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This page gives an overview of the situation facing US citizens living in the UK who want to save for retirement (whether early or “normal”), and some background knowledge that everybody in this situation should have.

Who is this site for?

This site mostly assumes that you are a US citizen currently residing in the UK, working for a UK employer, and intend to remain in the UK. If you haven’t moved yet, a lot of it will still be useful for planning, and there are some very specific things you might want to do before moving. If you’re self-employed, most of the same things apply, and I will probably expand on that as I go (my wife runs a small business and I do our accounts and taxes, so have some experience with that).

If you’re planning to return to the US, your situation changes. The background info is probably still helpful to you, but you may want to minimize your UK investments to avoid future complications – this is one of those situations where professional help might be warranted.

Background – The Challenges of the American Abroad

US citizens living abroad, including in the UK, face a bewildering array of options for savings and investment, including both US and UK accounts. Because the US taxes its citizens regardless of where they live (“citizenship based taxation”), and the UK taxes its residents (“residence based taxation”), both US and UK tax planning must be considered. The US imposes a restrictive and even punitive tax regime on “foreign” investments, and the UK is also keen to ensure UK taxpayers are not evading taxes by hiding income abroad.

A good overview of these US tax issues for Americans abroad is on the Bogleheads wiki, including a list of the potential pitfalls. It’s important to be aware of these topics before making any investment decisions – some of them can’t be undone!

The UK restrictions on “foreign” investments on income are not as onerous as the US, but still need consideration to avoid punitive taxes. In general, the UK taxes its residents on worldwide income (earned income, capital gains, etc.). The UK government provides a good overview.

There is a tax treaty between the US and the UK, which can help with some of these issues, although it’s not exactly a simple document itself. I’ll create a post discussing the highlights of the tax treaty and link to it here.

What do I have to do?

At a high level, here are the key elements of staying on the right side of the law in both the US and UK, and avoid the worst tax issues:

  • File a US tax return every year, if you’re required to – this will report all your worldwide income
  • Pay UK taxes – if you’re employed, most of these come out of your paycheck, but there’s a good chance you need to file a Self Assessment every year (usually much easier than US taxes!)
  • File an FBAR (Report of Foreign Bank and Financial Accounts), FinCEN Form 1114 every year that you have $10,000 or more across all your non-US accounts. This is all about reporting, not paying more taxes, but the penalties for not filing can be severe.
  • Avoid Passive Foreign Investment Companies (PFICs) in your non-US investments that aren’t protected by a retirement wrapper (mostly, outside a pension)
  • Only use HMRC reporting funds in your US investments
  • The Flowchart is a good place to go next, starting to explore your options for where to invest.
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