The 3 Biggest Tax Mistakes British Expats Make in America

Every week, without exception, Richard and his team at Plan First Wealth review British expat’s US tax returns and find something missing. Not occasionally, but every single time. 

In this week’s episode of Ask an Expert, Richard lays out the three mistakes he sees most often after 11 years working with British expatriates across America, and why even people who actively follow this content still fall into them.

Richard, Chartered Financial Planner and founder of Plan First Wealth, breaks down the three mistakes he sees over and over again.

The first is missing informational returns, forms like FBAR, 8938, 8621, and 3520. Skip these and the penalties don’t just sit there, they stack up, compound, and in some cases stay on the table indefinitely.

The second is PFICs (Passive Foreign Investment Company). This is the tax hit that comes from holding non-US investments like ISAs, unit trusts, or offshore bonds. The IRS looks straight through these accounts, and what was once a tax-efficient wrapper can end up taxed at the highest possible rate, with interest added for every year it goes unresolved.

The third is simply waiting too long. Many expats leave UK pensions, ISAs, and other legacy assets untouched for 10, 15, even 20 years. By the time retirement forces the issue, what could have been a manageable problem has grown into something far more expensive.

Richard also flags two emerging risks worth watching. First, expats turning to generative AI tools like ChatGPT and Facebook groups for tax guidance, and getting advice that’s confidently wrong, and second, the currency exposure that comes from holding too much retirement wealth in pounds when you’re planning to retire in dollars.

This episode is for anyone with a connection to the UK, whether that’s pensions, investments, or family who might one day pass on assets, who wants to know if they’re one of the many people currently carrying risk they don’t know about. As Richard puts it, the goal isn’t to fear-monger, it’s to get ahead of it, deal with it, and move on.

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Expat Wealth is supported by Plan First Wealth. Plan First Wealth is a Registered Investment Advisor serving fellow expatriates and immigrants living across the US on matters such as retirement planning, investment management, tax planning and non-US asset management.

https://planfirstwealth.com/

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Expat Wealth is affiliated with Plan First Wealth LLC, an SEC registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.

ABOUT RICHARD:

Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.

As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).

Connect with Richard on LinkedIn

TRANSCRIPT:

Richard Taylor:

[00:00:00 – 00:19:05]

