Financial Planning for Non-Resident Aliens with US Assets

A former US resident retaining US assets should usually review:

• whether they are genuinely a nonresident alien for US tax purposes
• their new country of tax residence
• US brokerage-account access
• Form W-8BEN
• US dividend withholding
• capital-gains treatment
• tax-treaty relief
• 401(k) withdrawals
• IRA withdrawals
• Roth IRA treatment
• pension withholding
• US Social Security
• US real estate
• rental income
• FIRPTA
• US estate tax
• US-situated assets
• beneficiary designations
• currency
• future residence

The distinction between US resident and nonresident alien is fundamental.

The IRS generally treats a foreign individual as a US resident if they meet the green card test or substantial presence test, subject to detailed exceptions and treaty rules.

This page therefore applies principally to someone who is not a US citizen and is genuinely no longer a US tax resident.

Once that status changes, the rules governing US assets can look very different.

A person who leaves America after working there for several years can end up with a substantial US balance sheet.

That may include retirement plans, employer shares, brokerage accounts and property.

None of these assets automatically become unsuitable simply because the owner moves overseas.

But the rules change.

1. Start by confirming whether you are actually a nonresident alien

This is the foundation of the entire plan.

The IRS generally categorises a foreign individual as either:

• a resident alien
• a nonresident alien

Residence can arise through the green card test or substantial presence test, subject to exceptions and treaty provisions.

A person who has moved abroad should not assume tax residence ended on the date their flight left America.

The position can depend on:

• citizenship
• green card status
• immigration status
• days spent in the US
• treaty residence
• closer-connection rules
• expatriation rules

The tax position should be established before applying the investment rules described below.

2. A nonresident alien is different from an American living abroad

This distinction is crucial.

A US citizen living in London, Dubai or Singapore generally remains within US worldwide taxation.

A nonresident alien may instead be taxable in the United States primarily on:

• certain US-source income
• income effectively connected with a US trade or business
• certain property gains
• other specifically taxable US interests

That can materially change how US investments are treated.

It also means this page should not be used as a substitute for the Americans-abroad pages.

3. Your new country of residence becomes just as important as the US

Leaving the US can reduce the scope of US taxation.

It can simultaneously bring assets into the tax system of another country.

For example, your new country may tax:

• dividends
• interest
• capital gains
• pension distributions
• retirement-account growth
• property income
• wealth
• inheritances

The correct question is therefore not:

“What does America tax?”

It is:

“What is the combined result after US and local tax?”

4. Form W-8BEN becomes important for many investors

Once an individual becomes foreign for US withholding purposes, US financial institutions will commonly require documentation of foreign status.

Form W-8BEN is used by foreign individuals to certify their status and, where applicable, claim reduced withholding under an income tax treaty.

For a former US resident, this can become a critical administrative document for:

• brokerage accounts
• dividends
• pensions
• annuities
• other US-source income

If treaty benefits are available, the correct documentation generally needs to be provided to the withholding agent.

5. US dividends are commonly subject to withholding

US-source dividends paid to nonresident aliens are generally subject to US withholding.

The standard statutory rate for fixed, determinable, annual or periodical income is commonly 30%, although an applicable tax treaty may reduce the rate.

The exact result depends on:

• country of residence
• treaty eligibility
• type of income
• beneficial ownership
• correct W-8BEN documentation

This makes country of residence particularly important.

Two people owning the same US shares can receive different net dividends simply because they live in different treaty jurisdictions.

6. Ordinary stock-market capital gains can receive very different US treatment

Capital gains can be substantially different from dividends.

The IRS states that capital gains are generally not taxable to a nonresident alien who is present in the United States for fewer than 183 days in the relevant year, subject to important exceptions including gains effectively connected with a US trade or business and US real-property interests.

This can make US-listed securities relatively attractive for some foreign investors.

However, the new country of residence may still tax the gain.

The absence of US capital-gains tax does not mean the gain is globally tax-free.

7. The special 183-day capital-gains rule is not the substantial presence test

This distinction is easy to miss.

