1. Declare all your overseas investment income
Unless you are a qualifying diplomat or similarly exempt person you will have to pay tax on all your overseas income, including that which is derived from investments. Unfortunately, without proper management, it is alarmingly easy to inadvertently fail to declare income. FACTA places great emphasis on compliance, both for American citizens and foreign nationals, so make sure you are aware of all your assets and foreign income and that they are optimised for your residence in the United States. The all you have to do is make sure you report them all to the IRS.
2. Know your tax treaties
The U.S. currently has income tax treaties with more than 60 countries and territories around the world*. These agreements give nationals from these jurisdictions who reside in the US the opportunity to reduce or eliminate their tax obligations in either the United States or their country of origin. However, it is important to fully understand these treaties in advance in order to prevent either paying unnecessary tax or failing to meet your full liability.
3. Be pro-active and plan for your retirement
The sheer convolution of retirement planning in the US, particularly if you are a cross-border individual, has the potential to discourage non-US citizens living and working in the United States from investing for their retirement at all. However, by taking advice from an experienced retirement planner, you can cut through the complexity and find a neat path to a well-diversified and effectively optimised portfolio. Take the time to find financial advice and a financial advisor that you trust and you could reap the long-term rewards.
4. Take preventative action
Certain investments which may have been profitable and prudent before your move to the US can become toxic once you reside here. It is important that you remove such toxic assets from your portfolio as soon as possible, preferably before you arrive in the US.
Examples of potentially toxic investments include mutual funds, certain insurance and savings products and some pensions. These toxic investments can attract harsh rates of taxation and exhausting reporting requirements. You may wish to pay particular attention to any foreign trusts you own as these can require a great deal of careful management in order to make them work in the interests of you and your beneficiaries. An experienced wealth manager can help you find alternative and more efficient ways to invest your wealth.
5. Plan your exit
There are a number knots you will need to untie, as well as loose ends you will need to secure, if you decide to leave the US ( or die while living in the US). For example, if you leave the US with assets such as real estate or US securities still in place in the country you should be aware that these will attract an estate tax of 40%. The threshold for this tax is very low – $60,000 – compared to the $11.4 million (2019) exemption that applies to US Citizen/Domiciled individuals.
Taxable “US situs assets” include:
- Shares in US incorporated entities
- Real estate
- Cash deposits with US brokers
- Artworks
US assets that may be exempt from US estate tax, include:
- US Government Bonds
- Checking and Saving Accounts
- Tax Exempt Municipal Bonds
- American Depository Receipts (ADRs)
You will also need to make plans for the future of your US retirement accounts.
In most cases you will attract punitive taxation and withdrawal penalties if you cash these in before you reach 59 ½. However, there may be high estate tax rates applied if you die before cashing them in. To further complicate matters these accounts may perform better than the alternatives available to you in your home country. This is why you are likely to require a strategic distribution plan that will help you negotiate this difficult tightrope.
Cross-border investment advice you can rely on
Blacktower (US) LLC helps cross-border individuals and their families effectively manage their wealth and investment income. We are an international firm but bring a distinctly British and personalised approach to our service. For more information, contact us today.
* https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z Accessed 25-07-19
Disclaimer: Blacktower (US) LLC is not a tax adviser and independent tax advice should be sought. The provision of information in this communication is not based on your individual circumstances and does not constitute investment advice. Blacktower makes no recommendation as to the suitability of any of the products or transactions mentioned.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.