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Families moving to the UK from the US often know they have a few challenges to overcome in dealing with the practical impact of differing laws and regulations. While this is true, there are also quite a few myths that have become commonplace among the expat community, which may stand in the way of effective wealth planning.
It may be easy to get information from friends at dinner parties, but this is where appropriate advice for any major life decisions should not be underestimated. Here are a few of the most common myths that can cause big headaches down the line.
MYTH: Moving money from the US raises red flags
A very common belief among US expats is that any movement of money from the country to another jurisdiction will trigger some sort of alarm, whether the Internal Revenue Service (IRS) or Treasury. This is not true at all – you are entitled to move money out of the US to buy property or live in another country. From a tax and reporting perspective, you need to ensure you declare all your worldwide income annually, and file the relevant documentation for any foreign-held accounts. However, the mere movement of money to another country legitimately does not trigger a penalty of any kind.
MYTH: Tax payments in one country mean no further liabilities anywhere else
What you do have to think about is the regulation and limitations of the country you’re moving money into, and whether you’re potentially triggering any current or future tax liabilities, regardless of whether you’ve paid tax already in the US. Families may decide how long they want to stay in advance, and bring a certain amount of money into a country to cover this period. However, increasing this amount after a while may have implications, for example, on inheritance tax in the UK.
MYTH: US and Non-US spouses have similar tax treatment
While US and non-US residents may be united through marriage, their respective tax authorities still see them as separate entities that need their respective countries’ tax treatment. One such pitfall is the significant exemption for transfers between spouses in the UK and US (respectively). However, when a US spouse transfers an asset to a non-US partner, it can give rise to a gift tax charge, even though married partners would not consider this to be a gift. Similarly, US residents have an exemption of $11.4 million against estate tax ($60,000 for non-US residents), but in the UK this is £350,000, which can make for big challenges if a foreign spouse holds property as a non-resident.
MYTH: Life insurance in a trust will take care of all my tax liabilities
Wealthy families often take the route of writing a life insurance policy into their trust, to deal with the impact of any inheritance tax arising at their death. However, life insurance is not treated equally in the UK and US, with the latter requiring much more in terms of relinquishing total ownership of the policy, else it may be subject to significant inheritance tax.
MYTH: An online Will expressing my wishes is sufficient
Any will, however simple, is technically enough to form an expression of your wishes, but this is not sufficient for wealthier families – especially if there are global assets. As the tax treatment of estates differ vastly from country to country, it is essential to include appropriate planning when drawing up your will, which is not necessarily solved by having one will in the UK and one in the US. If due care isn’t taken upfront with estate planning, it could take years for your wishes to actually come to fruition, as beneficiaries need to await access to the assets while the estate is being resolved.
Complex needs require careful planning and plans to mitigate risks, provided you get appropriate advice from your wealth planner and their network of experts.
Speakers:
Robert Paul, Partner and Head of US Family Office, London & Capital
Christopher McLemore, Partner, Butler Snow
Camilla Wallace, Partner & Head of Private Client Group, Wedlake Bell
Chris Horton, Partner, US/UK High Net Worth, Deloitte
