Key tax considerations when moving to the UK or the US

How can individuals prepare for a move to the UK or US from a tax perspective?

There’s a lot to consider before moving to a new location, and each person will have their own particular circumstances and objectives. It’s important to obtain detailed bespoke advice well before you become resident for tax purposes. Seeking advice at least three months before relocating is what we usually recommend, but preferably longer so you have time to implement the advice you’re given before it’s too late.

Residence/domicile

Firstly, you should understand exactly when tax residence is triggered so you can determine the date your planning needs to be completed. The US rules consider the number of days of physical presence over a three-year period, so if you’ve visited there before you relocate, this could bring forward the date that your residence begins. There’s also the ‘Green Card’ test. If you have a valid Green Card, you’ll become resident from the first date that you arrive in the US after the Green Card is issued.

The UK has a much more complex series of residence tests. As well as the number of days you’re present in the UK, you need to consider the number of ties you have – these are things like homeownership, family ties or time spent working in the UK. There’s also a distinction between domicile and residence which is important to factor in. ‘Domicile’ relates to your long-term home whereas ‘residence’ is much more about where you are right now. 

If you have a domicile of origin in the UK, you will be taxable on your worldwide income and gains from the moment you become resident there but if you are non-UK domiciled, you may be able to spend a period of time in the UK with no tax on your offshore income and gains. If this is a possibility, you’ll benefit from specialist advice on how to arrange your affairs to utilise the opportunity.

After understanding your residence/domicile status, the remaining points to consider are:

1. Do you have assets with unrealised gains that could be sold or rebased before you relocate or assets that would be taxed punitively after you relocate?

Both the UK and the US have a tax on capital gains and they both have rules that target certain types of overseas investment, making them unsuitable once you become resident there.

2. Do you own real estate in your country of origin and what do you intend to do with it when you move?

If you wish to sell property in your home country, it may be advisable to do so before moving. If you plan to keep the property and rent it out, you should consider how the rental income would be taxed in the UK or the US after you become resident there.

3. Do you intend to work after moving and where will you be performing the duties of your employment?

Consider how your income will be taxed, whether social security contributions may be payable by you and your employer, and what exemptions might be available with the right planning. If you own a business in your home country, the profits may become taxable in your new country of residence, regardless of whether you take a salary or dividends. With careful planning before you move, it may be possible to save some tax.

4. Both the US and the UK have an estate tax.

If your assets have a total market value on the date of your death exceeding any exemptions that may be available, your estate will be taxable. Currently, both jurisdictions levy a tax at 40% of the estate, which can significantly deplete the value of your assets as you pass them onto the next generation. For many, this will be the most important consideration for long-term tax planning.

5. Are you the grantor/settlor or beneficiary of a trust?

If so, you need to understand how trust income and gains are treated after you become resident and what tax-saving opportunities there may be with the right planning.

6. Finally, you’ll probably need to file tax returns once you have relocated.

This is likely to be complicated and it’s important to ensure you’re fully compliant to avoid significant penalty exposure.

What are the benefits of consulting an expatriate tax expert?

The above list is by no means exhaustive, but it covers most of the initial questions to ask yourself if you’re planning to move to the UK or the US. The answers to those questions may lead to further questions, and you might even end up uncovering your most important challenges as you discuss your relocation with your tax adviser. Also, even after your relocation, your circumstances or the tax rules could change, which is why it’s generally recommended you retain the ongoing services of a good tax adviser, who’ll be able to keep you in the know regarding any changes that might affect you.

For professional advice tailored to your unique circumstances, please fill out the form below and one of our experts will be in touch to discuss your requirements and how we can help. Please note that our advisory services are charged at our hourly rates and a formal engagement will need to be in place before any advice is provided.