We’ve had people reach out to us recently where we’ve said something or they’ve seen us on a webinar or even trying to refute a tax advisor and the advice they are getting is flat out wrong, in some cases scarily wrong. Just last week James met with someone who hasn’t filed any of these forms, has never filed an fbar. A British expatriate in America, bank accounts, investment accounts, pensions has never filed an F bar. The US does not respect that it’s tax free nature and then looks right through the wrapper, sees you’re holding a load of defix and then that’s a problem. So you go from having a super tax efficient account to having an account that is now punitively taxed and has compliance issues attached to it welcome to Expat Wealth, a Plan first wealth podcast dedicated to helping ambitious British expatriates living in America to thrive here. I’m your host Richard Taylor and Plan first wealth is the business I founded and run today and we work with successful British expatriates and living across America to make the most of their opportunity while avoiding the expat landmines. And boy are there a lot of landmines in America. But first, a quick disclaimer. While Plan First Wealth LLC is an SEC Registered Investment Advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views and positions of Plan First Wealth. Information presented is for educational purposes only. Ask an Expert is a segment of Expat wealth where I bring in an expert from the cross border, financial tax, immigration or insurance world to help us understand a particular topic that we think British expatriates in America or those who are thinking of coming to America need to be aware of if they are going to avoid the expensive landmines and truly thrive here. If you have a specific topic that you would like us to cover, email us at expat wealth plan first wealth.com and we will look to cover it. So without further ado, let’s get into it. Hello and welcome to this episode of Expat Wealth. This is technically this is an Ask An Expert episode, but I’m going to try something new today. I’m going to do a solo episode. So technically I guess I’m your expert today. And for those of you who don’t know, I’m Richard Taylor, financial planner in the US. I’ve been here for nearly 11 years now working with fellow British expatriates living across America and I’m going to do an episode today on three of the biggest issues that we see that I see expats making in America. I’m going to try and keep it to 15 minutes. As you know, I do like the sound of my own voice, so no promises, but I’ll do my best. And you also know I’m extremely sensitive to accusations of fear mongering. So I promise to follow this up with, with another episode where we’re looking at best practices. What I wish expats were doing before they came to America when they’re in America to really make the motor opportunity. But for this one I’m going to focus on the three of the biggest issues. Now biggest issues do I mean like the, the worst issues or just the most common? Obviously the Venn diagram overlaps massively. But I think today I’m going to, I mean the ones that I see most often. Okay, so here we go. Right, so number one is informational returns or missing informational returns. Now what I mean by that is missing forms such as F bar, such as 8938, such as 8621, 3520, 3528. I will explain what those are in a minute. I just need to take a moment here because I know there are people listening to this, rolling their eyes and sighing. Here he goes again. Informational returns. Yeah, we know all about it. We know you need to be. We know that we need to be reporting our non US bank accounts and investment funds and pensions on FBI each year. We know it. You’ve said it a million times. Yes, I have. And yes I have for years now. I was originally writing about it and now I’m podcasting about it. And yet every single week we encounter people who are, who have these forms missing. Just last week, James met with someone who hasn’t filed any of these forms, has never filed an F bar. British expatriate in America, bank accounts, investment accounts, pensions, has never filed an F bar. So for, for everyone. Groaning thinking Here we go again on the informational returns yet I guess we’re gonna have to keep talking about it because it is a massive issue. It is still widespread. I, I reckon this is not hyperbole. Every single person we encounter when we get the tax return, when we take a look, there is something missing. So what I mean by this, America is unique in that it requires U.S. taxpayers, people submitting U.S. tax returns to also subject to, to limits. But the limits are extremely low. So I’m just gonna, I’m gonna talk about them Being that you university required. But they require people to submit in what they call informational returns. These are returns about non US bank accounts, assets, investment accounts, pension funds. And they usually have to be reported on multiple forms. So the most famous one is FBAR and luckily most people are now complying with that. Although as I just mentioned we still see people not complying with it. But there are others. There is Form 8621 for PFIX. I’m going to talk about that in a second. And There is Form 3520 and 3528 for trusts of which a SIPP, a UK pension, a SIPP is a trust and requires, we believe requires that form. The penalties or the potential penalties for missing these forms are I consider them to be draconian, astronomical eye watering. And the IRS can stack them so they can make it worse and worse and worse and they grow each year and you potentially leave your statute limitations open. So you don’t have a three or six year cap on the, on your term been audited and these penalties being assessed. So it gets really, really ugly. And it is so widespread and I still think it is the number one issue that we see, the number one mistake we see expats in America making is not complying with all the informational form requirements. And that leaves a massive risk hanging over them. You do not want to go into retirement with these, this risk hanging over you that I mentioned before. The penalties are significant and they stack up. And the only thing to do really we think is, is to just, is to just deal with this head on