Investing from Abroad: How Americans Should Protect Their Assets from Overseas | Move to Europe with Katelynn Minott

Expatriates need to manage their tax obligations effectively and avoid mismatches between tax systems that can lead to double taxation. One of the most common mistakes American expats make is investing through a Passive Foreign Investment Company (PFIC), which is taxed at the highest US tax rate, often simply because they didn’t have the proper guidance. Working with qualified expat wealth advisors is essential for making smart, legal, and cost-effective financial decisions. Moving abroad is exciting, but it’s easy to fall into tax traps that can have costly consequences.

Richard Taylor – dual UK/US citizen and Chartered Financial Planner – is joined by American Katelynn Minott – CPA at Bright!Tax, to explore the key tax challenges Americans face when moving abroad. They discuss common compliance pitfalls, strategies to avoid expensive errors, and the benefits of proactive planning with specialist advisors to successfully navigate cross-border financial obligations.

 

In this episode of We’re The Brits In America, Richard and Katelynn explore:

• The importance of adhering to both US and foreign tax obligations and how misinformation can lead to costly mistakes.

• The difficulties Americans face with foreign banking due to the Foreign Account Tax Compliance Act (FATCA), and strategies for managing financial affairs while abroad.

• PFICs and why they can be financially devastating for expatriates if not managed properly.

• Considerations and implications of renouncing US citizenship.

 

More about We’re The Brits In America:

With the right financial advice, landmines that threaten expat wealth can be avoided. Often encountered by U.S.-connected expats, these financial landmines are more numerous, more hazardous, and less understood than almost anywhere else in the world. As a result, non-cross border professionals, wealth advisors, and even international advisors are often unaware of them. But don’t worry, We’re The Brits In America has you covered.

We’re The Brits In America is dedicated to helping ambitious U.S.-connected expats and immigrants navigate those challenges — and thrive. Whether you’ve moved to the U.S. for opportunity, or are an American seeking adventure and growth abroad, our job is to equip you with the tools and insights you need to succeed.

If you’re enjoying the show, please consider leaving a 5 star rating and review to help the mission, which is to help expats and immigrants thrive in America. Visit planfirstwealth.com to learn more about our services and connect with Richard Taylor on LinkedIn.

We’re the Brits in America 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, Founder of Plan First Wealth:
[00:01:17 – 00:02:06]
Welcome to our Ask An Expert show where I invite a fellow professional in the US Expat Cross Border Space to come in and talk to me about the issues we think Americans who are considering moving to Europe need to be aware of if they are going to thrive there. My guest today is Katelynn Minott. Katelynn is a CPA who specializes in US Taxation for expatriates and she is the CEO of Bright Tax, a firm specializing in tax preparation for Americans living abroad. With over 40 tax professionals serving clients across the world, Bright Tax are one of the leading providers of tax services to Americans overseas. With many clients in Europe. I know Katelynn has lots of valuable insights to share with us about what Americans need to be thinking about and doing from a tax perspective to make their move a success. So without further ado, let’s get into this. Hi Katelynn, welcome to Move to Europe.

Katelynn Minott:
[00:02:07 – 00:02:09]
Hey Richard, thanks for having me today.

Richard Taylor, Founder of Plan First Wealth:
[00:02:10 – 00:02:18]
Absolutely, thank you. I appreciate the time. So that was my little intro, but if you wouldn’t mind giving us an abridged version of your background, your story.

Katelynn Minott:
[00:02:19 – 00:03:10]
So I am a cpa. I kicked off my career kind of on the traditional accounting track, if you will, with a big four firm, PwC, and just a couple of years in realized that it wasn’t quite the thing for me. And that was because I had gotten the travel itch during study abroad in college and knew I wanted to live abroad. So a few years into my career I kind of threw everything by the wayside and moved to South America and in doing so, began to seek online work for my CPA license. And that was, you know, back in 2011, before remote work even existed, like it does today. I happened across the founder of Britax, who had at the same time, coincidentally just moved to Argentina, had a tax need himself, and we met, coupled my CPA license with his business idea, and we have built Britax over the last. Wow. Now, 13 years from there.

Richard Taylor, Founder of Plan First Wealth:
[00:03:10 – 00:03:12]
He’s not a tax professional by trade.

Katelynn Minott:
[00:03:13 – 00:03:21]
No, Greg, our founder, is not. He’s a serial entrepreneur. And, you know, our coming together to. To build the firm is kind of where all the magic began.

Richard Taylor, Founder of Plan First Wealth:
[00:03:21 – 00:03:28]
I did not know this. So he’s just a regular entrepreneurial expat in Argentina. You’re in Chile.

Katelynn Minott:
[00:03:28 – 00:03:30]
In Chile, Yep, that’s right, in Chile.

Richard Taylor, Founder of Plan First Wealth:
[00:03:30 – 00:03:38]
And you’re offering tax services to expats just because you’re looking for some. Some sort of, you know, you’re looking for work out there. And Britax was born.

Katelynn Minott:
[00:03:38 – 00:03:39]
Exactly.

Richard Taylor, Founder of Plan First Wealth:
[00:03:39 – 00:03:40]
That’s incredible. I didn’t know that.

Katelynn Minott:
[00:03:40 – 00:03:41]
Exactly.

Richard Taylor, Founder of Plan First Wealth:
[00:03:41 – 00:03:48]
Wow. You’ve gone on quite the journey since then. So I’ve got so many questions, so let me just, like, calm down a second and that. Right. Why Chile? How did you end up in Chile?

Katelynn Minott:
[00:03:48 – 00:04:28]
So I was an international business minor in college. I had studied Spanish kind of all throughout my. My academic journey. It was actually my hardest subject in school, which is funny now looking back. It’s a language that I’ve become fluent in, but I knew I wanted to study in a foreign university where I could focus on my Spanish. And many of the European universities were actually American schools where I’d be speaking English. So to kind of enhance the fluency of my Spanish, I chose South America, a little beach town called Vinh del Mar on the coast of Chile. And about five months into my study abroad, I met who is now my husband. So love took me to South America some years later.