The IRS specifically notes that the 183-day rule applying to certain capital gains of nonresident aliens is not the same as the substantial presence test used to determine whether someone is a US resident alien.

The two rules serve different purposes.

This is another reason not to base major investment decisions on simplified online summaries of “the 183-day rule”.

8. US brokerage accounts can often remain valuable

A US brokerage account can offer:

• broad investment choice
• low-cost securities
• deep markets
• USD exposure
• established custody
• access to US-listed ETFs

For someone who becomes a nonresident alien, keeping the account may therefore make sense.

But check:

• whether the broker supports your country of residence
• whether the broker will retain the account
• what products remain available
• how dividends are withheld
• whether treaty documentation is correct
• whether your new country taxes the account
• estate-tax exposure

A US brokerage account should not be closed simply because it is American.

9. Provider restrictions can still force practical changes

Some US investment firms restrict services for overseas clients.

Potential issues include:

• restrictions on mutual funds
• inability to make new purchases
• inability to open additional accounts
• advisory-service restrictions
• requirements to maintain a US address
• country-specific exclusions

Provider rules can change independently of tax rules.

The optimal structure therefore needs to be both technically efficient and operationally sustainable.

10. US-listed ETFs can solve one problem and create another

A nonresident alien may find that US-listed ETFs are efficient from the US side.

But their local country may treat them differently.

Depending on residence, the investor may face:

• local capital-gains tax
• dividend taxation
• fund-reporting rules
• local investor-protection restrictions
• estate-tax considerations

Investment selection therefore needs to consider both jurisdictions.

11. 401(k)s do not disappear when you leave America

A former US employee may retain a 401(k) after moving abroad.

The account may often remain invested.

Review:

• provider policy
• investment choice
• charges
• rollover options
• distribution taxation
• withholding
• treaty treatment
• RMDs
• beneficiaries
• local-country taxation
• currency

There is rarely a good reason to cash out a retirement plan solely because you have moved overseas.

12. Nonresident alien retirement distributions can face 30% withholding

The IRS states that distributions from US retirement plans to foreign persons are generally subject to 30% withholding unless valid documentation supports a lower treaty rate or exemption.

That can affect payments from arrangements including:

• qualified retirement plans
• certain annuity arrangements
• IRAs

Correct treaty documentation can therefore materially change cash flow.

13. Tax treaties can make retirement-account planning much more favourable

IRS Publication 515 states that many US income-tax treaties provide exemptions from US tax for certain non-government pensions and annuities, although the exact treaty must be checked and lump sums can be treated differently.

This means two former US workers with identical 401(k)s can potentially have very different outcomes depending on whether they retire in:

• the UK
• France
• Germany
• Switzerland
• a non-treaty jurisdiction

Retirement-country selection can therefore materially affect the net value of a US pension.

14. W-8BEN can also be important for pension distributions

The IRS states that the beneficial owner of pension income may claim a lower treaty withholding rate by providing Form W-8BEN to the withholding agent where treaty relief applies.

This is an administrative point, but an important one.

If the pension provider does not have the correct foreign-status documentation, excessive withholding can occur.

15. Withholding is not necessarily the final tax liability

A 30% withholding rate does not automatically mean the final US tax cost is 30%.

Withholding is a mechanism for collecting tax.

Depending on the circumstances, the individual may:

• qualify for treaty relief
• have only part of a distribution taxable
• need to file Form 1040-NR
• be entitled to claim a refund of excessive withholding

This should be checked before assuming the amount deducted by the provider is the final outcome.

16. Traditional IRA planning should be reviewed before distributions start

A former US resident may retain a traditional IRA.

The planning review should consider:

• treaty treatment
• US withholding
• local taxation
• RMDs
• investment strategy
• beneficiaries
• timing
• currency

A large IRA distribution can be significantly less attractive after moving to a country that taxes pension income differently from the United States.

17. Roth IRA treatment can be highly country-specific

A Roth IRA can continue to be tax-advantaged under US rules.

