Moving money from a US bank account to a UK bank account
As a US Citizen living in the UK, you will likely have a US bank account that you would like to access. Some accounts come without tax liability and some are taxable.
As an expatriate living in the UK, your tax liability will vary according to your situation especially when you have a bank account in the US. The big two varying factors are the income to that bank account and your residential status in the UK.
Different types of income to the bank account
Firstly, it is important to understand the different types of income that you can have in an offshore account. The UK legislation lists nine types of income but for the sake of simplicity, we’ll just be looking at the four main types you are likely to have.
UK employment income – this is employment income that has been earned in the UK where UK tax has been withheld or is due to be paid. This income can be transferred to the UK without incurring a charge.
Foreign earnings – this is income earned outside of the UK that has not been subject to UK tax. This usually arises where a taxpayer claims Overseas Workday Relief and transferring this money to the UK would incur an income tax charge.
Foreign investment income – this is self-explanatory but can be broken down by whether it is income or chargeable gains and whether foreign tax has been paid. If the taxpayer claimed the remittance basis and has not paid UK tax on this income, transferring to the UK will incur a charge at the top rate of income tax despite the favorable allowances and rates for certain types of investment income currently available in the UK.
Capital – this is rather loosely defined as anything that cannot be categorized in the above. In real terms, this is usually money that was earned before moving to the UK (and does not relate to a previous period of UK residence). This money can be transferred to the UK free of charge
Residential status
If you’re not a UK resident, you will not have to pay tax on your foreign income
If you’re a UK resident, you’ll normally pay tax on your foreign income. But you may not have to if your permanent home (‘domicile’) is abroad.
Tax filing obligations
If you are from the United States and your accounts have a combined total of over $10,000 You must file an FBAR by law or face fines from the IRS. If you move to another country but originated from the United States, you still must file an FBAR (Form114).
What can I do to ensure that my offshore funds are accessible in the UK?
If you have had an offshore mixed fund for multiple years, then your only option is to analyze and isolate the foreign income sources of your account. Then make a judgment on whether you would prefer to pay the tax to enjoy the money in the UK or just leave it be. This is a complex and time-consuming process; especially if there are frequent transactions with other offshore accounts.
TIP: If your income for the tax year is particularly low, the tax consequences of a transfer will be reduced. Lower-income earners have greater allowances and lower tax rates available to them.
If you have recently arrived in the UK, a few more options available to you
Utilize the Special Mixed Fund rules – this allows individuals claiming Overseas Workday Relief to optimize their relief and avoid the analysis of accounts required to determine whether they have retained enough foreign earnings outside of the UK.
Open a new offshore account at the start of each tax year – this is mostly relevant to individuals claiming Overseas Workday Relief. Setting up a new qualifying account each year will allow you to isolate UK employment income which can be easily transferred to the UK without having to worry about transferring foreign earnings from a later tax year first.
Don’t claim the remittance basis – there are significant tax savings to be made in the short term by claiming the remittance basis but if you intend to stay in the UK for a longer-term and need to bring money into the UK to buy a house, for example, then the tax savings will be reversed.
Transfer to the UK straight away – if it is always your intention to transfer money to the UK then you should consider doing this early on before the account becomes contaminated with different sources of foreign unremittable income.
Siphon off foreign interest income – this is not always possible, but some accounts allow you to have interest and coupons to be paid into a separate account thereby leaving your capital uncontaminated with untaxed foreign interest.
