In 2006, the Institute for Public Policy Research (IPPR) published a report on Brits abroad and found that around 678,000 UK expats lived in the US.
It was the third biggest number of UK expats in a country followed by Australia and Spain. But these numbers have reportedly risen dramatically, with over a million now in the US.
This means that there are many Brits that need financial advice on tax, pensions, and investments across the United States.
Complicated
SJB US is one firm that is looking to serve UK expats in the States, and it specialises in financial advice to both UK expats or US residents with a UK background.
This advice includes UK and US pension, investment, retirement planning, tax planning and estate planning.
Jake Barber, principal at SJB US, spoke to International Adviser about how UK expats in the US compare to a standard expat.
“It can be very complicated,” he said. “For example, UK expats in the US may still hold UK Isas or investment accounts or even tax wrappers which provide benefits in the UK. The US will often see through these for tax purposes and any investment which isn’t US domiciled will generally be a ‘PFIC’ which stands for ‘Passive Foreign Investment Company’.
“All capital gains from the sale of a PFIC shares are treated as ordinary income for federal tax purposes which is hugely disadvantageous. On top of that, all assets need to be reported correctly with potentially large penalties if not done on time.
“Brits are often very unaware that UK inheritance rules apply to global assets unless they are non-UK domicile, and more often than not, losing your UK domicile status is very hard to do.
“UK pensions also need to be reported correctly both when receiving money from the UK and also in the US.”
Offering and competition
The complexities of UK expats financial affairs are not as difficult as US citizens abroad, however advice services are a necessity.
There needs to be a good offering for them in the market.
“UK expats generally have the same offerings as any US resident, and the US retirement plans are quite similar to what’s available in the UK as the standard 401k follows similar principles to a defined contribution pension in the UK,” said Barber.
“The biggest problem is often the lack of understanding of which opportunities are available and how their UK assets coincide with their US assets.
“Competition is growing, but given that there are reported to be more than one million Brits living in the US, I would say there is lack of advisers providing this kind of advice.
“I would prefer an increase in qualifications to enter the US market for advisers specialising in British expats as the only requirement is to pass the Series 65 exam. Having UK qualifications in my opinion should be a requirement as well.”
Opportunities
The UK is home to many different types of products including life insurance, pensions and investments, but how many of these can help ease cross-border assets?
Barber said: “The US is very favourable when it comes to UK pensions, as its one of the only countries outside of the UK where the 25% pension commencement lump sum is tax free, although not in every state.
“This provides unique tax planning opportunities by using advantageous drawdown options from certain pension products in the market.
“UK expats can also take advantage of cross-border trusts, allowing them to build the correct estate planning product, along with multi-currency investment solutions which often aren’t available with the majority of US institutions.”
Repatriation demand
IA spoke to Quilter International sales director Brendan Dolan in December 2020, and he said that there has been a rise in demand for repatriation services.
But Barber said there has been “not as much as expected” in the US market.
“It’s definitely put a hold on people moving to the US for the time being but with regards to seeing the US as a long-term home, this is often the case if they are married and their children have grown up in the US.
“It’s often quite hard for the UK to match the salaries offered in the states.”
