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ER in the UK
Old 04-28-2006, 07:14 AM   #1
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ER in the UK

Ia there anyone on the forum from the UK or with excerience of investing for ER in the UK. I'm going to be moving there for ER. I plan to use Fidelity in the UK to invest, does anyone have experience with the UK branch. Also what are the FI options in the UK, is there an equivalent of the CD?
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Re: ER in the UK
Old 04-28-2006, 08:48 AM   #2
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Re: ER in the UK

A question: are you a US citizen or green card holder? If so, do you plan to remain one after moving to the UK? If so, there may be some unpleasant tax implications to buying UK-registered mutual funds from Fidelity UK.

If not, never mind.

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Re: ER in the UK
Old 04-28-2006, 08:55 AM   #3
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Re: ER in the UK

I know a number of UK retirees, though none who are not British subjects.

The critical difference for their calculations is their national health care process. But their taxes are higher and that can matter.

If you are not a British subject, and you'd like access to their health care process, you probably have a ton of studying to do.
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Re: ER in the UK
Old 04-28-2006, 09:11 AM   #4
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Re: ER in the UK

Thanks for the replies. I'm a UK/US dual citizen and I've looked into the tax implications quite
deeply, and they are not simple. My tax bill will end up being a bit higher, the basic tax rate in the UK is 22%, but that covers annual incomes from $3k to $56k.

I'm now trying to educate myself about investing in the UK as I'm only familiar with it in the US. I've done a search for a UK version of this website, but carn't find one
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Re: ER in the UK
Old 04-28-2006, 09:12 AM   #5
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Re: ER in the UK

I have a Red Passport and we looked very seriously at relocating Home, we had settled on an area about 20 miles from Cardiff.

The cost of living forced us to rethink our position, it is twice what we enjoy in Canada, it was not feasible, it would take a minimum of $100,000 to live full time there.

We would get NIH after a short time, but having spent my career in Health Care, we would have gone Private.

We are content to visit, but we are now investigating monthly rentals of a home in the Cotswolds or Lake District, May or September, when the tourist Hordes have vacated.

London is a wonderful city to visit, but long term, again, very expensive.
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Re: ER in the UK
Old 04-28-2006, 10:44 AM   #6
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Re: ER in the UK

Quote:
Originally Posted by Maximillion
I have a Red Passport and we looked very seriously at relocating Home, we had settled on an area about 20 miles from Cardiff.
I'm planning on going home as my mother is getting on, she's doing well for 83, but when I visit I can see she's really slowing down. I'd be moving back to Middlesbrough (FYI Boro 4 - Steaua Bucharest 2, if you understand that you'll know how amazing it was/is), so the cost of living is quite reasonable. My dad built the semi-detached hose my mum lives in now and about a year before he died he bought some land in North Yorks planning to build a bungalow for my mum and him to retire. Mum still has the land and she wants me to do something with it. I plan to put a prefab house on it, for under $200k

http://www.m-house.org/index.php

So I have lots of reasons to ER back there, I just haven't been in the UK investing for the last 20 years
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Re: ER in the UK
Old 04-28-2006, 11:27 AM   #7
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Re: ER in the UK

I have never been that far North, although I was born in Huddersfield, I was raised in London.

I would imagine that it is still the Real Britain and I know the scenery is spectacular, winters I imagine will be damp.??

Pension Taxation is probably one of the major issues to deal with, and I think that Cash is probably the best way to go until you have a chance to settle in and ask some questions

You will have to get used to Real Beer and 36 channels of Cricket.
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Re: ER in the UK
Old 04-28-2006, 12:16 PM   #8
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Re: ER in the UK

Quote:
Originally Posted by Maximillion
I have never been that far North, although I was born in Huddersfield, I was raised in London.

I would imagine that it is still the Real Britain and I know the scenery is spectacular, winters I imagine will be damp.??

