I’ve put together this list of things you might want to do if you’re a US citizen thinking of moving to the UK, but you haven’t left the US yet. Not all of these are required, and the list can’t be 100% comprehensive for everybody’s individual situation, but it might save you some serious pain. In no particular order:
Make your existing investments UK-friendly
Transfer any taxable, non-retirement investments into HMRC reporting funds. I’ll write more later on reporting vs non-reporting funds, but the gist of it is that this can move you from getting taxed at 20-45% to 0-20%.
- The other good news is that there are plenty of good options on that list. You can easily build a four-fund portfolio using VTI, VEU, BND, and BNDX, for example.
- If you need to realize any capital gains to transfer into reporting funds, that is a US taxable event – but you can deal with that without getting the UK involved as well.
- Some Vanguard mutual funds that are non-reporting have reporting ETF versions, like the funds above. More info here, under “Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF shares?” This is a Vanguard-specific option (thanks Dave B, for pointing this out) – for other brokers, you may need to sell and buy into a reporting fund, which needs planning for capital gains.
Edit 09Nov21: Dave B in the comments also points out that an HSA needs some thought. To the UK, this is just a taxable investment account, so the points above apply, but you may need to change providers to access the right funds.
Figure out a plan for your US accounts
Will you keep using a US address, such as a friend or family member? This makes things easier, but is a little dubious and they’ll get your mail. Unfortunately, many US financial providers will freeze or close your account if you change to a UK address.
I’d like to put together a list of US brokerages that are happy to work with UK residents – if you have any suggestions, please put them in the comments!
Banks may also be a problem – I strongly recommend keeping at least one US bank account open, preferably one that will take app-based check deposits (depositing a $$$ check in the UK can be a pain and have high fees – these almost inevitably happen, whether it’s a birthday present from your aunt or a COVID stimulus check). It’s also handy to have a US bank to pay US bills, like if you ever do owe the IRS money.
Keep a US phone number
Many US accounts are moving to two-factor authentication, which is great for security but a real pain if you don’t have a US phone number (some, but not all, will also work with emails). I’ll explain these options in more detail in a future post, but a quick list:
- Port your existing number or create a new one on Google Voice – check that this works with your bank before you leave the US!
- Keep a US cell phone and use it in the UK. You’ll want something with reasonable international rates, and preferably no monthly charge. All you want is to receive US texts while in the UK. You won’t want to keep using a US phone as your primary phone in the UK, since you’ll need a UK number for all kinds of things.
- Use the real US phone number of a friend or family member. This definitely works, but can have practical issues if you’re trying to log in at 10am UK time but it’s 5am or earlier in the US. And they might get sick of you.
Open any IRAs you might want
For Traditional IRAs, if you ever want the option of deducting contributions on your UK income, you should open one and make some kind of contribution before leaving the US. There’s an open question as to whether the contributions are UK deductible or not, but if the account wasn’t open before moving to the UK, it’s pretty clear contributions are not UK deductible.
For Roth IRAs, there’s no tax or treaty constraint, it’s just logistically easier to open an IRA while physically in the US.
There’s really no harm in having one of each, even with only a token contribution – you’re setting yourself up for flexibility in the future. If you never touch them again, that’s fine too.
Edit 07Jul21: This part was originally specific to Roth IRAs, but there are considerations for Traditional as well.
Get a US credit card with no foreign transaction fees
Using a US credit card is the easiest, fastest way to spend US dollars in the UK, especially for relatively low amounts. You can avoid the annoying signature requirements by using Apple or Android Pay – I bought my first car in the UK using Apple Pay (on a card that gave me 4.5% back on Apple Pay transactions – different story).
Even if you don’t need it much now, it will likely come in handy in the future. Even silly things come up – some US tax software only lets you pay using a US credit card!
Make sure you keep it active while you’re in the UK. A small, recurring payment is perfect – my £10 a month mobile phone payment goes to my US credit card.
