Before You Move

I’ll keep working down the list of accounts, but wanted to take a quick break to write up some thoughts about what 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, but they 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 mutual funds that are non-reporting have reporting ETF versions, like the Vanguard funds above. I did this with Vanguard before I moved, although it may be an option for other brokers as well. More info here, under “Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF shares?”
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.

Further Reading

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.

*These are affiliate links – they help fund the site and don’t cost you anything.

5 thoughts on “Before You Move

  1. Hey friend, I’ve really been enjoying your posts. Really appreciate your insight and perspective and have been reading almost every post as I plan to transfer from the States to London through my current company at the end of June. I don’t intend to retire in the UK, but plan to be there for 3-5 years and hope to live internationally long-term. Was just wondering your two cents (or pence) on these questions.

    I’m an American citizen (living in the States) and have been using the Chase Sapphire Reserve card and have loved it. No int’l fees, but is it safe to say that I would be losing out on forex from USD to GBP with every transaction if I use it to buy things in the UK? I’ll be paid in GBP. It sounds like switching to an Amex CC while stateside would be the best move because I can build credit here and then leverage that for a higher quality Amex CC while there. Is that would you’d recommend?

    I currently have a traditional IRA, but notice that you’ve strongly recommended the Roth IRA for tax implications. My understanding is that there is no US tax benefit to contributing to a Roth IRA, but there is for a traditional IRA contribution. That being said, would you still recommend getting a Roth IRA going as well before moving across the pond?

    I noted your comment about converting to HMRC reporting funds. If I have a long-term time horizon with my brokerage accounts and have no intent on selling anything (only income would be regular dividends), would you recommend taking major actions here to convert to HMRC in any ways? Occasionally I trade options, so curious if any returns there would be smacked with higher taxes as well, or if there’s a way to legally reduce taxes there.

    I know you’re not a certified tax lawyer/professional, but any insight here would be much appreciated. Thanks mate – I’ll spread the word on this helpful website, especially if you’re able to share any feedback here! 🙂

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    1. Hi, thanks for reading! Happy to provide my thoughts – like you said, not a professional here, but can certainly give my perspective.

      Credit cards: With the no foreign transaction fee on the CSR, I’ve found that credit card conversion rates are very close to the market, so you’re not really “losing” to forex. You are subject to changes in the exchange rate, of course – it’s still historically pretty good, although has gone up since the depths of Brexit negotiations. My only issue with using a good US credit card long-term in the UK is that I only have so much liquid USD to spend, and I also get paid in GBP.

      I do recommend opening an Amex in the US and using it a bit. It doesn’t have to be your primary CC – mine was a Hilton Amex that I mostly used for the signup bonus, but never closed. Just get it open and get a little history on it. Amex only gave me a £1,000 credit limit when I got to the UK, but that was better than nothing, and they raised it to something reasonable after a year (for that first year, I just paid it off very frequently, not waiting for monthly billing cycles).

      As far as getting a “higher quality” Amex in the UK, set your expectations for UK credit cards pretty low, compared to the US. You don’t get all the rewards and perks, much smaller signup bonuses, etc. I started with the “Rewards” card (0.5% everywhere and no annual fee, which is pretty good for the UK), and recently switched to the “Platinum Cashback” (1% up to £10k, 1.25% above £10k, £25 annual fee), since I’m putting enough spend on it for the extra cashback more than pay for the annual fee. Take a look at what they offer: https://www.americanexpress.com/uk/credit-cards/all-cards/. I haven’t found anything significantly better from non-Amex providers, even though I can get those now (I have a very basic MasterCard through my bank, Nationwide – no frills at all, no rewards, but useful when Amex isn’t accepted).

      IRAs: There are US tax benefits to a Roth IRA, but you don’t see it when you contribute. Once you’ve contributed, you never pay tax on that money, including any gains, ever again. And since your UK taxes will almost certainly be higher than US ones, you basically never pay US tax on the income that you used for the Roth IRA while living in the UK.

      I don’t have a problem with the Traditional IRA, but there’s a huge question for me: are the contributions deductible on UK taxes? That’s deep in the legal weeds of the US/UK tax treaty and HMRC guidance, and I haven’t found a clear answer. If they are UK deductible, a traditional IRA is a perfectly good option. If they’re not, it’s pointless – you don’t need that deduction on your US taxes, because you’ll have enough foreign tax credits already to get your US taxes to zero.