and try and resolve it and not move into retirement with, with this hanging over you. Because if it does ever come down on you, it will be unpleasant, it will be scary and it could be very, very expensive. Number two, what’s the second most common issue we see expats in America falling foul of pfix. Okay, what is a pfic? A PFIC is just a non US collective investment. So there are some exceptions, but they’re very niche. So again I’m going to talk in absolutes but just know there are, there are occasionally carve outs and, and exceptions and elections. But assuming none of these have been made, assuming none of them have been selected, any non US collective investment, a unit trust, an ETF, an investment trust, an OIK, et cetera, et cetera. These are considered in the US to be PFICs. And PFICs have two problems. One, each individual PFIC is required to fill out a Form 8621. This is an onerous form. Accountants do not like it. It costs money to pay an accountant to, to file it. And if you don’t file it, you have statute limitations issues. Second of all, the tax on a PFIC is punitive, really punitive. You are taxed not on, not a capital gains tax rate, but essentially to dumb it down. You’re at your highest marginal income tax rate that is 37% and interest is added for every year you’ve owned it. It’s more complicated than that, but the point I’m making is it’s taxed at the highest income tax rate, not capital gains tax rates. And interest is added every year. So this is a problem that only gets worse. Every single year you have a PFIC that when you come to clear it up and you will one day have to clear it up, the problem just keeps getting worse. Now we Most commonly see PFICs inside of ISAs because people move to America with an ISA thinking it’s okay, only to later find out that an ISA is taxable in the U.S. the U.S. does not respect that it’s tax free nature and then looks right through the wrapper, sees you’re holding a load of PIFCs and then that’s a problem. So you go from having a super tax efficient account to having an account that is now punitively taxed and has compliance issues attached to it. But it’s not just attached to an isa. We also see clients who have offshore bonds with a PFIX in them. This is especially common with clients who have moved around the world. So let’s say oil and gas people, they lived in Middle east for a while, they lived around the world and they have collected investments in different places. Oftentimes things such as offshore bonds or savings accounts and they don’t realize that they have basically a bundle load of PFICs that is a problem causing an immediate problem and a problem that’s going to get worse every single year. So PFIX just really needs to be avoided. And we see expats with PFIX all the time. I’m excited to announce that Expat wealth has its first sponsor, the Global Financial Planning Institute. The GFPI exists to provide education, community tools, resources and ongoing research for financial planners and other advanced financial professionals working with international and cross border clients in the US and Americans abroad. I’m a GFP Institute fellow and I’ve put all our employees through their GFPI programs when they join us. I’ve met Some great people. I’ve learned a ton. It’s a genuine community of internationally minded folk doing their best to serve their clients properly and critically sharing what they know in the oftentimes challenging and ambiguous US cross border environment. And as anyone in this sector will tell you, you’re always learning. So if you work with international clients and or Americans abroad, or if this is an area you’re looking to get into, check out the gfpi@www.gfp.in stute you will be glad you did and I hope to see you there soon. What I consider to be the most common problem, I guess it’s kind of less of a problem than the two is people waiting until they are four or five years out from retirement to finally get to grips with their non US assets. So someone moves to America in their mid-30s with their company, by that point they’ve got pensions, assets, investments, accounts in the UK and they think, I’ll deal with them later. 20 Years goes by and they haven’t dealt with them and then they’re thinking about retirement and they come to us because we can help. Well, at that point you’ve got probably 20 years of underperformance in a UK pension. Not necessarily, but again, this is just, tends to be what we see. So there’s an opportunity cost that comes. Had you sorted this out 10, 15, even 20 years earlier, that asset might have done much, much better for you. So there’s, there’s an opportunity cost there that isn’t the end of the world, but it is kind of frustrating when we see it on a regular basis. A bigger deal though is back to this PFIC issue. A lot of the time someone’s moved over with a pension, but they also had ISAs or offshore bonds or a GIA and they thought, you know what, I don’t know how long I’ve been in America, I’ll keep these just in case. 20 Years later they’re thinking about retiring in America. They come to us and we say, ah, do you know what you got portfolio Pfix here, You need to just sell these. Oh, and the tax is going to be this and the interest is going to be this and that could be a lot at that point. Whereas had you sorted this out 10, 15, 20 years earlier, it wouldn’t have been pleasant, but it would have been a lot less painful than it is now. This PFIC problem just metastasizes. It gets worse, it gets, it gets worse. You need to deal with it as soon as possible. And I think that’s probably the third biggest issue that we are seeing here in America now have a couple of honorable mentions, very topical. We’re seeing more and more people try and rely on AI for essentially tax advice. We’ve had people reach out to us recently where we’ve said something or they’ve seen us on a webinar or even they’re trying to refute a tax advisor. Usually in this realm of informational reporting, they’ve realized that they might be deficient in some ways not reporting certain assets on certain forms. And they, they’re resorting to AI to get advice. And the advice they getting is flat out wrong, in some cases scarily wrong. And I can only, I can only put it down to the fact that AI wants