Moving to the US
The Ultimate Financial Guide to Moving From the UK to the US
Moving to an entirely new country is very exciting and will be a life-altering experience no matter why you are moving. Whether you are moving for work, education, or personal reasons, you are going to have an abundance of financial questions. These are some of the top questions and concerns we see at Aberdour Investments from individuals or families that move from the UK to the US. If you have any questions not covered here, or want to talk to someone with personal experience moving from the UK to the US, get in touch to see how we might be able to help.
Paying income taxes in the US
Both the US and UK have progressive income tax systems, which means your tax rate increases with your income. However, the two income tax systems are very different. In the UK, the tax year runs from April 6th to April 5th, and the US tax year is January 1st to December 31st. If you are an employee who pays tax through the Pay As You Earn system in the UK, you generally don’t need to file a tax return unless you earn over £100,000. That is very different from the United States, where the gross income filing threshold for tax year 2023 ranges from $5 for married filing separately to $30,700 for a married filing jointly couple both age 65 or older.
The tax system in the US can be complicated for lifetime citizens, and even more so for those new to the country. The IRS has a free tax return preparation program for qualifying taxpayers, which can help ease some of the burden when it comes to tax time.
Investing in the US
Individual savings accounts, or ISAs, are popular investment vehicles in the UK due to their tax-free status, which is unfortunately not recognized by the US. ETFs and mutual funds held in these accounts are typically treated as Passive Foreign Investment Companies (PFICs) by the IRS. This means they will likely not be tax-efficient in the US. It may be worth considering altering your allocation before you move to the US to assets that are taxed more efficiently. Optimizing taxes on your UK investments in the US can be a complex issue, so reach out to us if you have any questions or concerns.
Upon moving to the US, you will have several options available to invest for retirement or future goals. Individual retirement arrangements, or IRAs, are available to qualified individuals as tax-deferred accounts or tax-free accounts called Roth IRAs. With a Roth IRA, the income you contribute is taxed, but grows tax-free and qualified distributions are entirely tax-free. The contribution limit on IRAs is relatively low at $7,000 annually for 2024 (plus an additional $1,000 allowed for those 50 and older).
Retirement plans offered through employers in the US vary and some offer no retirement plans at all. The most common retirement plan in the US is what is called a 401(k) account. Limits on employee contributions to 401(k) accounts are much higher at $23,000 annually in 2024, with an additional $7,500 allowed for those age 50 and up. Just like with IRAs, employees usually have the option to contribute pre-tax dollars or after-tax dollars to their Roth 401(k), however the employer must offer the Roth 401(k) option in the plan.
Those with a high-deductible health insurance plan may have access to another savings vehicle called a Health Savings Account, or HSA. Some HSAs have low-cost investment options which allows the account to be used as another vehicle to invest for retirement. Any distributions made from an HSA for qualified medical expenses are tax-free, and distributions may be taken starting at age 65 for non-qualified expenses without penalty (but tax will still be owed if used for a non-qualified expense).
Taxable brokerage accounts are available for those that want more flexibility with when they can use their money or for those that have maximized all other investing options and still want to save more for retirement. Qualified assets are subject to more favorable capital gains tax rates, but the accounts do not have any special tax advantages. There is no limit to contributions and money can be withdrawn at any time without penalty.
Will I get to keep my UK state pension?
There is no national pension system in the US and employer pensions have become increasingly rare. It is unlikely that you will be able to transfer your UK state pension to a US pension, however you don’t necessarily need to transfer your pension to the US to be able to receive benefits. You may receive payments from your UK state pension to your American bank account. It may also be possible to claim a US Social Security benefit based on your UK state pension.
What if I have property in the UK?
Upon moving to the US, you may maintain a property in the UK if you plan to return at a later date. If you earn income from the property while living in the US, such as from renting it out, you will need to pay UK taxes on that income. Because of tax agreements between the US and UK to minimize double taxation, foreign tax credits should allow you to reduce the amount of income that is subject to double taxation. If you sell your home in the UK while living in the US, you are still liable for paying any taxes owed and submitting a capital gains tax return even if you don’t owe any money. You may owe taxes in the US on the sale of your property even if you don’t owe taxes in the UK. The IRS outlines who qualifies for an exclusion and how to report the sale on their website.
How do I report foreign assets?
If you maintain overseas financial accounts after moving to the US, you may have to file a special report with the IRS. In general you must file Reports of Foreign Bank and Financial Accounts, or FBAR, if the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the calendar year. There are exceptions for spouses if they don’t have any individual foreign accounts and their spouse reported all joint accounts on their FBAR. In this situation, the spouse would complete and sign Form 114a, Record of Authorization to Electronically File FBARs.
How do I convert currency?
When converting money from pounds to dollars or vice versa, shop around for a currency broker or company that may offer a cheaper rate than your bank. Some banks may charge little or no fees for the conversion itself, but make all of their money off the conversion rate spread and give you a very poor deal.
How do credit scores work in the US?
The major credit bureaus in the US and UK are the same, Equifax, Experian, and TransUnion, but credit history does not transfer from the UK to the US. However, there are some services you can use that can translate your UK credit history into a US-equivalent credit score to be used by lenders in the United States. This can make it easier for you to get approved for credit cards, renting a home or apartment, a car loan, and more.
Do I need to update my will?
Whether or not you need to update your will when you move to the US, or create a separate will for the US, depends on what assets you own and how complex your financial life is. Consult with a trusted estate attorney to see if it may be wise to update your will or if you may need separate wills for the UK and the US.
Moving to a different country is an amazing but stressful experience that can be made significantly easier with a financial advisor by your side. If you are considering moving to a different country, are in the process of moving, or have been living in a different country for some time, consider reaching out to see how you may benefit from working with Aberdour Investments.