A FINANCIALPLANNING PRIMERFOR US TAXPAYERS

There’s no getting away from the fact that USexpats are currently under siege from the IRS.

However, there are still ways we can cut yourtax bill significantly.

With recent changes in global reporting this is now moreimportant than ever. The purpose of this document is tohighlight some of the reporting and compliance requirementsfor US taxpayers under current legislation and also whatcan be done to save in a tax efficient manner for laterretirement.

With a reported 7 million non resident US taxpayers, theintroduction of the Foreign Account Tax Compliance Act(FATCA) in 2008 under the HIRE act demonstrated theintentions of the US government to actively seek outindividuals who weren’t meeting their US responsibilitiesby forcing global reporting.

FATCA, which became live on 1 July 2014, introduced therequirement for all overseas financial institutions to reportinformation on any account held by, or for, a suspectedAmerican to the IRS. Often this is done viaIntergovernmental Agreements which supersede any localdata protection or bank secrecy laws.

This has resulted in many overseas financial institutionsnot wanting to establish or maintain accounts for US

taxpayers due to the increased reporting burden andsignificant expense. Some US taxpayers have looked torenounce their Citizenship however this in itself will be acostly process as it will trigger a US tax charge – and theindividual must have Citizenship confirmed in anotherjurisdiction already.

What you should be doing:

All US taxpayers must report annually all earned andunearned income and worldwide assets. On top of thisyou must also disclose the details of every bank accountthat you have power of signatory over if the total value ofyour overseas bank accounts is in excess of $10,000. From2013 this is now an online process under the “FBAR”requirements. In addition to this, it is also worth noting thatany investments held in non US funds will likely be classifiedas Passive Foreign Investment Companies (“PFICs”) andsubject to higher rates of US tax and interest than if theinvestments were into US mutual funds or companies orin a tax efficient wrapper.

As one of only two countries in the world that tax non resident taxpayers on their worldwideincome it is imperative that US taxpayers understand what is expected of them by theInternal Revenue Service (the “IRS”) and how to remain compliant.

Recently released statistics suggest that more than6.5 million of the 7 million non resident US taxpayersare not compliant for US taxes. This means that youare certainly not alone – but help is at hand.

Keep calm and plan.

We at Guardian Wealth Management workwith specialist US tax attorneys and filingagents to help our clients remain compliantwhilst also considering all Financial Planningopportunities that are available.

We have designed this primer to support you, and help youunderstand what you need to be doing for your US tax returns.This brochure will also direct you to investment vehicles thatare not only US tax compliant but also tax efficient.

Before you make any decisions regarding your finances usethis step-by-step guide to update yourself on key financialpoints. We have offered some recommendations on a potentialcourse of action to ensure that your wealth aspirations andambitions can remain compliant without veering off yourchosen course. .

Tax efficiency

From 2013 the top rate of income tax increased from 35%to 39.6% along with short term capital gains tax and thetax on dividends whilst long term capital gains tax remainedat 20%. Therefore the most basic planning advice wouldbe to structure your investment portfolio to give rise tolong term capital gains – rather than short term.

As non residents it is also possible to benefit from tax reliefon ‘earned income’ (i.e. the money you go to work for –not your investment income). The first $99,200 of earnedincome is exempt from US tax however the income shouldstill be reported to the IRS in order to claim the relief. It isalso possible to claim tax relief against renting propertyoverseas that you use as your primary residence which wewould fully urge clients to do.

Pension Funding

Whilst overseas, US taxpayers can continue to contributeto Individual Retirement Accounts (“IRAs”) back in the US.You have a choice whether to fund a Traditional or RothIRA and either claim tax relief on the way into the pension– or on the way out. For those individuals who are selfemployed, or employed by a US company, it can also bepossible to fund a 401k pension back in the States. Howeverwith Member funding limits of $17,500 to this and $5,500to an IRA a significant amount of clients ask us at GuardianWealth Management to assist in funding other US taxefficient retirement plans.

Whilst it is possible for US taxpayers to obtain tax deferral,using traditional qualified deferred variable annuity contracts,the costs of these contracts can be significant and oftenrequire invasive medical underwriting.

As an alternative we advise clients to consider usingInternational Pension Plans which are designed specificallyfor US taxpayers. These plans often offer the ability to atleast defer the US tax on the investment growth madeinside the plan until such time that you need to draw thepension income in your retirement when you will naturallybe at a lower income tax bracket. Unlike the 401(k) plan,these plans are not bound by contribution limits or earningconstraints.

Our preferred plan is established in Malta, an EU MemberState, and structured around the signed tax treaty with theUS. Under the terms of the Treaty, growth made withinthe plan is not subject to US Federal taxes. Furthermore,is a qualifying plan for US tax purposes.

Action Points:

Explore double tax agreements to increasetax efficiency as well as wrapping upinvestments in compliant structures.

Ensure any realised income and gainsbenefit from tax relief.

FINANCIALPLANNINGPRIMERFor US taxpayers

Long term savings options.

Building up a substantial savings pot is a key priority and best achievedusing a wide range of investment opportunities.

Such a strategy introduces diversity into a savings plan, which in turncan reduce risk.

However, for US expats the need to comply with IRS tax reporting alongwith the introduction of FATCA means the underlying structure of theplan is an additional consideration. Forlong term savings or retirement planscheck for any restrictions onwithdrawals i.e. age and percentage ofthe value you are able to withdraw.

US savers using a 401(k) plan can onlyaccess their funds from age 59 and ahalf, however the International plansallow you to start drawing income fromage 50.

Withdrawals can be taken as an initiallump sum of up to 30% of the totalvalue of the plan which is paid with noMaltese or US federal taxes due. Afterwhich income can be drawn directlyfrom the pension and taxed as anannuity in the US.

Action Points:

Ensure your savings plan has as much diversity as possible to capture marketgains, balance volatility and reduce risk.

Verify that your savings vehicle complies with reporting obligations and doesnot either penalise you for withdrawals or compromise your tax position.

Check any savings plans are held in politically stable jurisdictions on goodterms with the US.

Retirement Planning

There is still a level of uncertainty around how FATCA could impact certain companyor state sponsored retirement funds of US employees working abroad. Reports on thenews may result in providers adapting their plans to suit the changes, potentially applyingrestrictions on underlying investments in order to comply. It is important not to panic,stop your pension payments or change any investment strategy without reviewing theimplications. At present we would recommend supplementing company schemes withsavings plans designed for retirement planning.

While contributions made to such a Plan will not receive US tax relief, they can be madein various forms such as cash, existing investment portfolios, life assurance policiesor shares in mutual funds.

If you would like to make an appointment to talk about any of the points made in thisprimer, or if you favour an informal chat with our experts about our financial planningservices for US expats, please contact us on + 41 (0) 22 710 7876.

Action Points:

In the light of FATCA, keep an eye on any potential changes to company or statesponsored pension plans to which you contribute.

Think about supplementing existing retirement plans with vehicles that offer diversityand are more tax efficient.

Information correct as of 8th November 2014. The information provided is for guidance only and advice should be sought before making any financial decisions.

Guardian Wealth Management Ltd cannot be held responsible for any errors or omissions which result in financial loss.

About Us

Guardian Wealth Management is one of the fewwealth management firms that are fully regulatedand operate in a range of jurisdictions includingthe UK, Qatar, Hong Kong, Dubai and Switzerland.

We only work with a select group of regulatedpartners who are experts in their field.

General Enquiries +44 800 779 7028

Switzerland +41 22 710 7864

Dubai +971 4450 9700

Hong Kong +852 3796 3555

Qatar +974 4491 5355

United Kingdom +44 1302 703 2128