Richard Taylor, Founder of Plan First Wealth:
[00:04:28 – 00:04:31]
Oh, wow. Oh, this is so cool. So how long were you there for?

Katelynn Minott:
[00:04:32 – 00:04:44]
I was in Chile for nine years. We ended up in Brazil for a year in 2020, which was perhaps not the most magical year to be spending a year abroad. And then we moved back to the states in 2021.

Richard Taylor, Founder of Plan First Wealth:
[00:04:45 – 00:04:54]
Nine years is a long time. I’ve just passed 10 years in America. First of all, how was your Chile experience? And second of all, from that, what’s it like being back in the US after so long away?

Katelynn Minott:
[00:04:54 – 00:05:53]
Moving abroad was something I kind of sought after. Again after getting the travel Bug in university as a study abroad student, I knew that’s where I wanted to take my next step. And so even when I did enter the traditional workforce as an accounting major, a cpa, eventually, I was kind of longing after that and thought I might find that through, you know, my professional journey with PwC, not quite on the timeline that I wanted. And so that’s where I. I jumped ship a couple years in and decided to take things into my own hands. But Chile was a fantastic country to, to live in. We raised. All of my kids were born there. They went to school there for some years. It was, it really phenomenal experience. A very warm and welcoming culture. It’s, you know, part of my family now, of course, with my husband being from there. So it was a wonderful, wonderful experience. Living abroad. Living abroad gives you the opportunity to weave together the bits and pieces of the various cultures that you get exposed to and make them your own based on how you want to live your life.

Richard Taylor, Founder of Plan First Wealth:
[00:05:53 – 00:06:37]
It changes you forever. But also I found it’s given me a true appreciation for the many things I took for granted about the UK and about Europe. And I’m sure it was a, you know, nowhere’s perfect. Right. And I’m really interested to know what it’s like for you being back in the US after so long abroad, because you’ve just come back with a completely different perspective and experience, I imagine, and that will. But also I imagine there are things that you took for granted previously that you now appreciate, and that’s a wonderful thing as well, because a lot of the time we’ll watch. I mean, look, we’re all connected on social media and stuff, and we’ll see. And, and you cannot escape from the news. I mean, I’ve got it on over here. I don’t know why I’m complaining. I’m part of the problem. You see a lot of our compatriots complaining and unhappy about stuff that, you know, that they left they would realize wasn’t that bad in the first place or was actually good.

Katelynn Minott:
[00:06:38 – 00:06:38]
Absolutely.

Richard Taylor, Founder of Plan First Wealth:
[00:06:38 – 00:06:39]
Sometimes that can be frustrating.

Katelynn Minott:
[00:06:40 – 00:07:19]
Well, I think that’s the beauty of travel and living abroad is that it creates an alternative path. And, you know, let’s be real, I look at our website traffic, and regardless of how you feel about what’s going on in the US right now, you know, our. The data shows that people are interested in alternatives right now. Right in November, our website traffic blew up because all of a sudden people are like, there may be another way. And again, I think the beauty of living abroad is that it shows you that there are many ways, there is no one right way. And it gives you that opportunity to create the lifestyle and everything on your own terms to the extent that you have that opportunity to relocate.

Richard Taylor, Founder of Plan First Wealth:
[00:07:19 – 00:09:02]
Okay, so let’s talk about moving to Europe. So just to give you some background on the motivation behind this podcast, so as you know, I have a business here in the US And I cater mostly to fellow Brits and fellow expatriates. And I believe there’s a huge opportunity for people to come to America and change their lives financially. When you’re younger, you’re, you’re ambitious. America is a land of opportunity for all the things that are wrong with it. It just is the land of opportunity. And I think there’s a great opportunity for people to come and change their lives financially. But landmines abound. Anything foreign related in the US as we’re going to talk about, landmines abound. Having been here for 10 years now and seeing how hard Americans work, it’s not cliche. I mean, this place is. I mean, it’s remarkable. I’m in awe of it. But having seen this now for 10 years and having come from Europe and just experienced a different way of life, I also recognize that looking the other way, I think there’s an opportunity for already successful Americans who have spent 30 years in the business, in the machine that is America slogging it out, and have done well, who have saved well, and, you know, are approaching the twilight of their career, and it’s like another five, 10 years, whatever of grinding it out. Or maybe, maybe there’s a different way. And I think there’s an opportunity for some people to go and live in Europe, to experience a different way of life, whether it’s temporarily or permanently, tbd. You don’t even have to decide up front. But I think there’s a massive opportunity for some Americans of a certain disposition to go and change their lives and, and spend some time in Europe. I know this is unfair because Europe is a lot of countries and we talk like it was one amorphous unit. It’s not. I mean, it’s however many different tax treaties. And as we know, it’s a lot is dictated by the tax treaty. But I’m an American. I’m actually plowing forward with this move to Europe. What do I need to be thinking of what I need to be aware of to make it a success?

Katelynn Minott:
[00:09:03 – 00:10:36]
I’ll start by saying that historically the conversations like this we were having were with people who were at retirement age Right. Retire in Spain, retire in Portugal, retire in Europe, like full time. So, yeah, I’m, you know, fully pensioned at this point, or I’m living off Social Security. You know, how can I relocate, uproot and move to Europe? That was historically the conversation and I think that has changed a lot in the last four years where people are now at a younger age, more open and have more flexibility to explore this option. I’ve talked to a lot of people, very successful individuals who come to a point, maybe in their late 30s and have said, you know, I am on paper extremely successful, that I’m ready for something more. And that’s where this opportunity to potentially relocate to Europe, maybe not waiting till you’re 65 and at retirement age, but rather accelerating that decision until now. So a lot of these conversations that traditionally we were having and looking at, you know, pension income and Social Security and helping people navigate the implications of that are now shifting to people who are more actively earning income, if you will. So what are the things you need to think about? I mean, let’s start from the framework that I took this leap myself, you know, some years back and even as a cpa, I was completely unprepared for what filing taxes from abroad meant. And so certainly this can feel intimidating and a huge barrier to entry to somebody who doesn’t have an accounting background or a CPA credential. Right.

