As a U.S. citizen living and working outside of the United States, you are most likely earning a higher salary and probably benefiting from lower taxes. So now is the ideal time to take advantage of your situation and start planning for your retirement.
With many financial advise companies simply not having the relevant tools at their disposal, U.S. citizens and U.S. connected individuals around the world are often left without quality financial planning support.
This results is millions of international workers falling foul of the Internal Revenue Service. The IRS require all American citizens and connected individuals to declare their global income, even if they file foreign taxes.
Also known as FATCA, the ‘Foreign Account Tax Compliance Act’ was introduced in 2010 to make it easier for the IRS to keep track of U.S. businesses and persons that are generating income via offshore investments.
FATCA brought with it heavy penalties for non-compliance and the general tightening of previous laws that were often overlooked.
The ‘Foreign Account Tax Compliance Act’ affects anyone who qualifies as a U.S. citizen or anyone who is U.S. connected. Which means regardless of where you reside, if you still hold a green card and foreign assets, you could still be fined upwards of $10,000 for not completing an 8938 tax return.
For U.S. expats the need to comply with IRS tax reporting and FATCA is an added layer of complexity when structuring your finances. A diverse savings and investment plan can reduce risk, while an ongoing review of your portfolio is crucial to ensuring you don’t fall foul of the tax man in the U.S. or your adopted homeland.
To help you navigate your way through the minefield that is U.S. tax and financial planning, we have compiled a free e-guide that explores the ‘Do’s and Don’ts’ of investing as an American living abroad.
We also look more closely at the complexities of FATCA and give you the pros & cons of passive investment funds (ETFs). Download our free e-guide by clicking the button below.
We understand that financial planning isn't just about finding a product offers the greatest return, it's about building a diverse portfolio strategy, that is designed to reduce risks. Our offices on the east and west coasts of America are complimented by a global network of offices in the Middle East and Europe. Meaning we are uniquely placed to assist U.S. expats and U.S. connected individuals
A mixed domicile couple is very simple. It is a couple that has 2 different domiciles of origin. (i.e. a husband who was born in the U.K. and a wife born in the U.S). If a mixed domicile couple is planning to return to the U.K. the couple can shelter non-U.K. assets in trust and may still benefit from these assets within their lifetimes free from the U.K. IHT regime.
The U.K. has a rather antiquated process when it comes to legal definitions. Although you may elect a domicile of choice, you may never shred your connection to the U.K. if you were born in the U.K. as you have a Domicile of Origin. Even if you were only in the U.K. whilst you were a baby you may never erase this fact. If an individual has a Domicile of Origin and leaves the U.K. under U.K. law they are considered to be formerly domiciled in the U.K. this status is known as a “Formerly Domiciled Resident” or FDR. The issue of this, is if a FDR were ever to repatriate back to the U.K., the U.K. would typically want to assume the taxing rights (domicile) at death regardless of where they lived throughout their lives. This is why it is imperative that planning for your return to the U.K. should be made when you are not domiciled.
Planning for the U.K. IHT regime must continue for the first four years of residence in the U.S. as under the treaty and under the 17/20 rule you would be considered a U.K. domicile at death and liable to U.K. IHT. It is important to revisit your situation if in any of the subsequent years you are deemed a tax resident of the U.K. as per the statutory residence test and then reassume your domicile of choice in the U.S. Short term protection products may be suitable for you if your estate is in excess of the nil rate band (£325k or £650K for married couples). Bespoke arrangements can be considered for mixed/non-domiciled clientele. Retaining your primary residence in the U.K. may be suitable in certain circumstances to take advantage of the Residential Nil Rate Band (RNRB) which uplifts the Nil Rate Band (NRB). The consensus is that RNRB is eligible in respect of property previously owned and lived in, even if that property that is currently rented out to generate income. After this four year period, most individuals will fall under the U.S. estate tax regime which has much higher thresholds before being subjected to IHT.
In 1978 the U.K. & U.S. signed an agreement which was ratified in 1980 in a convention between each respective governments on Estate & Gift Tax. The convention dictates in which scenario an individual is domiciled in each respective country under certain parameters. The agreement has a general principal where if an individual is deemed to be domiciled at death in one state but also has a connection to the other state a ruling as per the treaty is necessary. There are instances where either taxing states will assume domicile over the other so it is important to understand and consider professional advice to ensure that you are planning your estate planning needs in consideration of the IGA. Where you are a dual citizen of the U.S. & U.K. this brings into additional complexities that require legal advice.
A domicile in simple terms is the specific country that is considered to be that individual’s home. This affects your estate planning especially if you establish a domicile of choice. A domicile of choice is much like it sounds, although you have a home you may elect out of your own free will to live in another country. When you do this you assume a domicile of choice in that country. A domicile affects your estate planning because it is your domicile that determines in which jurisdictions you are subject to estate/inheritance tax.
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Investing involves risk including the loss of principal. No guarantees of investment performance are offered. Your account values will fluctuate and there will be periods involving negative returns. Investing requires a long term time horizon.
The advice provided by Skybound Wealth Management USA, LLC is provided through a registered investment adviser tailored to suit your individual circumstances and risk appetite. Registration as an investment adviser does not imply a certain level of skill or training.
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