it is exciting. With a new country comes new rules, regulations and taxation, which can make wider financial planning complicated and opaque. The Wealth Genesis and our team of independent, regulated and dual-qualified financial advisers assist across all areas of financial planning for UK expats in the US, and this article will detail the most important considerations, to do’s and pitfalls that we see most commonly.
This will range from private pension plans, ISAs, unit trusts, all across to Individual Retirement Accounts, Roth IRAs and 401Ks, and is designed to empower you to make the most of your finances as you navigate life across the pond.
Pension Planning In The United States For UK Citizens
We would advise all British expats to view their retirement savings as separate parts of the bigger picture, given they cannot be combined. So, for example, if you hold US retirement accounts (IRAs, 401ks or Roth IRAs), these will form a separate part of your retirement savings compared to your UK assets (this is because as per above, they cannot be combined). This may mean you work with one firm for your US retirement plans and another for your UK assets, or utilise a specialist cross-border advisory firm like The Wealth Genesis with permissions and qualifications to advise on both assets.
US pensions tend to typically be heavily invested in the US markets, whilst naturally UK pensions normally have a strong emphasis on UK equity markets. Whilst diversification is important, it's vital that whilst you acknowledge the pots separately, you take into account the total overall asset blend, and check it fits within your retirement goals, attitude to risk and growth expectations. For example, US equity markets tend to provide much more long-term growth than UK companies, but may be more volatile - this is something to plan carefully for, especially if you're taking income on a regular basis and can't afford too much exposure to market fluctuations.
Definition: Asset Allocation
When we talk about asset-allocation, we are asking the question of which countries our investments are held in, and what type of asset class they are in (bonds, equities, alternatives, commodities, property). Your asset blend will determine the overall risk rating of the portfolio, and dictate how much growth you may get, along with how volatile the portfolio will be. A low-risk portfolio will consist mainly of bonds (government and corporate) while a high risk will be almost exclusively in international equity markets.
What Should I Do With My UK Pensions In The United States?
Now that we have addressed the differences between the 2 retirement assets, it's important to plan carefully and manage your existing UK pension plans to maximise your retirement benefits. Typically, UK pension plans will not offer full flexibility in retirement accounts for US residents - this means they may not allow you to draw-down your pension income as and when you please (for example occasional lump sums, or a combination of lump sums and regular income payments).
In most instances, they will offer to pay you the whole amount (not ideal from a tax perspective) or suggest transferring to an alternative, US-oriented pension arrangement. The most viable option for US residents in this scenario is to transfer to a US SIPP, or International SIPP. This type of pension vehicle will provide all the benefits and flexibility you may require in retirement, including and not limited to:
- Full flexibility in taking income
- Ability to pay into any international bank account in your name
- Multi-currency options for your investments
- Whole of market investment options (such as low cost S&P 500 tracker funds)
- Ongoing professional management
Top Tip
Before engaging with a financial adviser or considering a transfer to an International SIPP, ask your existing pension scheme the following questions:
- Can I access my funds flexibly and whenever I want?
- Can you pay into an international or US bank account?
- Can I access an unrestricted and independent range of funds?
- Are you able to provide any ongoing advice or assistance?
If you are not happy with any of the answers above, it may be worth discussing your options with an independent and US-regulated financial advice firm.
Investments In The US For UK Citizens
Now we have covered retirement planning, another key element of your financial strategy will be your existing investment and savings accounts, and this is an area where British expats often make mistakes or fall foul or IRS tax implications and regulations.
The overwhelming majority of UK investment accounts (ISAs, Unit Trusts, Dealing Accounts, General Investment Accounts) will be invested in what is known as Passive Foreign Investment Companies (PFICs). A PFIC is a type of investment fund which the IRS views as a foreign investment entity, and as such they apply punitive tax charges on any gains made. Not only this, but filing your PFIC returns is costly and time heavy, creating administrative issues for expats throughout the holding periods.
If you do hold any UK investment accounts, be sure to consult with an adviser to understand the holdings and whether or not they contain PFIC investments.
Once you have addressed any UK investment accounts you may hold, make sure that any future investments you make whilst being a 'US connected' individual is compliant - this means utilising US domiciled investment funds via a brokerage.
Our team of qualified and specialist US/UK financial advisers can assist with running through your holdings, checking their compliance with US tax laws, and ensuring that future investments are as tax-efficient and streamlined as possible.
Financial Advice For British Expats In The USA
Cross-border wealth management is rarely simple. Navigating the many rules and regulations imposed by both the IRS and HMRC can be complex. At The Wealth Genesis, we are classed as a fiduciary, meaning our advisers work on a completely independent basis with a clear and simple value-based charging structure.
To understand how we can help you navigate your financial strategy in both the US and the UK, get started by booking an initial discovery call using the diary below.