Richard Taylor, Founder of Plan First Wealth:
[00:10:36 – 00:10:52]
I also find, and I’m so interested to hear where you go with this, I find people sometimes will brush it off totally. I just, oh, how bad can it be? Oh, it can be really bad once you’re dealing with mismatched tax years and, you know, all the reporting requirements, all the things you can and can’t hold. Oh, it can be bad.

Katelynn Minott:
[00:10:52 – 00:12:48]
It can be bad, especially if you’re not proactive about it. And I would say one of the big areas that people get tripped up in is foreign banking. And that’s a necessary reality when you move abroad. Of course, you need a bank account at least to have your day to day expenses going in and out. But one of the areas in which we see, let’s see, the American taxpayer, quote, unquote, discriminated against abroad is in banking. Because the IRS and the FATCA legislation that exists to prevent white collar criminals from money laundering is actually creating a burden on foreign banks that has a trickle down effect and impacts the everyday American taxpayer who’s just trying to live a day to day life abroad. Right. They’re not hiding any anything. They’re not trying to avoid income tax reporting, but they just, they just want to open a bank account and the fact that they have a Social Security number and a US tax requirement is preventing them from being able to do banking abroad. And so I would say one of the first things to think about is how are you going to manage your day to day finances. And then from there we get into the complexities of looking at a holistic tax situation on the US side. Of course that’s consideration, but wherever you’re moving to, especially if it’s in Europe, there’s going to be a whole other tax system that needs to interplay with the US system. You need to understand the implications of both. You know, double taxation is kind of the catchphrase that, that people mention when it comes to, to living abroad. In practical application, it’s not quite that blanketed. Right. Usually you’re not paying taxes twice on the same income, but you need to look at that as a concept as you, as you plan financially.

Richard Taylor, Founder of Plan First Wealth:
[00:12:48 – 00:13:12]
Americans have to pay taxes abroad, but they often get allowances for taxes paid in their, where they’re now residing. And that offsets a lot of double tax. But in my experience, and this is certainly true, if you’re wealthier, expat, there is usually some double taxation, some fall through the cracks. Yes, it’s not as bad as it sounds. If you just talk about double taxation, there’s a lot of relief, but there’s not really for everything, right?

Katelynn Minott:
[00:13:12 – 00:14:05]
Exactly. Things like the net investment income tax. So if you are, you have income sources like investment dividends, capital gains, there’s the possibility that you could have a U.S. tax liability arise that you can’t wipe out with what’s called the foreign tax credit. So there are definitely little leaks that trickle through. The other thing that occurs when people are moving to Europe is that they’re typically going to find there’s a higher tax rate in the European country that they live in. So to your point, yes, you can use your foreign tax paid to reduce your U.S. tax bill, which may mean a zero tax bill or a small tax bill on the US side, but overall you probably have a higher tax liability. So also something to consider when you’re weighing the pros and cons of a move. Higher or lower cost of living, higher or lower tax rates, that’s all part of the equation, if you will.

Richard Taylor, Founder of Plan First Wealth:
[00:14:05 – 00:14:12]
Do you find that people reach out to you before they leave or when they’re already in place?

Katelynn Minott:
[00:14:12 – 00:15:06]
A little bit of both. Obviously we prefer the proactive outreach, the conversation where we can give people the tips and the tricks, the things to look out for, you know, connect them with the right advisors in the right places, whether it be a financial advisor or a foreign tax pro. But there is an overwhelming number of individuals abroad who have lived, whether it be for 30 years, their whole life, three years, whatever that number might be, and just realized for some reason they have a US Tax filing requirement. So, you know, I come back to myself, I moved abroad and didn’t really give it any thought. Of course, I filed the first year I was abroad because I realized, oh, crap, I have to get this done. But there are people who don’t ever have that moment of realization and find themselves a few years into a move abroad, and they have to catch up on their US Taxes, which is something we help a lot of people come back into compliance with.

Richard Taylor, Founder of Plan First Wealth:
[00:15:07 – 00:15:28]
Is that still happening? I can kind of understand it. Someone’s been away for 30 years because it was very different 30 years ago. And maybe they’re just waking up to it now. But are people still moving abroad? And then two, three years in finding out in this day and age where so much of this information is online already, I’m assuming before they move abroad, they’re doing a lot of googling. Are you still finding. People don’t know.

Katelynn Minott:
[00:15:29 – 00:16:58]
Every. Every once in a while we’ll come across somebody who, you know, that recently has had a move. I think the other side of that coin is that maybe people know, but they’ve have some level of misinformation about what the requirement is. So a really good example of that is the tax treaty. Oh, well, the US And Spain has a tax treaty, so I don’t have to file my tax return when I’m in Spain. Right. There’s a lot behind that, that the existence of a treaty never prohibits you or precludes you from having to file a U.S. tax return. In fact, most of the treaties have a provision that say they don’t even apply to a US Citizen and in the first place. So the treaties are almost entirely unhelpful when it comes to U.S. tax filing. But the other number that I see thrown around a lot is the $100,000 threshold. There’s this concept that unless I’m making $100,000 or more, I don’t have to file a US return. Right. I hear that a lot in conversations with potential new clients all the time. And it’s linked back to what’s called the Foreign Earned Income exclusion. And it’s a provision that you can exclude about 130,000 of income, but you don’t just get it for existing. You have to go through the process of filing a return to take advantage of it. So it is less common that somebody simply doesn’t know. Like it is written in your passport, it says you have to file your worldwide income, but it’s that misinformation of what really the requirement is once they’ve moved abroad, I’d say more frequently.

