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Navigating Unchartered Waters
The typical US expatriate faces immense financial complexities and particularly as they consider retirement in the UK or a return to the US. Engaging the services of a US-Anglo financial expert and industry specialist with the aim to safeguard finances, pensions and investments is key. Montfort’s Alex Norwood further explores ...
Published on January 21, 2019
Montfort Independent Financial Advisors - www.montfort-intl.com
Waverton Investment Management - www.waverton.co.uk/

Alex Norwood Alex Norwood, US-Anglo specialist at Montfort
E-mail: alex.norwood@montfort-intl.com
Photo: Malcolm Roberts

Over the last 25 years, some 20 million individuals have left, entered or returned to the UK. To seek working lifestyles overseas or retire abroad, emigration is on the rise and particularly for high-net worth individuals between the United Kingdom and the United States.

With both countries speaking (almost!) the same language, the transition between the two may be perceived as ‘simple’. The term NyLon even supports a common community and shared migratory path, referencing New York and London as financial and cultural capitals.

Or at least, that’s how it seemed – before FATCA (Foreign Account Tax Compliance Act), the Common Reporting Standard (CRS), the US’ Offshore Voluntary Disclosure Program (OVDP), and, more recently, the Section 965 Transition Tax, served up by Donald Trump in 2017 in his ‘Tax Cuts & Jobs Act’ – came along.

The fact remains that financial planning when moving overseas or returning to the US delivers complexities. With differences in taxation rules for income, capital gains tax and dividends, and varying products to consider, the financial landscape for US-UK expatriates can be a minefield. Prior precaution to safeguard against financial minimisation carries huge significance and importance to hinder surprises now and even years after relocation.

An increasing issue many US expatriates face as they relocate to the UK is the restructure of their finances while comprehending the difference between the UK and US systems. Owing to cross-border legislations and complications between the two, individuals commonly disregard their immediate responsibilities. As they seek to avoid wrongdoing or receive tax bills in either country, many leave funds in cash accounts with no opportunity for growth or tax-efficient planning which may face huge financial implications further down the line.

The solution is simple – speak to a cross-border specialist within the US-Anglo financial planning space with an understanding of the ever-changing rules and regulations between both jurisdictions. A holistic approach incorporating pensions, retirement planning and investments that considers a client’s unique current circumstances with short and long-term objectives is key. Technical advice can deliver opportunities for both the preservation and growth of assets, whether your intention is to remain in the UK or one day return to the US.

Montfort provides expert retirement planning specifically for US expatriates who may be intending to return to the US to retire. Options to transfer a UK-registered pension scheme to the US via an overseas pension transfer vehicle, such as a Qualifying Recognised Overseas Pension Schemes (QROPS), are slim. Should the scheme not meet Her Majesty’s Revenue & Custom’s (HMRC) rules, the scheme member may be liable for unauthorised payment charges as much as 55% of the entire fund value. At the time of writing this article, only two US QROPS were available, however whether they are actually compliant or meet HMRC’s requirements is another question. A reactive system, HMRC commonly reviews schemes only once they have acquired QROPS status (likely to be once already in use by unsuspecting individuals). Recent rules introduced by the UK government further refuse any third jurisdiction and transferring funds to Malta or Gibraltar, for example. Respective individuals may face a further 25% overseas transfer charge should they move back to the US within five years.

In brief, transferring any UK-based pension or accumulated funds to the US should you permanently return and transfer your finances, is hugely challenging.

Solutions are available, with a number of bespoke strategies and structures that can be developed by a cross-border specialist. Any such professional will take into consideration a client’s unique circumstances including their current place of residence, date of birth, intended retirement age and country of residence, risk profile, and tax position. Future key considerations during any transitionary time between the US and the UK may include an individual’s objectives, such as death benefits, foreign exchange, succession planning and intended retirement age and income.

Investments must remain at the forefront and particularly for individuals who hold Passive Foreign Investment Companies (PFICs) within their portfolios (e.g. pensions, ISAs). PFICs may often be unknown to the individual to also create numerous reporting and taxation issues, and likely penalties if undisclosed. Taxes and costs in reporting PFICs to the IRS may also outweigh benefits received.

As a result, the reporting of worldwide income and FATCA have substantially reduced the number of non-US-based financial institutions willing or able to handle US clients. Even US-based institutions commonly reject US expatriates and citizens whose primary residence may be outside the US. The respective advice and service provider gap is resultingly acute for US clients with investment assets under USD $1million.

Waverton Investment Management Limited is an exemplary discretionary investment management firm that has welcomed US clients both sides of the pond for over 20 years. Alike to Montfort, Waverton has the required expertise to work with US expatriates living in the UK. With a portfolio entry level of £100,000 (USD $150,000), Waverton delivers suitable model portfolio investment strategies for the typical US-Anglo market. Also servicing high-net worth clients, Waverton offers bespoke portfolios in excess of £1 million for US expatriates to invest. Waverton advocates Montfort’s aim to deliver appropriate financial plans and strategies with correct, well-performing investments to meet a client’s short and long-term objectives.

Should you wish to further explore the financial planning and investment options available to you as a US expatriate or UK citizen relocating to the US, please get in touch today. Montfort’s US-Anglo specialist Alex Norwood can be contacted on alex.norwood@montfort-intl.com or +44 (0)1483 202072.

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