      Of course, you also need to be within the IRS income limits for deductible contributions for a traditional IRA for it to make any sense – that’s $66k for single, $105k MFJ if you have a retirement plan at work, which I assume you will in the UK.

      Personally, I’d at least open a Roth IRA before moving, even if it’s just with $100 or whatever the account minimum is, then you have the option.

      Reporting funds: this one is up to you, depending on what you think is the likelihood of you staying in the UK long term. I’d weigh that chance vs how much unrealized capital gain you have in there already. I’m not sure how HMRC taxes options – some quick googling makes it look like they’re capital gains, but I think you’d probably want to stick to HMRC-friendly options. If you’re doing individual stock options, that should be find (HMRC reporting only applies to mutual funds, ETFs, that kind of thing, not individual stocks). The best way to deal with things like options that get complicated would be to trade within an IRA (Roth or traditional) – then you aren’t getting taxed every year and can do basically whatever you want.

      I would also look into the rules around being non-domiciled and potentially using the “remittance” basis for your UK taxes, instead of the “arising” basis. I am very far from an expert here (I did enough research to know that I would want to be arising basis and stopped), and am NOT recommending either way, but it’s an option you should be aware of. https://www.gov.uk/government/publications/remittance-basis-hs264-self-assessment-helpsheet to start, googling “remittance vs arising basis” will also turn up tons of stuff. In very short, on the remittance basis, you only pay UK tax on income you take to the UK, not your worldwide income. There are downsides, too, and I understand a need to cleanly separate capital from gains before moving to the UK. That’s about all I know, but it’s potentially something useful to you as a temporary UK resident.

      Good luck, and enjoy the adventure! Happy to try to give my thoughts any other questions that might come up as you go.

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      1. Wow, thank you so much for this thorough and thoughtful response! I’m subscribed to your blog’s emails and am amazed at how you crank these out. Per your advice, I have an Amex CC on the way 🙂

        Is it generally a correct assumption that it’s better to open up any accounts now while I am living stateside BEFORE I move across the pond toward the end of June? (brokerage, CC, TransferWise, anything else?)

        Specifically, you said in your recent post on Roth Conversions: “It means that if you have significant savings in a 401(k) or Traditional IRA, you can convert it into a tax-free Roth IRA, without paying UK taxes and, through some prior planning, paying no or minimal US taxes.” I currently have a traditional IRA but not a Roth IRA yet. Does that mean it would make sense for me to wait until I move across the pond before I open a Roth IRA? Or should I open it here/now, but you’re saying that there are simply UK tax incentives to convert from 401K / traditional IRA to Roth?

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      2. I had a lot of this put together in a less structured form (just a giant Google Doc) – I’ve finished turning that material into proper posts now, so will definitely slow down as everything new comes from scratch!

        I think it’s a good assumption to open anything that is US-based before you move. It just saves hassles – addresses, phone numbers, IP addresses, etc. Little stuff that’s easy now can suddenly become a pain – not impossible, just more difficult.

        If it was me, I’d open a Roth IRA now, even if it’s just with a small amount. There’s a pretty reasonable way of reading the tax treaty that any pensions (including Roth IRAs) that are opened and contributed to before moving to the UK are treated favorably, but anything opened after isn’t. That’s not a 100% certain reading, but it’s plain enough to me that it makes sense to at least get one opened somewhere. Then you can contribute to it, transfer it, use it for conversions, etc.

        And I wouldn’t quite call it a UK tax incentive to convert traditional to Roth, more of a blind spot or legit loophole (legit like backdoor Roth contributions – nothing illegal or nefarious, but probably not a 100% intended consequence of the treaty). The conversions probably don’t matter until much later in life, but they can be hugely helpful in both accessing Traditional money earlier, and in managing Required Minimum Distributions. I’m working on a series of posts about withdrawal strategies, but it’s clear so far that Roth conversions are a big part of that for anybody with a significant Traditional balance.

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      3. Ah that makes sense why you could fly through these. Very helpful information that I’m sure you’re glad you compiled.

        Sounds good. I will look to open the Roth IRA and any other accounts while on this side of the pond.

        Helpful clarification about the blind spot / legit loophole. That’s good to know. I’m sure we’ll be in touch again – thanks for all you’re doing!

        Like

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