Richard Taylor, Founder of Plan First Wealth:
[00:16:58 – 00:17:56]
So should we talk about some landmines, though? The obvious ones that spring to mind, which Americans won’t be used to, is the filing of informational returns. So you’ve left America and for the first time ever, you’ve got foreign bank. Well, hopefully if you can find an institution that will take you, you’ve got foreign bank accounts. Maybe you’re even maybe, and this is a big maybe, you’re able to contribute to a foreign pension and stuff. And you might not be aware, but you have to now report above certain thresholds, which are generally quite low. You have to now report these to the IRS on multiple forms, even when no tax is due. I can’t tell you if I had a dollar for every time I was told no, but no, there was no tax due, I took no withdrawals. When I find someone’s been under reporting, not doing so can have really draconian consequences. IRS penalties for even innocent non compliance are magnitudes worse. I mean, they basically, it seems everything starts at 10 grand.

Katelynn Minott:
[00:17:57 – 00:18:15]
10,000, that’s the magic number when it comes to international informational returns. And to be honest, we don’t see those a lot in practice. You’ll go on Google and you’re going to find a lot of horror stories about them. They don’t pop up as frequently as perhaps, you know, the news might show.

Richard Taylor, Founder of Plan First Wealth:
[00:18:15 – 00:18:31]
In my experience, everyone is in some form of non compliance and there are various ways to proactively come into compliance. And what you’re saying is if you follow one of these routes, whether it’s an approved system or reasonable call statement, you find that generally these are accepted and penalties are not applied, are waived.

Katelynn Minott:
[00:18:31 – 00:20:22]
Exactly. Yeah. We use a lot of different procedures to help people get back into compliance. If you’ve missed your foreign bank account reports, and we should talk about that in detail, what does that mean? But it’s a $10,000 penalty. It’s not an automatic penalty. So it’s not like you submit it late and that bill’s going to show up the next week. But there are procedures you can utilize to ensure that you’re getting back into the system and doing so in a penalty Way. Another example of that is something called the streamlined procedure. We’ve done thousands of those over the last decade. And it’s more designed for somebody who’s been abroad for a while and who hasn’t been filing for each year. So catching them up by doing three years of returns instead of all 15 that they’ve ever missed. Right. So there are pathways to getting back into compliance because the IRS is aware of the level of non compliance that exists out there with Americans living outside of the country. Again, I think that’s less frequent with somebody who is just moving abroad, maybe now or in the last couple of years. But there are pitfalls that those people can still easily fall into. Because as an American, let’s say I’m a W2 earner here in the States, maybe I have a brokerage account and I’m interested in relocating abroad. Suddenly I open a bank account abroad, I have money in that account and I have to just close that in an F bar. Who’s told me that? How am I supposed to know about that requirement? And then once that account gets to a certain threshold, I’m also filing a Form 8938. Wait, but that’s the same information that’s on the FBAR. There’s two of them. And then take this one step further. If I go so far as to invest in a fund outside of the US we can talk about, you know, the, the accountant’s favorite four letter word, the pfix. For an investment company.

Richard Taylor, Founder of Plan First Wealth:
[00:20:22 – 00:20:23]
We’re gonna have to.

Katelynn Minott:
[00:20:23 – 00:20:27]
I mean, that is the biggest pitfall I see people fall into.

Richard Taylor, Founder of Plan First Wealth:
[00:20:27 – 00:21:04]
I just want to stress the programs that you referred to there, particularly the Streamline, which is a wonderful program for people outside the US Your key here is that all the behavior you’re referring to is non willful. Right. So don’t think you can think, oh, do you know what I’ll just worry about? I know I should be doing something, I’ll worry about it. In three years time, I can probably do the streamlined. You can’t because that’s willful. The moment you cross the line from non willful, you didn’t know about this to willful. Like you knew, you knew you had an obligation and you chose not to meet it, that program ceases to be an option for you. And you know, the other programs, when you’re willful are much, much less forgiving.

Katelynn Minott:
[00:21:05 – 00:21:25]
Exactly. I actually had a conversation a couple of days ago with a client, potential client, talking about a streamlined procedure. He had been abroad for, for some years. And I Said, well, there’s this procedure. You can file the past three years and it’ll waive all of the years you’ve missed. I think it was eight or so in his case. And he said, well, why don’t I wait another three years and do the streamlined procedure then? Right.

Richard Taylor, Founder of Plan First Wealth:
[00:21:25 – 00:21:26]
There you go. Yeah.

Katelynn Minott:
[00:21:26 – 00:21:44]
And, you know, there’s a gray area. So if you wait a couple of months, right, to get your paperwork together to get the tax returns prepared, there’s a little bit of a margin of time there, but I think putting it off another three years, you have a weak argument to be able to say, I didn’t know for the past three years.

Richard Taylor, Founder of Plan First Wealth:
[00:21:44 – 00:22:21]
People sometimes don’t realize what they’re saying and what they’re suggesting. One conversation sticks out to me. I remember having a conversation with a client about they were going to come into UK state pension, small potato compared to Social Security. But, you know, we call it a bit of money, not nothing, a few thousand dollars each, him and his wife. And yet you have to declare it and you’re such a tenant pay income tax. And he said, well, you know, how will the UK know about this money? Like what? Why don’t we just keep it in the UK and how the US know I would keep it in the UK and spend it? We’re going holidays. I said, well, yeah, if you want to commit tax fraud, that’s. That’s what you can do. Oh, no, no, no. They completely backtracked. They had no idea that what they were suggesting was tax fraud. Right.

