Losing a loved one is distressing for anyone, but for many Americans living in the UK, it can create additional challenges. Ordinarily you have to liaise with medical staff, banks, and lawyers but it doesn’t end there if an American is involved.
We have highlighted some of the issues when you have lost an American loved one, or you are an American yourself having experienced a loss.
So where to start?
Following a bereavement, it’s likely your day-to-day life will be different. There may be a change to your daily routine, income and life priorities. So, take things slowly. Your financial plan and long-term objectives will inevitably be affected so there are a few things to talk through with your trusted advisers.
How has your income position changed? Often the level of household income will change for the survivor. Pension income may have reduced, or an earned income will have stopped which can be a very real concern when left managing the day-to-day finances. Income may be required from Investment portfolios for the first time, or the level of income taken may need to increase.
Is the asset allocation of your Investment portfolio still suitable? It is important to consider the risk profile of your investments to ensure they remain aligned with your changing goals, needs and level of comfort. If a more consistent level of income is now required, it may be appropriate and necessary, to increase the allocation to higher yielding stocks and fixed income.
Cash flow modelling can be a useful tool used to create a clear picture of your overall assets and income position, both now and in the future, which helps your wealth manager work with you to achieve a financial plan that is tailored to your changing requirements.
Estate / Inheritance Tax
Unfortunately, as an American living in the UK, one of the most prominent issues you would have to navigate are dual tax obligations. Complex enough on their own, there are even more challenges in the event of a bereavement. It requires specialist advice to ensure you are not caught out by two sets of rules from two different tax authorities.
The first thing to remember is that, in the UK, married couples and civil partners can leave their entire estate to their spouse tax-free when they die. In the US, transfers from a US citizen spouse to another US citizen spouse are exempt from gift and estate tax, but that isn’t the case if the spouse is not a US citizen.
It becomes more complicated when leaving gifts for other members of the family, or friends, when alive or at death. US citizens have an $11,700,000 lifetime gift and estate tax allowance and can give up to $15,000 to any individuals they want each year. They can also give $159,000 to a non-American spouse each year without it forming part of their $11.7m.
These allowances are not recognised in the UK. Rather, inheritance tax (IHT) will be due if the person who gave the gift dies within seven years of the gift date. In the UK, IHT currently stands at £325,000, above which it is payable at 40%. This is fixed until April 2026.
There is an additional sum for property left to a lineal descendant known as the ‘residential nil rate band’.
Following a significant life change such as a bereavement, it is natural reconsider your property needs. You might want advice about whether to downsize, opt for a property disposal to release cash in the short-term, or maintain the portfolio of properties to generate an income in the long term.
It is common for assets to be passed on to friends, family members or relatives when a loved one dies. This can be anything from a single property – a main residence perhaps or a portfolio of properties – buy-to-let, a second-home or a holiday let.
Giving to Charity
Charitable giving may already be an integral part of your overall financial plan or recent events may have inspired you to place more focus on philanthropy as life moves on. For Americans in the UK this doesn’t come without considering tax liabilities, tax credits and in most cases, the need for specialist advice. A Donor Advised Fund can often provide a suitable and tax efficient solution.
Property aside, there might be other investments to take care of. Differences in tax treatment means that commonplace structures for UK citizens, such as mutual funds, may not be appropriate for their US spouses. It requires a review of any inherited investment portfolios to revise them in line with the needs of the US citizen, including allowances for sustainable or ethical investment considerations. It is important that your wealth partner can carefully adjust the inherited portfolio to ensure it complements any existing assets that the US citizen has.
Also bear in mind that Americans who are resident in the UK pay tax to HMRC on all of their worldwide income and gains, regardless of location. This means all investment accounts, no matter where they are located, need to be considered.
Are you an executor?
Being an executor of someone’s state can be both challenging and highly emotional. If you are the executor of your loved one’s estate, you will need to obtain the correct forms and follow a different set of requirements for the UK and the US.
Executors can be responsible for locating and itemising assets, contacting creditors, settling outstanding debts, if any, preparing the final tax return and managing the final payment to the heirs of the estate.
Getting advice at an early stage can be very helpful, as you can plan how to structure your inheritance and deal with international probate.
What should I do now?
It may very well be one of the last things on your mind following a significant life change, but your financial future needs to be structured around your changing needs. Having the right expertise around can help you make sense of it all.
Please get in contact with us, regardless whether it is for our opinion on what you should do next or you require a full financial plan, we are more than happy to help.