That does not mean the new country of residence automatically respects the Roth wrapper.

Some treaty jurisdictions may offer stronger recognition than others.

The local country may instead treat:

• investment growth
• distributions
• the underlying assets

under its domestic tax rules.

Roth planning should therefore be completed before major conversions or distributions.

18. Social Security should also be reviewed under the relevant treaty

A former US worker may qualify for US Social Security despite no longer living in America.

The US treatment of Social Security paid to nonresident aliens can differ from pensions.

The IRS states that US-source FDAP income generally includes 85% of US Social Security benefits, although some tax treaties provide an exemption.

This makes residence and treaty eligibility highly relevant.

19. US property creates a separate planning framework

US real estate is different from ordinary securities.

A nonresident alien may own:

• a former US home
• rental property
• investment property
• commercial property
• indirect real-estate interests

The property can create:

• US rental-income tax
• state tax
• property tax
• capital-gains tax
• FIRPTA withholding
• US estate-tax exposure
• local-country taxation

US property should therefore be analysed separately from the brokerage portfolio.

20. FIRPTA can apply when a foreign person sells US property

The Foreign Investment in Real Property Tax Act allows the US to tax foreign persons disposing of US real-property interests.

The IRS states that the buyer generally must withhold 15% of the amount realised when a foreign person sells a US real-property interest, subject to specified exceptions and reduced-withholding procedures.

That is withholding on the amount realised, not necessarily the eventual taxable gain.

This can create a substantial temporary cash-flow impact.

21. FIRPTA withholding is not the final property tax bill

The 15% FIRPTA withholding amount is not necessarily equal to the seller's final tax liability.

Depending on the facts, a foreign seller may:

• calculate the actual taxable gain
• file a US tax return
• claim credit for withholding
• apply for a reduced withholding certificate in appropriate circumstances

This should be factored into the sale process before contracts are signed.

22. US estate tax is one of the biggest planning differences for nonresident aliens

Estate tax is one of the strongest reasons for a nonresident alien to review US investments carefully.

The IRS states that a nonresident who is not a US citizen can be subject to US estate tax on US-situated assets.

Potential US-situated assets include:

• US real estate
• tangible property located in the United States
• shares in US corporations
• certain other US-connected assets

This is very different from the estate-tax framework applying to a US citizen.

23. The $60,000 estate-tax threshold is unusually low

For nonresident noncitizens, Form 706-NA can be required where the value of US-situated assets, together with relevant adjusted taxable gifts and specific exemption amounts, exceeds $60,000.

The IRS confirms that this $60,000 filing threshold does not increase annually.

This contrasts sharply with the much larger federal estate-tax exemption available to US citizens and resident estates.

For HNW non-US investors, this is a major planning issue.

24. US shares can be US-situated for estate-tax purposes

This is particularly important.

The IRS states that shares in corporations organised under US law can constitute US-situated property for a nonresident noncitizen's estate, even where certificates are held abroad or through a nominee.

That means a foreign investor can potentially have US estate exposure simply from owning a substantial portfolio of US company shares.

The brokerage account itself does not need to be physically located in America for the underlying stock to matter.

25. Not every US-connected financial asset has the same estate-tax situs

US estate-tax situs rules are asset-specific.

The IRS gives examples of property that may fall outside the US-situated estate, including certain qualifying deposits and life-insurance proceeds, while US shares and real estate can fall inside it.

This means the structure of the portfolio matters.

Do not simply total every asset held with a US institution and assume the whole account has identical estate treatment.

26. Estate-tax treaties can materially improve the result

The United States has estate or death-tax treaties with a limited number of countries.

The IRS notes that treaty provisions can provide more favourable treatment by modifying the assets considered US-situated or otherwise reducing estate-tax exposure.

Residence and domicile can therefore be crucial.

An estate plan appropriate for a UK resident may not be appropriate for someone in the UAE or another non-treaty jurisdiction.