Katelynn Minott:
[00:22:21 – 00:23:35]
I get the same question a lot. But how are they going to know? And on the one hand, once they do know and once they’ve contacted you, it’s all over. Right. There’s no use streamlined procedure at that point. So that’s sort of the way that I encourage people towards compliance, is take your opportunity. Right. The gates are open for you. But on the other hand, that the legislation that now requires foreign banks to report financial information of Americans back to the U.S. i mean, that creates a synchronicity between financial institutions and foreign tax authorities that really prevents anybody from hiding anywhere anymore. And, you know, I don’t like to encourage people with scare tactics, but it’s becoming a greater reality that it’s not quite as simple as hiding your money in a, in a bank account abroad as a way of, you know, sheltering your assets from income tax, like it historically may be. But again, you know, 99% of the clients that we talk to are people who are just trying to do the right thing. And Honestly, this process of doing the right thing is not an easy one either.

Richard Taylor, Founder of Plan First Wealth:
[00:23:35 – 00:25:06]
No. And it’s scary. It’s really scary. Although I do find, well meaning, honest people who do want to pay their taxes and be in compliance with the law do say things like how will they know? With alarming regularity. And I kind of, I was, I don’t normally kind of dismiss it the way I did, but there were other things going on in that conversation because it caused that reaction. So just going back to what you said about factor in the organization. So my understanding of it is factor required these foreign financial institutions, banks and the whatnot, investment firms to report back to the IRS on any of their account holders who are U.S. persons, green card holders, passport holders. I don’t profess knowing how the IRS works, I’m terrified of that institution as everyone else is. I imagine a unbelievable amount of data has since flown to the IRS of Americans or American connected people holding assets accounts outside the US and there’s no way the IRS can access all that. But it has it and one thinks that eventually they’ll get round to reviewing it. Especially now AI is around, you just say AI to troll this and match, oh, this so and so has an account here as reported by XYZ bank, but it doesn’t appear on their FBAR or H938. Send them a letter, ask them to explain it. One assumes that can’t be too far away. And then the other problem is people might think, well, yeah, but if it’s from five years ago, 10 years ago, does it matter statute limitations? Well, yes, because if you’re not reporting these accounts, if you’re not submitting all these forms, the statute of limitations can be left open indefinitely.

Katelynn Minott:
[00:25:06 – 00:26:54]
Exactly, exactly right. It never, it never closes because it was never opened in the first place. And well, I guess coming back to kind of barriers to entry of, of living abroad, there is usually what will happen when you’re opening a bank account abroad, in Spain, in Italy, in Europe, they’re going to give you a U.S. tax form to fill out and you’re going to say, what, what I thought I escaped all of this by, by leaving the States and they’re going to ask you for your Social Security number. And that is if it’s a bank who has opened their doors to accepting Americans. So again, what we find is that many foreign banks don’t even want to deal with the headache and the cost of compliance with this. So they’ve simply shut their doors to any sort of U.S. taxpayer. But on the other Hand those who do accept an American taxpayer, they’re going to request your Social Security number. They’re going to ask do on their side of the exercise, the compliance of getting your Social Security number, your information and holding that to be reported back to the US if necessary, if requested. The IRS isn’t at the point of a free flow of information. I think there’s a lot of debate about whether the cost of actually getting that information and actioning it is going to outweigh the actual income and tax that they would recuperate. So there are a lot of opinions that say it’s actually more costly for them to enforce FATCA than they’re actually going to benefit in terms of revenue from. So it’s still kind of an open question about what that future might potentially look like. But we don’t see right now situations in which it’s as simple of I’ve opened my foreign bank account, the IRS knows about it. They’re not quite that sophisticated yet.

Richard Taylor, Founder of Plan First Wealth:
[00:26:55 – 00:28:12]
Katelynn Every time we take on a client who works with either DIYs, their own tax affairs or works with a local tax preparer or has a financial advisor who’s local, there’s always problems. This week we’re talking to someone who’s been here 20 years, has a financial advisor Pfix, which we should talk about now. But there’s Pfix in there and one conversation with us and we’re like, okay, there’s a couple of problems here. And part of my mission is to reach expats here and people going abroad and educate them. But also, so much of this could be solved if we could reach tax preparers and financial advisors and attorneys and say, listen, the moment you get a whiffer from in cross border, you need to know it’s dangerous. And you need to put your hand up and say, I can’t do this. I call it the tumbleweed moment. And the client brings these things up. I can imagine that it goes awkwardly silent in a meeting while the advisor waits for this tumbleweed to pass and they can get back to what they were talking about. But that tumbleweed is dangerous. It’s loaded with dynamite. How far can I stretch this metaphor? But it’s if we could get people to recognize that that is a sign that, okay, we need to stop and call in the cavalry because these problems can be easily solved early on. Let’s talk about it. Let’s tell people what PFICs are. I’ll hand it to you, this is a horrible one, folks.

Katelynn Minott:
[00:28:12 – 00:29:12]
This is a bad one. Again, this is our four letter word. So a PFIC is a passive foreign investment company and it is really the best explained as a pooled investment fund, like an etf, like a mutual fund in the States, but it’s registered outside of the US instead of on the US markets. And so because the IRS has their own way of regulating investment funds in the States and they don’t like that other governments have other ways of doing it. Instead of just taxing it like they do a US based fund, they’re going to apply a the highest tax bracket, so the 30% tax, they’re going to slap it on each year, in addition to interest going back to the beginning of essentially when distributions from the fund started to accumulate. So in simpler terms, you owning a pooled fund, a mutual fund outside of the US is an absolutely sometimes devastating decision from both a tax preparation perspective and an investment health perspective.

