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Tag: expat taxes

Taxes and Investing as an American in the UK

As I mention in my last post, I currently live in London, England. However, as an American citizen living abroad, reaching financial independence becomes more difficult as I describe below. So what does that mean for folks who want to be financially independent? I’m going to run down the steps I’ve gathered from information sources around the net and speaking to several advisors. Hopefully this helps you with your investments like it did for me.

(Disclaimer: Please note the standard disclaimer here applies. I am presenting my own experiences that have been presented to me by others who have researched this topic. I have done my best to distill it down as a simple action plan. However, as I illustrate below, there are a surprisingly large amount of people willing to trade their time to help you. Please do consult a professional with your situation.)

The Main Problem – Taxes

If you could boil it down to one problem, though, it would have to be taxes. Unlike most countries in the world besides Eritrea, the United States government taxes its citizens and residency card holders even when they are not living in the US. So Americans working and living abroad have to worry about taxes in two different tax jurisdictions. One break you do get from the US government though is the foreign earned income exclusion, meaning you won’t be taxed on any of your income if you make less than $103,900 in 2018, but you’ll still have to file taxes every year.

Because of the tax reporting requirements of American citizens living abroad, most investment companies (even American ones like Vanguard) don’t want to deal with Americans living abroad. They won’t just shut down your accounts of course, so if you’ve been investing you will be ok. But for the beginners, without a US address (or for those of you who attempt to have your mail sent to your new address), you won’t be able to open a new account.

There are also all sorts of tax rules involving investing in index funds in other countries. Those tax rules can negate the gains greatly. I don’t want to go into it here, because I don’t really understand it well, but look up Passive Foreign Investment Company or PFIC when you get the chance. Please note this doesn’t apply to individual stocks though, but we all know how hard it is to pick individual stock

The FI community starts with a do it yourself attitude, and while admirable, this is probably not the place for it (at least not at first). Your UK taxes will be easy as the government does your taxes for you. However, you are going to want help filing your tax returns in the US from one of the US expat tax firms out there (there are a few of them out there).

Update: I found a pretty good guide on taxes for US citizens living in the UK.