I've always harbored the desire that when I decide to step off the 9-5 treadmill at some point in the distant future, I would love to return to Oxford, set up shop, and do some research for another book. "She Who Must Be Obeyed," as Rumpole says, doesn't always agree.
But I just picked up the results of a study done by Withers Bergman, the international private client law firm, which reveals the costly legal and financial pitfalls that Americans face when relocating to the United Kingdom.
How much of this is even moderately interesting to you is questionable but the mistakes include paying double taxes on income, facing hefty taxes on the purchase and sale of U.K. real estate, failing to negotiate critical non-salary compensation prior to relocation, and discovering during divorce (which would probably be my case) that U.S. prenuptial agreements are not binding in British courts. On second thought, if they're not binding, my wife can collect handsomely. Of course, she will quickly remind me that she has more money than I do. So ends that discussion. Rumpole was right.
The 82-page report, "Opening Doors in London: Legal Do's and Don'ts for Americans Living and Working in London," is essential reading for successful Americans living or planning to live in the U.K. as well as for their financial advisors. According to U.S. and British government estimates, more than 200,000 Americans live in the United Kingdom and more than 10,000 typically apply for work permits there annually.
Erik Wallace, a Withers attorney from across the pond, points out that "The United Kingdom generally has a benevolent system for Americans living here without permanent residence, but some pitfalls can be avoided with proper planning."
For instance, he cites the double payment on taxes. If certain residency tests are met, then he says that Americans can exclude up to $80,000 of U.K. earned income from U.S. taxes and U.K. tax payments can be used to offset the amount subject to U.S. income tax.
Also, the British government taxes buyers on the entire purchase price of real estate. An American selling U.K. property is hit with a 15 percent U.S. capital gains tax on profit after a $250,000 offset, but the capital gains tax can be avoided altogether if a British spouse owns the property instead.
Catch that British spouse bit? Well, I have a widowed friend who is thinking of relocating to London and at the same time picking up a new wife. He could run afoul of the tax law if he marries a U.K. citizen. Wallace says that while an American spouse qualifies for an unlimited U.S. gift tax marital deduction, only a set amount each year ($120,000) in 2006) may be gifted free from U.S. gift tax to a non-U.S. spouse.
Moreover, when talking about trust, Wallace emphasizes that the trustee of a revocable trust living in Britain must pay U.K. income taxes on the annual income and gains, even when there is no U.S. tax liability from the trust.
And, as I said before, U.S. pre-nuptial agreements are not binding in U.K. courts. She'll never go for it but I can still dream, can't I?
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