Richard Taylor, Founder of Plan First Wealth:
[00:29:13 – 00:31:23]
So if you’re an American going to the uk, just going to talk about the uk, because I know it’s best, and you start getting paid in pounds or you start receiving money in pounds and you think, oh, I’d like to invest this, I’ll invest it in a UK brokerage account which is called a GIA, not that matters. And you think you’ll buy ETFs or even mutual funds, which you shouldn’t do nowadays, but ETFs, these are PFICs and it’s going to cost you. Probably you won’t do it right and you’ll be not taxed on compliance. That’s another problem to solve. But if you’re doing it right, you will have annual reporting on each and every PFIC you have. And the tax plus interest burden is terrible. Ken, I’ve got to tell you a little story. It sticks with me forever. I’ll never forget this. I think this is in the height of COVID I got a call from someone. They opened by saying, I’m a chartered accountant, which is a UK version of cpa. My chartered account is not doing my own taxes. Moment I hear that, I know we’ve got a problem. Long story short, this guy had been in the US since the mid-80s. Mid-80s, this is 2020. He’d moved here with a portfolio of several hundred thousand pounds in mutual funds. I think it was Templeton, I can’t remember, but it was, you know, mutual funds and whatever this was. 30 years later, 35 years later, he had a conversation with me and found out they were PFICs. They were now valued at about a million pounds and by my back of an envelope calculation, 100% was going to go in tax, federal tax, state tax, and then interest. Not even dealing with the non compliance, not even dealing with the fact that every returnee submitted potentially is opened because of statute limitations. Missing 8621s hit hundreds of thousands of pounds up in smoke. Hopefully the part of this podcast stops people ever doing this. But if you’re an American going to Europe and you get paid in euros or pounds or whatever, almost certainly, almost certainly the best route for you is going to be converting that into dollars and bringing it back to the us investing it, or there are pfic free solutions. Our friend Brian Dunhill has a great solution. There are options out there, but they tend to be more expensive and more cumbersome. And most people in my experience convert that money to dollars, bring it back into the US and invest it there. Even though they’re outside the US Right?

Katelynn Minott:
[00:31:23 – 00:31:56]
Yeah. And the alternative to that would be, you know, direct invested stocks. And yes, that’s where you’re creating risk. Right. You’re not diversifying necessarily by just investing that way. But we do see a lot of people diversifying in other ways. Right. Investing in property, real estate, etc, but when it comes to financial investments, that is absolutely the simplest path forward. Right. Bring it back to the states, invest in the US markets and that alleviates the, the potential tax burden or the tax filing burden at least.

Richard Taylor, Founder of Plan First Wealth:
[00:31:56 – 00:32:18]
You know, looking at Europe, are any particular hotspots, is there any way that Americans are. Well one, is there any way that you’re seeing Americans are migrating to over other places? And secondly, that aside, are there any places that you think are particularly beneficial to Americans from a tax perspective? I don’t think you shouldn’t move for tax folks, but it should be in the tapestry of your decision making process.

Katelynn Minott:
[00:32:19 – 00:32:44]
Yeah, that’s a great question. Again, I think in Europe in general, you’re never going to be moving for tax reasons, maybe cost of living reasons, but overall your tax situation is generally going to be higher. You’re looking for at that point a better standard of living, whatever that might look like to you. I think we rarely see people moving to Europe for strictly tax reasons.

Richard Taylor, Founder of Plan First Wealth:
[00:32:45 – 00:32:57]
Sorry, just where do people move for tax reasons? If as a Brit, people move to Dubai for tax reasons or the Caymans, as an American, if I’m get taxed by worldwide income, where do Americans move? Is there an equivalent?

Katelynn Minott:
[00:32:57 – 00:33:45]
There isn’t. Because yes, there are tax mechanisms that allow you to reduce your US tax bill from abroad, but they’re really capped. So beyond saving income tax in the first 130,000, which is not a small number. Right. You may be saving yourself 17 or $18,000 in tax a year. You really can’t push beyond that because the other tools you can use to reduce your US tax bill are associated with foreign tax credit. In other words, you have to be paying tax abroad in order to, to save on the US side. So as an American, you can’t really move abroad to save for tax reasons. And for that reason, coupled with the prohibitive banking, the pfic, all of these limitations, we’re seeing more and more people arriving at the concl that giving up their citizenship is the right next step for them.

Richard Taylor, Founder of Plan First Wealth:
[00:33:46 – 00:33:57]
That’s okay. That’s gonna be one of my. Yeah, we should talk. Definitely talk about that as well. I’m interested. State tax. I’m in Connecticut. If I left Connecticut and moved to Europe, would Connecticut state tax follow me or could I shed that?

Katelynn Minott:
[00:33:58 – 00:34:40]
Every state is different. Some are more challenging than others. So the best tax efficient move that you can make if you are planning to move abroad for some time is to actually move to an income tax free state. So get yourself to New Hampshire, Florida, Tex, and then move abroad once you’ve really established residency in one of those places first, because then there’s a clean break with no tax at the state level going forward. There are many states that will say even though you’ve lived abroad for 12 years, you are still a New York state tax resident and so you should have been paying taxes for the last 10 years. And that’s something that it’s really important to get strategic about when you’re planning for a move.

Richard Taylor, Founder of Plan First Wealth:
[00:34:41 – 00:34:45]
Did you use that example on purpose? And is New York one of those states that will do that, that will follow you aggressively?

Katelynn Minott:
[00:34:48 – 00:34:50]
California is another fun one, of course. Of course.

Richard Taylor, Founder of Plan First Wealth:
[00:34:50 – 00:34:52]
New York and California, of course.

Katelynn Minott:
[00:34:53 – 00:35:13]
So that’s an area that people should be very, very strategic about when they’re planning a move abroad, whether it be for a year or two. Looking at the state tax implication of your move, while it might feel small in comparison to, you know, your federal tax rate, the, the state can sneak up on you if you’re not careful.

Richard Taylor, Founder of Plan First Wealth:
[00:35:13 – 00:35:24]
Wow. I can say that. Wow. Okay. That was, that’s, I think that’s really valuable advice. Careful of state, because that is just something that even I hadn’t thought about. And I think about this stuff a.

Katelynn Minott:
[00:35:24 – 00:35:38]
Lot in terms of where we’re seeing people move right now. Portugal seems to still be a hot spot. Spain is another. I Would say those are the two big ones, at least that I see in my network and with the clients that we’re talking to most frequently.