I’m a big fan of CapitalOne cards – they’ve worked flawlessly since I moved and none of them have any foreign transaction fees. I like my Venture* card since it gives me 2% back, much better than any UK cards – but you’ve got to have dollars you’re able to spend to take advantage of that and be worth the $95 annual fee. If you won’t use it that much, the Quicksilver card is another great option, with 1.5% cash back and no annual fee.
Open an American Express card
You might or might not be able to combine this with the one above (many Amex cards have a foreign transaction fee). You want this one for an entirely different reason – Amex is the only company that I’ve found that will consider your US credit history when giving you a UK credit card. This can be a huge plus in building your UK credit when you first arrive, and helps a lot to have a UK credit card shortly after arriving, instead of waiting until you build some credit or getting a really crappy card for people with no credit.
It doesn’t matter what US American Express card you get, so pick one that’s a good fit for you.
Once you get to the UK, go to this Amex site to apply for your UK Amex.
Note that Amex is not universally accepted in the UK – you’ll be fine in grocery stores and many online places, but even bigger shops like B&Q and Screwfix (think Home Depot and Lowes) don’t take Amex. Use your UK debit card or US credit card for these.
Make a plan for your first UK bank account
This is a notorious catch-22 for new arrivals in the UK: to rent a place, they want you to have a bank account. To get a bank account, they want to see proof of residence. And many old-school banks want that on paper, maybe verified by the Post Office, with a copy of your passport, and mailed to them. Ugh.
A few options here:
- Some newer app-based banks like Monzo and Starling have more modern ways of verifying who you are. You might wind up taking a video of yourself holding ID, that kind of thing. They’re also fast – you probably can’t get an account while still in the US, but you can do it very shortly after arrival.
- Wise (TransferWise until recently)* isn’t really a bank, but they have a handy product called a “borderless account.” You can open this in the US and get a GBP debit card. They do direct debit and direct deposit, so you can pay your rent and get paid by your employer. They don’t pay interest and their deposit production is slightly convoluted (you’d probably get your money back but it might take a while), but it’s a great start, just probably don’t keep lots of money here. They’re also a strong competitor for transferring money back and forth for low fees – I moved my house deposit using Wise.
If you have a 529, figure out what to do with it
529s aren’t particularly well suited for Americans in the UK – I’ll write a post on it soon, but basically they don’t have any special UK treatment, probably have more complicated treatment as a trust, and likely will be full of funds that don’t report to HMRC.
It might be better to just close the account before leaving the US and eat the 10% penalty and taxes on any gains, without getting HMRC involved.
Think about Social Security & State Pension
Added 25 March 2021, at the suggestion of Peter Dampier on Facebook’s “US Expat Tax Questions” group
This sounds a little vague – that’s because this one gets pretty specific to individual situations. I will write a more detailed post in the future on both systems and how they can apply together to Americans in the UK. For now, a few things you may want to think about:
- Check your US Social Security statement. Make sure your online account works, your earnings are all correct, and look at how many years you have. If you’re just under the minimum 10 years (40 credits), maybe you think about timing your move carefully – you only need to earn $5,880 in a year to get the full 4 credits, so moving in February of one year instead of December the previous year might push you over the edge.
- If you were previously in the UK and now moving back, you may want to pay voluntary National Insurance contributions before you move to get “credit” for the years you were out of the UK. This may be cheaper if you pay before moving to the UK – more details at gov.uk.
Optional: Simplify your retirement accounts
This doesn’t have any real financial advantages, but you might think about consolidating IRAs, 401(k)s, 403(b)s, Thrift Savings Plan, etc. if you have a lot of them scattered around. This just keeps things simpler, fewer logins to remember, fewer two-factor authentications to break, etc. This tends to be easier while you’re still in the US, because some dinosaur institutions insist on sending paper checks, and these could be large amounts. US to UK mail usually works fine (aside from COVID – my parents’ 2020 Christmas card took almost 4 months to arrive), but having tens or hundreds of thousands of dollars of paper checks crossing the Atlantic makes me nervous.
There’s a good post over on ExpatFinance.us on financial preparations for the leaving the US – he’s recommended a few specific products I hadn’t heard of, like the Curve card, which sounds like it could be really handy if you don’t have/don’t want to use Apple or Android Pay.
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