to. Wants to give you the answers you want to hear and you can question AI in such a way, whereas you can really, you can really get almost any answer you want or at least that’s the way it looks to me. So I’d be very, very careful that because I don’t believe you can rely on AI if you’re ever challenged. I don’t be able, I don’t think you, I don’t believe you’ll be able to say, oh well, OpenAI told me or chat GPT told me I didn’t need to file this, so, so can you let me off please? I don’t think that will fly. So I’d be very, very careful. And a cory to that is relying on the Facebook groups. The advice that we see on the Facebook groups is absolutely wild. And just because someone says they did it and, and it was not a problem does not mean it’s not a problem. It just means it hasn’t been picked up yet and it might never be picked up and good luck to that person. But just be very, very mindful. The US is, is uniquely challenging. The penalties are astronomical. And relying on AI and relying on Facebook forums is not the way to run your tax affairs. Another honorable mention. I would say currency. We strongly believe that you should, you want to get your, your assets to the extent that you can. You want to get your assets in the currency where you’re going to be retiring. And too often we see people with too much money in pounds and that could work against some currency fluctuations can be significant, especially over time, and it can wipe out gains and you just, it’s, it’s a big risk that people have hanging over often a significant portion of their retirement portfolio. So just be wary of currency. And finally, I do think people still under index the Importance of being in compliance and in America. I know I’m beating a dead horse here, but the rules are insanely complex. We’re talking about multiple forms for the same assets. And the penalties associated with these forms can be truly, truly draconian. And I do think people under index, they, they just think, oh, you know, I didn’t, I, I didn’t underpay any tax. I didn’t, I didn’t under report any income. Why, you know, why is it such a big deal? And whilst I agree with that, unfortunately that’s not the world we operate in. So just, just, I don’t think, especially, especially if you’re on the verge of or in retirement, I don’t think you can overestimate the value of being in tax compliance and not having those risks hanging over you. I want to make one final point on this. We. I’ve been writing about this for years. I’ve been podcasting about it now for years. And we also run quarterly webinars that cover topics such as this. And we regularly have people reach out to us who consume all our content, who listen to the podcast, who attend the webinars, and who therefore are theoretically aware of all the issues I’ve just mentioned. And yet when we get that tax return, when we wade through the stuff, we find these issues there. And I think that’s just a sign of just how insanely complex this is, that even when people are engaged and listening and proactive, they’re still not connecting the dots. You know, when I talk about Pfix, when I talk about non US investments in isis, they’re not immediately thinking, oh, I have those and I’m not filing them and I have a problem. So if you listen to this, I think there’s a very good chance, if you have any connection to the uk, any legacy assets, any family, there’s, there’s a very good chance you two have potentially have some of these issues lurking in there. And my advice is just get out ahead of it, deal with it r the band aid off, move on with your life. You will be happier for it. Okay, so as I said, that’s the three biggest issues that we think that we encounter working with British expats here in America. And it’s been fairly consistent now for the 11 years I’ve been doing it. I will follow up with a best practices on moving to America and retiring in America. I’m open to suggestions. So if you want to email me at expatwealthanfirstwealth.com if you want any suggestions for me to do a, do a solo episode where I really try and get into a topic in, in a few short minutes I will do. Look, if you’re a Britain America and you have any interest in the uk, you know, be that accounts, assets, even family and you want to make sure that you’re in compliance and optimizing for making the most of this tremendous opportunity that we do have living working in this country that do get in touch with us, right? There’s no cost, there’s no obligation, there’s no expectation and you never know what you might learn. We, we truly specialize in working with people like you British expats living in America trying to make the most opportunity, trying to do the right thing and you know, you never know what you might learn. So, so I do encourage you reach out to me or if you have any ideas and suggestions for a topic you want us to cover again, email me Expat wealth@plan first wealth.com and we’ll cover on a future episode. All right, look, we did it. I think we got that within 15 minutes. I hope that was useful and I shall see you next time. Cheers. All right folks, that’s another episode of Expat wealth under our belts. Thank you for listening. I appreciate it and I appreciate you. If you’re enjoying the show and would like to support the mission which is to help ambitious expats thrive in America and ask you to subscribe to the podcast wherever you listen and also consider leaving a rating and review, this stuff really does matter. Please help us get this information to the people who need it, that is your fellow expats. Also, if you have any questions you would like answered on the show, you can get in touch with us at Expat wealth@plan first wealth.com Just a quick reminder that this show is brought to you by Plan First Wealth. We are a US based financial planner and wealth manager and we help ambitious, successful international families living across the US to make the most of their opportunity and ultimately to retire happier. If you’d like to know more about how we might be able to help you retire, you can find us at our website, www.planfirstwealth.com or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to the podcast guys for their help producing this episode and the entire show. See you next week.