Richard Taylor, Founder of Plan First Wealth:
[00:35:39 – 00:35:50]
I know these, I mean I know Portugal and Spain are both high tax, but are they tax friendly too? If in America to go to Portugal or Spain, are they just going to get slammed or is it manageable?

Katelynn Minott:
[00:35:51 – 00:36:44]
It depends. It depends on what type of visa you’re on. Like you said, there are certain visas that offer tax holidays that you can take advantage of for some time and you can get strategic about that. And you know, I’m certainly not a, an immigration expert in any of these countries, but we like to get involved proactively is to work with a tax advisor in Portugal, come together with your US CPA and look at the, the income situation, the assets of the taxpayer and say, hey, this strike structure might make sense, right? So for a business owner, do we want to set up an S corp or an llc? What, what makes sense here to ensure that we’re not just again, taking advantage of the benefits on the US side, but whatever tax system and definitions apply in the foreign country, we’re also being able to optimize the, the overall comprehensive financial situation of the taxpayer. Considering all of those dynamics, is that.

Richard Taylor, Founder of Plan First Wealth:
[00:36:44 – 00:37:04]
What you will do is your preferred way of working? Let’s just pick Portugal is we will be your U. S. Tax preparer and tax advisor, but we want you to have a local Portuguese representative as well. And do you have like a network of people? So you’re not, you don’t need someone to come with a Portuguese person and say, oh this is my Portuguese guy. You can help, you can, you can create that.

Katelynn Minott:
[00:37:04 – 00:37:19]
Exactly. So for key countries where we have a lot of clients, Portugal, Spain, France, the Netherlands is another. The UK we have identified foreign professionals who we’re confident in their level of service and their professionalism and expertise and.

Richard Taylor, Founder of Plan First Wealth:
[00:37:19 – 00:37:52]
We offer that right, because that is absolutely critical. I am harking on all the time about the need for tax professionals. If you’re an expert in America or an American abroad, you need a cross border tax professional. What I always say is just US cross border. I’ve said it this morning already on an email to someone. Just US cross border is not enough. You need someone who understands local, domestic as well and the interaction between the two. And someone who just does us even at the cross border can’t know that. It’s just too much to know they’re having that additional resource. Expertise is a critical piece of the jigsaw.

Katelynn Minott:
[00:37:52 – 00:38:13]
Right. So to your point Just your everyday Spanish tax advisor may still not have the understanding of what it means to be an American in Spain. And so it’s hard to bring those professionals together and find them in the first place, really. But I think it’s, it’s really critical, especially when you’re generating income. Come and planning for, for a potential move.

Richard Taylor, Founder of Plan First Wealth:
[00:38:13 – 00:38:41]
Okay, Katelynn, let’s. As we wrap up here, let’s just have a quick chat about giving up your citizenship. I’ve always worked on the assumption that people wouldn’t be giving up citizenship. I know the numbers are increasing, but to give up your citizenship, it’s a big deal. It’s a part of your identity and I imagine that’s keep the numbers well down. So I’m really interested to hear your experience. Well, first of all, let’s tell people what that involves and what that means. But also I’m interested to hear your anecdotal experience of are people doing this.

Katelynn Minott:
[00:38:41 – 00:39:00]
We see it in our firm. Clients who have been with us for 10 years are finally like, you know, that is enough. I have really loved working with you, but I cannot justify paying tax fees for a country that I have no plans to inter. Return to that maybe I’ve never even lived in. Right. Since I was three months old.

Richard Taylor, Founder of Plan First Wealth:
[00:39:01 – 00:39:02]
Yeah, yeah. No, I couldn’t stand that. Yeah, yeah.

Katelynn Minott:
[00:39:02 – 00:39:20]
I think less often you’ll see the person who made a recent move abroad giving up their citizenship. It was, it’s, it tends to be somebody who has a really, really strong rooted tie to a foreign country and no intention of ever returning to the US probably doesn’t have family in the US because like you said, it’s, it’s a really important personal decision beyond the financial implications.

Richard Taylor, Founder of Plan First Wealth:
[00:39:21 – 00:39:35]
So not the recent expatriate, but the accidental American. The person who was born is Spanish, but was born to an American parent, you know, something like that. But the, the recent expat. By recent, I mean, you know, 20 years even, who was American.

Katelynn Minott:
[00:39:36 – 00:40:15]
One of the stories that I will always remember in practice is a story of a client that I had in France who was in fact an accidental American. He was born in the States, moved back at a couple of weeks old with his family to France. And then he showed up to his bank one day and they said, give us your Social Security number. You were born in the States. And he said, I don’t have a Social Security number. What are you asking for me? And they froze his account. He didn’t have anything in the States. He never had any ties there, any finances there. And we helped him through the process of giving up his citizenship because until then, his entire financial wellbeing was locked in France. So again, that story will always stick with me. But in terms of.

Richard Taylor, Founder of Plan First Wealth:
[00:40:15 – 00:40:17]
So you have to go through streamlined.

Katelynn Minott:
[00:40:17 – 00:40:39]
There’s a specific procedure for former US Citizens that is similar to the streamlined in that it’s reduced penalties and actually reduced taxes in some case. But imagine that waiting period where you can’t do anything with your money. Imagine that you only have your livelihood in one place and all of a sudden you have no financial mobility whatsoever.

Richard Taylor, Founder of Plan First Wealth:
[00:40:39 – 00:41:15]
Terrifying when you have no connection to the country. It’s wild. It happened to Boris Johnson. It caught Boris Johnson, the ex British prime minister, selling his house. I think he even got stopped coming into or out of New York because he was born here. It’s crazy. It’s crazy. But people should know, giving up your citizenship, though, if you are a wealthy, successful American, because this is in the news right now. But I don’t know if you’ve seen there’s this very, very, very wealthy American, Edelman, who’s been accused of tax fraud. He left Texas 30 years ago and has since been very successful and has now been accused of. It wasn’t filing tax returns. And if he had just expatriated 30.

