U.S. citizens face a unique set of challenges because they are taxed on their worldwide income and gains, no matter where they live. This reality can make even seemingly straightforward financial decisions complex, especially when considering a relocation to the United Kingdom. We strongly believe that understanding key pain points and knowing the right questions to ask along the way can help you navigate this transition smoothly and avoid costly missteps in the future.
It’s tempting to think you can plan every step of your financial journey, but life often unfolds in unexpected ways. In fact, over recent years, I have become increasingly sure that I have no ability to predict the future. My own experience offers a case in point: in 2014, I was settled in Baltimore, Maryland, with a stable job and living close to family and friends. I thought my path was clear—until I met my future wife, a visitor from the U.K., and everything changed overnight.
Despite my professional experience in investment management, I found myself reacting to the present, rather than proactively preparing financially for the future. This is a common situation: life moves fast, and financial decisions can fall by the wayside.
Understanding the U.K. Tax System
Before making the move to the U.K., it’s helpful to familiarize yourself with some fundamentals of the U.K. tax system:
- The U.K. tax year runs from April 6th to April 5th.
- The U.K. taxes residents based on their residency status, not citizenship.
- As a qualifying new resident (QNR), it is possible to elect for non-U.K. income and gains to be exempt from U.K. taxes for the first four tax years you are in the U.K.
- This tax-free window must be claimed for each relevant tax year by filing a U.K. tax return.
- After 4 years of residency, you are then taxed in a similar way to other U.K. residents (i.e. taxed on worldwide income and gains).
Key Steps to Take Before Your Move
Drawing on my personal experience – with the benefit of hindsight – and insights I have gained from helping others navigate this transition, these are some of the critical steps to take before relocating:
- Establish Your U.K. Tax Residency Date
Pinpointing when you become (or became) a U.K. tax resident is crucial for tax planning. In most cases, ideally it should align with the start of the tax year you arrive. If you become U.K. tax resident part way through the tax year, then that ‘split year’ will be treated as your first full year of residence for the four-year QNR regime. Seek further guidance based on your circumstances if you think you might be in this position. - Review Any Existing Roles and Assets
Assess any positions or roles you hold that could have adverse U.K. tax consequences. For example, you might be a current or pending trustee on a revocable or irrevocable trust, or an active member of an LLC or family partnership. In addition, if you are a beneficiary of U.S. or foreign trusts, you should seek advice on the tax implications of current and future distributions. - Inventory Your Assets and Liabilities
Compile a thorough list of your assets and liabilities, including cash, property, investments, debt, and insurance (whether held personally or in trust). It will be necessary to identify the relevant sources of your income and gains and to report these on your U.K. tax return. In addition, it will be worth considering whether it makes sense to sell or restructure assets that would be taxed inefficiently in the U.K, after the initial four-year window.
By taking these proactive steps, you can help to reduce complexity and position yourself for a smoother financial transition to life in the U.K.
For more information and personalized guidance, please get in touch.
Whether you plan to spend a few years, a few decades, or the rest of your life outside the U.S., Brown Advisory can deliver a comprehensive cross-border investment plan for you and your family that can move with you wherever life may take you. Learn more >
Billy Mathews, a U.S. expat himself, is a Portfolio Manager in our London office and helps U.S.-connected clients build U.S./U.K. tax efficient investment portfolios to meet their long-term goals and objectives.
This material is not intended to be, and shall not be construed as being, investment or tax advice. Investment decisions should not be made on the basis of it. You should not act or rely on this document but should contact your professional adviser. This article has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security. Past performance is not indicative of future performance and there is a risk that some or all of the capital invested may be lost. The information contained herein is based on materials and sources that we believe to be reliable. We make no representation, either express or implied, in relation to the accuracy, completeness or reliability of that information. The views expressed are those of the author and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions including changes in tax law or practice. Brown Advisory does not provide tax advice.