Pension Taxation is probably one of the major issues to deal with, and I think that Cash is probably the best way to go until you have a chance to settle in and ask some questions

You will have to get used to Real Beer and 36 channels of Cricket.
I carn't wait. FYI there is a taxation treaty between US and UK which means ROTHs are also tax free in the UK, US SS will only be taxed in the UK and I can claim UK tax credits for taxes paid in the US and vice versa.
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Re: ER in the UK
Old 04-28-2006, 01:52 PM   #9
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Re: ER in the UK

Try here.

http://www.britishexpat.com/Expat-UK.18.0.html
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Re: ER in the UK
Old 04-28-2006, 05:49 PM   #10
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Re: ER in the UK

Quote:
Originally Posted by nun
Thanks for the replies. I'm a UK/US dual citizen and I've looked into the tax implications quite
deeply, and they are not simple. My tax bill will end up being a bit higher, the basic tax rate in the UK is 22%, but that covers annual incomes from $3k to $56k.

I'm now trying to educate myself about investing in the UK as I'm only familiar with it in the US. I've done a search for a UK version of this website, but carn't find one
I can't help you with UK taxes, but if you are thinking of buying UK-registered mutual funds or ETFs from Fidelity UK, you might want to familiarize yourself with the rules regarding PFICs (passive foreign investment companies) on the US side first. They are a mess, and you could end up making a very expensive tax mistake if you don't know about the rules (and they are not well publicized, for some reason). You may want to stick to buying your mutual funds/ETFs in the US (assuming this is not a problem under UK taxes), and buy only individual stocks and bonds in the UK, for example.

Anyway, if you want more information, let me know.

Bpp
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Re: ER in the UK
Old 04-28-2006, 11:50 PM   #11
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Re: ER in the UK

Quote:
Originally Posted by bpp
I can't help you with UK taxes, but if you are thinking of buying UK-registered mutual funds or ETFs from Fidelity UK, you might want to familiarize yourself with the rules regarding PFICs (passive foreign investment companies) on the US side first. They are a mess, and you could end up making a very expensive tax mistake if you don't know about the rules (and they are not well publicized, for some reason). You may want to stick to buying your mutual funds/ETFs in the US (assuming this is not a problem under UK taxes), and buy only individual stocks and bonds in the UK, for example.

Anyway, if you want more information, let me know.

Bpp
Thanks for the heads up. I've done research on earned income exclusion and the UK/US tax treaty, but the PFIC is a new one. Reading the IRS regs is of no use whatsoever. Turbo Tax Premier doesn't have the required Form 8621 so I downloaded it from the IRS website
and its incomprehensible. I'm hoping that a US person for the the purposes of Form 8621 is a US resident rather than a US citizen, I'm not optimistic though. I am employing a US/UK tax specialist to sort all this stuff out, but if you can offer any adivce I'd appreciate it.
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Re: ER in the UK
Old 04-29-2006, 12:32 AM   #12
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Re: ER in the UK

From the information you've given, I suggest the most important aspect in your situation is to immediately establish whether the UK Inland Revenue would consider your "domicile" status to be the UK or whether you can claim to be "non-domiciled". Briefly, even though you may be "resident" for income tax purposes, if you are "non-domiciled" then you would only pay income tax on income arising in the UK plus the amount of money you brought into the UK for living expenses each year i.e. if all your income producing assets are offshore then no UK capital gains tax and only income tax on money brought onshore each year. However if you're "resident" and "domiciled" then UK income tax is due on worldwide income.

So, if you've been in the US a long time and can say that you will eventually return there permanently, then the US can be your "domicile of choice" and keeping assets out of the UK can be beneficial (note inheritance tax is 40%). The important point is that immediately you go to live in the UK you must fill out the appropriate Inland Revenue forms to claim "non-domicile" status - after that, as long as you kept appropriate links with the US you'd probably be able to keep that UK non-domicile status for up to 17 years.