Katelynn Minott:
[00:41:15 – 00:41:19]
Years ago, it would have all been behind him. I think it was in his wife’s name. I saw that story this morning.

Richard Taylor, Founder of Plan First Wealth:
[00:41:19 – 00:41:21]
Well, he says it was in his wife’s name.

Katelynn Minott:
[00:41:21 – 00:41:23]
I think they’re saying, okay, maybe not.

Richard Taylor, Founder of Plan First Wealth:
[00:41:23 – 00:41:24]
So, yeah, it was.

Katelynn Minott:
[00:41:25 – 00:41:25]
Yeah.

Richard Taylor, Founder of Plan First Wealth:
[00:41:25 – 00:41:51]
But if you do expect there’s an exit tax, if you have a net worth of more than $2 million, you’re going to pay an exit tax on the way out. And that exit tax can be pretty devastating. As I understand it, it’s a phantom tax. So sometimes you don’t get relief, double taxation relief. So you can get taxed on exit from the US and you could also then get taxed if you, when you surrender or sell that asset, wherever you’re, wherever you are now, without any relief, that could be devastating. So real careful planning and preparation needs to be undertaken there as well.

Katelynn Minott:
[00:41:51 – 00:43:22]
Right? Yeah. And so people come and say, you know, I’m so over this tax thing, I don’t want to do taxes anymore. But actually we have to tell you, you have to file your taxes in order to get out of it. So you have to have five years of compliance up to the date in which you renounce your passport. And then from there, like you said, there’s an exit tax possibility if you have a net worth of over 2 million. And what that exit tax looks like is the IRS treats you as if you’ve sold all of your assets, all of it. So you know that personal residence exemption that you get 250,000 on a capital gain for your primary residence, you’re not going to get that when you give up your passport. So the benefits of capital gains and whatnot don’t necessarily apply through that exit tax exercise either. So it’s a heavy decision. Again, it’s not something that we’re seeing in huge volumes. The numbers are growing, but relative to the population of the U.S. it’s not an alarming figure. But there is that tax requirement that you have to go through to really sign off with, with the irs. And it’s not only for US Citizens who give up their passport, it’s also for people who relinquish their green card. So the other thing we see a lot is people leave the States and they say, my green card expired, I’m out of here. There’s actually a formal process of relinquishing your green card and you have to file a form and go through the exit tax potential calculation. So what could seemingly be perceived as a simple, clean exit often gets very complicated if you’re not taking the right steps.

Richard Taylor, Founder of Plan First Wealth:
[00:43:23 – 00:43:30]
I have stopped more than one client making that mistake with the green card. Have you ever heard of anyone having trouble getting back into the US after announcing their citizenship?

Katelynn Minott:
[00:43:32 – 00:43:59]
So at that point, your immigration rules are the same as anybody else who’s a non citizen. So, you know, if you have a tourist visa, that’s how you enter the US where we see people potentially having entry problems actually as a citizen is where you have a US tax bill in excess of $50,000. So it’s actually more when it comes to IRS implications on the, on the, you owe money side of things than an actual immigration perspective.

Richard Taylor, Founder of Plan First Wealth:
[00:43:59 – 00:44:18]
The message for anyone listening to this is it’s more complicated than you think. It’s manageable with the right team around you. And that I think, I think just saying that terrifies people because they think like horrendous cost. But it doesn’t have to be. Tackle this on your own at your peril. Just don’t. Just don’t. That’s my message. Just don’t.

Katelynn Minott:
[00:44:19 – 00:44:25]
Because if you do too much on that can ask for the help to fix it later anyway, right the first time.

Richard Taylor, Founder of Plan First Wealth:
[00:44:25 – 00:44:55]
It’s going to cost you more in the future. Or you can have this compliance risk hanging over you forever, which I, I couldn’t. I don’t know how people live with that. There’s more to it than you think it is doable. Many people have done it. It is manageable. Get into compliance from the outset, if you can. If you’ve stumbled, get into compliance proactively. Don’t wait for a knock at the door or a letter in the mail. Get into compliance and stay in compliance and work with the team who will help you avoid the landmines. There’ll be opportunities to take advantage of. Yes, but main thing right now, I think, is avoid the landmines.

Katelynn Minott:
[00:44:58 – 00:45:36]
And there’s a growing number of professionals out here who understand this, who focus and specialize in this. This was not always the case. And so, again, surrounding yourself with the right team of people with the right expertise is going to set you up for success and make this smooth because we’re all people who want to empower that global mobility, that ability to go kind of chase after your dream life and. And live abroad and create that lifestyle that. That works for you, wherever that might be. So, again, surrounding yourself with. With a team of experts who can empathize and understand the struggles of somebody moving abroad is absolutely critical, 100%.

Richard Taylor, Founder of Plan First Wealth:
[00:45:36 – 00:45:54]
I love expats. I want to encourage more people to expatriate. I think it changes your life. And I want people to avoid some of the mistakes that I’ve made, and I want people to avoid some of the mistakes I’ve seen other people make because they’re all avoidable, but they cause serious anxiety and sometimes it costs real money. Cool. Katelynn, thank you so much. Where can people find you?

Katelynn Minott:
[00:45:55 – 00:46:08]
You can find us@brighttax.com HelloRightTax.com is the best way to reach out and send us an email. And there you can meet one of our CPAs for consultations, proactive planning, or sign up for us for tax prep.

Richard Taylor, Founder of Plan First Wealth:
[00:46:08 – 00:46:11]
Excellent. Well, thank you so much for being on Move to Europe.

Katelynn Minott:
[00:46:11 – 00:46:12]
Nice to see you.

Richard Taylor, Founder of Plan First Wealth:
[00:46:12 – 00:46:13]
Cheers.