9 things to know for Americans looking to retire in the UK

Americans keen to retire in the UK might assume it’ll be an easy transition. But in reality, many aspects of living in the UK are very different. Not least when it comes to taxes. If you’re a US expat who is considering retirement here, here are nine things you need to know. 

American citizens who are older than 60 and can demonstrate that they have an income of £25,000 without earning it, can potentially retire here. While you must show your income is independent of "working", you can still manage any investments (including property) that you own in the UK. In some circumstances, it’s possible to hold a non-executive director position

You don’t need a visa to visit the UK if you stay less than six months. Any longer than that and you need to qualify for a visa. Qualifications include things like having well established connections in business, any family links, or even dual citizenship with another country, such as Canada. 

If you own property that does not necessarily give you a longer time on your visa, however. US expats who have been living in the UK and are considered by the Home Office as "retired people of independent means" can apply to extend their visa for up to five years. They can also apply for indefinite leave if they meet certain criteria. "Independent means" is defined as having at least a disposable income of £25,000 and meeting other requirements. 

We’re heading to the Brexit date given by the Government, which is 31 January 2020. However, despite this much remains unknown. According to Lucy Culpepper, from Liver and Invest Overseas, the implications for Americans are unclear as yet. She says: “I can’t see that it will adversely affect American retirees wanting to come here [to the UK]. In fact, it may be good for retirees with an income.”

The cost of living in UK is not cheap. Statistics show that it costs more for people to retire to the UK than to Spain, for example. This does depend a lot on where you choose to settle down. London is clearly the most expensive city to choose. According to Expatistan, it’s the 11th costliest out of 337 cities rated. London also ranks as the fourth most expensive city in Europe, and easily the priciest in the UK itself. Of course, outside of London housing costs and the cost of living becomes less expensive. Housing in Edinburgh, for example, is more than 50 per cent less expensive than in London. 

US expats retiring in the UK will not be able to use the National Health Service (NHS), unless for emergencies. Private health insurance will be needed.

Failing to understand the tax implications of retiring in the UK could be costly for US expats. Before you leave the United States, ensure that you fully understand how your finances will be affected. If you don’t, you could find unexpected tax bills from the IRS or HMRC. 

You will have to file tax returns with the IRS on Form 1040 and file with HMRC in the UK. In addition, you must tell the US Treasury Department of all bank accounts and balances that you hold in the UK and outside of the US. The Foreign Bank Declaration (FBAR) must include all bank accounts, pensions accounts and joint accounts. 

There is a tax agreement between the US and the UK in place to stop double taxation. For example, the Foreign Earned Income Exclusion (FEIE) means you can exclude up to $107,600 from overseas income in 2020. However, it’s vital to know that this does not apply to retirement income. Pension benefits cannot be excluded from US taxable income. Rather, your entire worldwide income, and up to 85 per cent of your Social Security benefits could be taxed by the US Government, no matter where you live. 

Americans retiring to the UK will naturally hold bank accounts that are subject to FBAR reporting. As well as this report, you will have to file extra reports with your tax returns. If you deliberately choose not to report your accounts using FBAR you could come under fire from the IRS and be fined either $100,000 or 50% of your foreign account balance. Similarly, if you fail to file Form 8938 (statement of specified foreign financial assets) then you could be hit with a penalty of up to $60,000. For more on US expat taxes, check these FAQs.

US expats choosing to retire to the UK will have two separate sets of tax laws to follow. It’s not always obvious what must be done to comply with both the US and UK Government, and experts like Ingleton Partners will ensure that treaty benefits and tax credits are being fully utilised. Contact the team here. 

Americans keen to retire in the UK might assume it’ll be an easy transition. But in reality, many aspects of living in the UK are very different. Not least when it comes to taxes. If you’re a US expat who is considering retirement here, here’s nine things you need to know.