I'm not an expert and that's very much simplified and may not be entirely correct in every detail. If you think the tax advantages may be of benefit it's one of the few financial situations where I think it's worthwhile paying for expert advice. *
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Re: ER in the UK
Old 04-29-2006, 02:20 AM   #13
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Re: ER in the UK

Quote:
Originally Posted by nun
Thanks for the heads up. I've done research on earned income exclusion and the UK/US tax treaty, but the PFIC is a new one. Reading the IRS regs is of no use whatsoever. Turbo Tax Premier doesn't have the required Form 8621 so I downloaded it from the IRS website and its incomprehensible.
That's the right form.

Quote:
I'm hoping that a US person for the the purposes of Form 8621 is a US resident rather than a US citizen, I'm not optimistic though.
Then you won't be disappointed to hear, no such luck.

Quote:
I am employing a US/UK tax specialist to sort all this stuff out, but if you can offer any adivce I'd appreciate it.
If you can find a tax specialist who understands this stuff, that would be great.

Meanwhile, in case it is of some use, here is something I wrote once on raddr's board, in response to a question about how hard it is to fill out Form 8621:
Quote:
Depends on how you declare the fund. If you are lucky, and the fund provides certain tax information that is required in US terms (similar to what would be needed on a 1099), then you can make the QEF election for the fund, and it is pretty much the same as a US mutual fund. But most foreign funds don't bother to do this, of course. (CEF, ben's favorite Canadian bullion ETF, is a PFIC, and does provide the QEF information, by the way.)

In the general case, your best bet is to declare the fund mark-to-market. Then the accounting is pretty reasonable: list when shares are bought or sold, show cost basis (in US$) and mark-to-market gain or loss for the year, declare all dividends on Schedule B. The drawback to mark-to-market treatment is, of course, you could end up getting taxed on phantom income, so this is best done with a low-volatility fund. This is the course I take with my J-REITs.

If you fail to do anything, the default is a completely byzantine mess, which requires you to do a web search on the US tax code to decipher the instructions, and taxes you at the maximum possible rate, regardless of your actual tax bracket. Try very, very hard not to end up in this situation: make sure to choose the mark-to-market election, or the QEF election if available, from the first year you own the fund.

For full details, go hunt up Form 8621 at http://www.irs.gov. Seeing is believing.

Choice excerpt from the instructions for Form 8621:
Quote:
The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping: 13 hr., 38 min.

Learning about the law or the form: 6 hr., 27 min.

Preparing and sending the form to the IRS: 6 hr., 58 min.
By the way, I just remembered something else that may be relevant to your situation. Back when I was starting to invest, I tried to open an account with Fidelity Japan, and they refused on the grounds that I am a US citizen, citing an SEC rule. This ticked me off enough to send an e-mail query to the SEC, who responded that since I don't live in the US, they would not necessarily consider me a "US person" for their purposes (note that this is different from the IRS's definition of "US person" -- the SEC is basically just saying here that they don't feel obligated to protect me), and that they would have no problem with me opening an account at Fidelity Japan. I relayed this to Fidelity Japan, and their response was, basically, "we don't care, the laws change all the time, and we have made the corporate decision that US citizens are too much of a hassle to deal with."

Of course, Fidelity in the US also refused to let me open an account, on the grounds that I am not a US resident. Joseph Heller would be proud.

Anyway, I don't know if Fidelity in the UK has the same policy as Fidelity Japan, but if they do, you might be out of luck anyway. You might want to ask them about this in advance.