27. There is no general portability election for a nonresident noncitizen estate

The IRS confirms that the executor of a nonresident decedent who was not a US citizen cannot make the normal deceased-spousal-unused-exclusion portability election.

This makes spouse and beneficiary planning particularly important where substantial US-situated assets are retained.

28. Beneficiaries should be reviewed after leaving America

A former US resident may still have beneficiaries recorded on:

• 401(k)
• IRA
• Roth IRA
• employer pension
• life insurance
• brokerage transfer-on-death arrangements

Those nominations should be reviewed alongside:

• local wills
• US wills
• marital status
• children's residence
• trusts
• local succession law
• estate-tax exposure

A beneficiary form signed while living in America may no longer fit the wider estate plan.

29. The new country can create estate or inheritance tax as well

US estate tax may not be the only transfer-tax regime.

The person's new country may impose:

• inheritance tax
• estate tax
• wealth tax
• succession duties
• forced-heirship rules

The estate therefore needs to be considered across both jurisdictions.

30. Currency should be incorporated into the plan

A former US resident may retain:

• retirement accounts in USD
• brokerage investments in USD
• property in USD
• Social Security in USD

while spending in:

• GBP
• EUR
• CHF
• AED
• another currency

That can create significant long-term currency exposure.

The objective is not to eliminate USD assets.

It is to ensure the currency of future spending and the currency of future assets are reasonably coordinated.

31. Leaving the US can create a good opportunity to simplify the balance sheet

International moves often leave people with:

• several 401(k)s
• old IRAs
• restricted employer shares
• dormant bank accounts
• multiple brokerage firms
• US property
• foreign accounts in the new country

This is a good point to review:

• account consolidation
• investment duplication
• costs
• risk
• beneficiaries
• access
• reporting
• estate exposure

Simplification can be valuable, but only after checking the tax consequences.

32. Do not close good US accounts without checking whether you can replace them

One of the most common mistakes is closing a high-quality US brokerage or retirement arrangement and discovering afterwards that:

• it cannot be reopened as a foreign resident
• the local alternative is more expensive
• local funds create tax problems
• investment choice is worse
• custody is weaker

Once an account has been closed, reversing the decision may be difficult.

Review first.

33. Future residence matters again

An internationally mobile person may eventually:

• remain permanently in the new country
• return to America
• move to the UK
• move to Europe
• retire in the Middle East
• move to another treaty jurisdiction

The optimal treatment of:

• 401(k)
• IRA
• Roth IRA
• US brokerage accounts
• property
• estate exposure

can change substantially with residence.

The plan should therefore remain portable.

34. The goal is not to eliminate US assets

US assets can remain a valuable part of an international balance sheet.

The goal is to determine:

• which US assets remain useful
• which create unnecessary tax or estate exposure
• which should be consolidated
• which should eventually be drawn down
• which should remain invested
• how they fit alongside assets in the new country

That is a financial-planning decision, not simply a tax decision.

This page is for general information only and does not constitute personalised financial, tax, legal, immigration, retirement, pension, investment, estate planning, property or currency advice.

Whether someone is a nonresident alien depends on US citizenship, immigration status, green card status, physical presence, treaty residence and other factors.

US tax advice should be taken from a suitably qualified US tax adviser or CPA.

Tax and legal advice for your current country of residence should be taken from appropriately qualified local professionals.

Financial planning for nonresident aliens with US assets, W-8BEN, dividend withholding, capital gains, retirement-account distributions, pension withholding, treaty benefits, Social Security, FIRPTA, US property, US estate tax, asset situs, beneficiary planning and local-country taxation depend on personal circumstances and may change.

Do not sell investments, liquidate retirement accounts, close US brokerage accounts, transfer pensions, sell property or restructure ownership without reviewing the US and local consequences.

Investing involves risk. Investment and retirement-account values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect investment values, retirement income and future spending.

Tax treaties, withholding rates, estate-tax rules, brokerage policies and local-country rules can change. The appropriate position should be confirmed using the rules applying when advice is taken.