# Planning ahead for US taxes as an expat



## Pallykin (Mar 30, 2014)

I'm in the throes of planning a move to London which will happen in about six months time. I've been reading up on the tax and FBAR requirements... I'm wondering if there's a "getting started with US taxes as an expat" thread...

Someone told me that companies try to send their employees abroad in the second half of the year "for tax reasons", but she didn't know why this was so. Thoughts?


----------



## Bevdeforges (Nov 16, 2007)

Basically as a US citizen, you're on the hook for filing US taxes for the rest of your life, no matter where you live in the world. (Well, unless you decide to renounce, but that entails its own set of advantages and disadvantages.)

From your point of view, it really doesn't matter if an employer sends you overseas on January 1st or on December 15th - other than the timing of when you file. (You have to have put in a full 12 consecutive months overseas before you can claim certain tax benefits.) For some countries (where there is a social security treaty) it may be possible for the employer to maintain a US employee on the "US social insurance" plan for the first 3 to 5 years of their overseas assignment. But more and more countries are getting wise to how some US employers abuse this privilege.

Download and read through IRS Publication 54 for an overview of how your taxes will work when you live overseas. (And consider asking your employer for tax assistance as part of your expat package.)
Cheers,
Bev


----------



## Pallykin (Mar 30, 2014)

Hi Bev, thanks for the info. We'll be moving ourselves with no employer involve, and no expat package either... so we're on our own. Hence my well in advance research.


----------



## BBCWatcher (Dec 28, 2012)

I like Bev's idea about reading Publication 54 as a starting point.

There are at least a couple things they don't tell you "in the book." In no particular order:

1. Retirement and social insurance impacts. Moving overseas often means you lose access to the great American tax-advantaged retirement savings programs. For example, if your U.S. Social Security contributions end you either won't qualify for retirement benefits (if you haven't made enough U.S. contributions, with some treaty country exceptions) or your future retirement benefits won't increase as much as otherwise. You'll also eventually lose your pre-retirement Social Security coverages.

It also becomes difficult or impossible to contribute to 401(k) plans much less get employer matches. IRAs become difficult, too, especially if you take the Foreign Earned Income and Foreign Housing Exclusions. (Which may be good very exclusions to take, but they're not all wonderful.)

2. If you try to offset those losses with boosted savings -- and you should -- you have to be very careful. Others may feel differently, but I stay as far away from PFIC-related complications as possible. So I continue to save predominantly in the U.S. (and very, very cautiously and carefully outside). Foreign tax-advantaged accounts, in particular -- unless specifically treaty-protected -- are something of a disaster. (Yes, I made that mistake. I didn't necessarily _lose_ money, but it simply wasn't worth the bother since the U.S. will claim most or all of the foreign tax savings.)

3. There are some potentially "interesting" inheritance/estate tax issues moving overseas. Moving to Japan comes to mind as an example, but I don't know about the U.K.

4. Be very careful about any home you own in the U.S. particularly if you rent it out while overseas. You could reduce or eliminate your capital gains exemption.

There are several other "quirks," but those are some that come to mind.


----------



## maz57 (Apr 17, 2012)

I just checked and the UK is one of the countries that has a totalization agreement with the US. It would be wise to study up on the specific provisions to make sure you are optimizing future retirement benefits. I know the agreement between the US and Canada seems to work pretty well; hopefully the US-UK agreement is similarly kind to those who have worked in both countries. 

The UK has something called an ISA (which I think stands for Investment Savings Account). Phil Hodgen had an in depth analysis on his site about whether an ISA was a trust (bad for a US taxpayer) or not. He argued it wasn`t which would make that a possible option for retirement savings. With a few exceptions, the IRS is mostly silent on non-US tax-advantaged retirement vehicles owned by US citizens abroad but the general tendency seems to be to punish those who have them. The problem is that according to the IRS rules they wind up being classified as foreign trusts which the IRS treats harshly. Caveat emptor. 

There have been reports that because of the onset of FATCA some UK investment firms won`t accept US citizen clients; I think ordinary banking is still OK. Yet more research.

You are smart to look into this before you make the big move. Hopefully you can avoid putting yourself in a jam. BBC is right about anything PFIC. They create a reporting nightmare and often wind up costing money.


----------



## candyann (Jul 8, 2013)

Having discovered the FBAR requirement and FATCA after already moving to the UK, I wish I had done research like yours!

Can anyone give me an authoritative link for the (very restricted) options in the UK that *are* covered by the US-UK tax treaty? My understanding is that a UK company pension is recognized by the US tax system so that is a better way to save for retirement than individual investments, which can get caught in the punitive trust trap. I also understood that cash ISAs are not a problem but trading ISAs would be. It is already not possible in many cases to invest in funds here, as "US persons" are not allowed.

Does anyone have a link confirming these facts about UK company pensions and ISAs? And, even if they are not punitively taxed by the US, do they still all need to be reported on the FBAR?

Thanks!


----------



## BBCWatcher (Dec 28, 2012)

Leaving aside U.K. and U.S. tax preferences, let's start with what savings vehicles are simple from the U.S. tax standpoint. Here are some examples: direct holding of government bonds (gilts), direct holding of corporate bonds (especially if those corporations are publicly traded on a major Western exchange), direct holding of bank and insurance company stocks (equities) (as long as the financial services company unambiguously conducts at least 75% of its business in banking and/or insurance and is not a holding company pretending to be a financial services company), direct holding of U.S. stocks and bonds, direct holding of precious metals and collectibles, cash and bank deposits (including fixed deposits/time deposits/CDs), promissory notes (your personal loans to others, as long as they are clean and simple loans and not acting as proxies for something else), and direct holding of real property.


----------