Bpp
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Re: ER in the UK
Old 04-29-2006, 10:40 AM   #14
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Re: ER in the UK

Quote:
Originally Posted by krane
From the information you've given, I suggest the most important aspect in your situation is to immediately establish whether the UK Inland Revenue would consider your "domicile" status to be the UK or whether you can claim to be "non-domiciled". Briefly, even though you may be "resident" for income tax purposes, if you are "non-domiciled" then you would only pay income tax on income arising in the UK plus the amount of money you brought into the UK for living expenses each year i.e. if all your income producing assets are offshore then no UK capital gains tax and only income tax on money brought onshore each year. However if you're "resident" and "domiciled" then UK income tax is due on worldwide income.
.
I'll be retiring back to the UK, all my family is there, and I'll be buying a house so I'm going to be domiciled in the UK and also resident there for tax puroses so no deferal of tax
until it is remitted. Right now the simplest option seems to be to keep the investments in the US as the UK taxation of foreign funds seems to be a lot more straightforward.
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Re: ER in the UK
Old 04-29-2006, 12:56 PM   #15
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Re: ER in the UK

I would think it would be easier to keep investments in the US, either in UK companies or bonds that would pay in the UK currency, or you could certainly just invest as if you lived in the US, for dollars, and buy currency futures, so that your dollar-to-pound exchange rate would be fixed no matter what the individual currencies did.
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Re: ER in the UK
Old 04-29-2006, 02:26 PM   #16
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Re: ER in the UK

nun, could you not put your money into an Account in the Channel Islands and avoid paying taxes altogether??

FXE is a way to get Euro exposure .
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Re: ER in the UK
Old 04-29-2006, 02:41 PM   #17
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Re: ER in the UK

Quote:
Originally Posted by nun
I've done a search for a UK version of this website, but carn't find one
http://www.fidelity.co.uk/stream.html?start=new

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Re: ER in the UK
Old 04-29-2006, 04:48 PM   #18
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Re: ER in the UK

Quote:
Originally Posted by Maximillion
nun, could you not put your money into an Account in the Channel Islands and avoid paying taxes altogether??

FXE is a way to get Euro exposure .
The answer is unfortunately no. As a US citizen I'm taxed on my worldwide investments and as a UK citizen domiciled in the UK I'm also taxed on my worlwide income, whether or not I remit the funds back to the UK.

Quote:
Of course, Fidelity in the US also refused to let me open an account, on the grounds that I am not a US resident. Joseph Heller would be proud.
I'll qualify for accounts in the US and the UK as I'm a citizen of both countries. I'm going to ask Fidelity UK is their unit trusts qualify as QEF, but they probably don't. If not then if I investin the UK I'll do mark-to-market. Just one question, I'll have to pay capital gains and taxes on interest and dividends in the UK. Can I use those to offset the tax due to the US.
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Re: ER in the UK
Old 04-29-2006, 06:43 PM   #19
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Re: ER in the UK

nun, at this rate you will pay for some Accountant's kids' College Degree.
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Re: ER in the UK
Old 04-29-2006, 07:22 PM   #20
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Re: ER in the UK

Quote:
Originally Posted by Maximillion
nun, at this rate you will pay for some Accountant's kids' College Degree.
Yes, these are the drawbacks of getting US citizenship, way more complicated taxes
if you leave the country. Its the same if you are a Green Card holder who's classed as a long term resident, I think that's over 10 years. You still have to file with the IRS. Also if you want to give up your US citizenship for reasons of taxation you still have to pay the IRS for 10 years.

Recently I've heard of may ERs moving to Mexico or Central America,
how do they invest their money, leave it all in the US?

Bpp thanks for the pratical info.
Quote:
In the general case, your best bet is to declare the fund mark-to-market. Then the accounting is pretty reasonable: list when shares are bought or sold, show cost basis (in US$) and mark-to-market gain or loss for the year, declare all dividends on Schedule B
If I do invest in a UK fund with say Fidelity I'll probably sell the shares at the end of the year and immediately repurchase them so I can show the cost basis and gain on my return. I understand that the US taxes this like ordinary income. A couple of questions, how do they compute your tax rate/income. If I had a gain of say $10k and earned $40k in the UK I can exclude the $40 from US taxes so would the $10k be taxed at the $10k income rate?
Also I'll have to pay UK capital gains on that $10k, can I offset this against the US tax?

Sorry if this is getting complicated, but I thought I'd ask as Bpp seems to have real world experience of this.
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