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Another year end already?

07 March 2017

Nick Blogg, Investment Manager, LGT Vestra US

Whilst we may only be a few weeks into 2017, for many of our clients, thoughts are already turning to the end of the UK fiscal year on 5th April 2017.

For our US citizens and US taxpayers, living in the UK, planning opportunities are to an extent limited and tend to add a certain amount of complexity. However, there are simple planning opportunities for tax advantaged savings and investments that should be considered as part of an individual’s overall financial plan.

1. ISAs

Under current UK rules, individuals can contribute up to £15,240 into an ISA each tax year and benefit from no UK tax on any income and gains generated. This is often described as a “use it or lose it” allowance in that individuals either choose to use it, in full or in part by 5th April 2017 or lose the opportunity to do so.

Unfortunately, ISAs aren’t a recognised savings account in the US, and therefore any income and gains will still be taxable in the US. While some might suggest that an ISA isn’t worthwhile for American’s, as long as rates remain higher in the UK, there exists a marginal benefit to funding an ISA each year. As the value of the ISA grows, the marginal benefit becomes bigger.

2. Pensions

Depending on your income, contributions of up to £40,000 can be made into a UK pension in the current tax year. This contribution is made net of basic rate tax relief, with further relief available at an individual’s marginal rate. If this was not cause enough, any income or gains within the pension will grow free of UK taxation until the point benefits are drawn.

For US Citizen’s living in the UK, contributing to a UK based pension can bring with it a certain level of additional reporting in the US. There are, however, a number of benefits which should be considered as part of the planning. While we always encourage our clients to check their position with their tax adviser, in most circumstances, a UK pension fund will also be able to grow free of US taxation, again until the point of drawing benefits.

Care needs to be taken when funding a UK pension as individuals may not necessarily qualify for a deduction on their US return. However, for those who have accumulated excess Foreign Tax Credits from time working in the UK, these can used to gain the equivalent tax benefit in the US.

3. Enterprise Investment Schemes (EIS)

For those US Citizen’s who have accumulated excess Foreign Tax Credits, another way of utilising them is to invest into a qualifying EIS and benefit from UK income tax relief on the investment. EIS investments are, by their very nature, higher risk investments and consequently not suitable for everyone.

In return for taking on the additional risk of investing in small unquoted UK companies, investors can benefit from UK income tax relief of 30% on the initial investment, 100% inheritance tax relief (if held for over two years) and tax free for UK income and gains.

Again, care must be taken when US Citizens consider investing in EIS opportunities as not all investments will be suitable for US expats in the UK.

Putting together a financial plan for your future requires careful consideration today. As Warren Buffett said, “Someone’s sitting in the shade today because someone planted a tree a long time ago”.


This document is considered to contain information about LGT Vestra US and general market commentary. This document does not constitute advice or a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. This document is not intended and should not be construed as an offer, solicitation or recommendation to buy or sell any investments. You are recommended to seek advice concerning suitability of any investment from your investment adviser. It is not to be reproduced, copied or made available to others.

The information and opinions expressed herein are the views of LGT Vestra US and are based on current public information we believe to be reliable; but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information herein is given in good faith, but is subject to change without notice. No liability is accepted whatsoever by LGT Vestra US or its employees and associated companies for any direct or consequential loss arising from this document. Past performance is not a reliable indicator of future performance; and the value of investments, as well as the income from them can go down as well as up, and investors may get back less than the original amount invested.