Stocks & Shares ISA Provider for a UK Resident USA Citizen Investor

USExpatMSE

I've read through the Motley Fool ISA investment guide and Martin Lewis's Money Saving Expert guide to Stocks and Shares ISAs (Find the Cheapest Platform) and felt ready to invest. I started to open an account with Charles Stanley and was told they do not allow accounts for US citizens (tax reasons) and the same thing happened with Cavendish Online and TD Direct and several others. So does anyone have advice as to the best provider for an UK resident American investor (e.g. low platform fees, no cost for fund buying, low share buying charges and no exit fee)? Or am I stuck with a more main stream expensive providers? Any help appreciated! Thanks!!

dunstonh

nd was told they do not allow accounts for US citizens (tax reasons)

Usually its to do with legal reasons and the ability for you to use the US courts.

colsten

ISAs are for UK residents, with a few exceptions for Crown servants and their spouses or civil partners. https://www.gov.uk/individual-savings-accounts/overview.

It is generally difficult/impossible for non-UK-residents to open any accounts in the UK, and particularly difficult/impossible for US citizens due to prohibitive US government requirements such as FATCA.

This site is very much focused on UK residents and you would be better advised to investigate the US rules and opportunities for investments.

bowlhead99

Colsten may be missing the point slightly as there is no fundamental problem (from a legal / UK tax perspective) with you using ISAs, so long as you are UK resident.

He's right that this site is focussed on UK residents, but if you are one of those (while also happening to be a US citizen) then you should generally have access to the same products as UK or EU nationals who are also UK resident and you'll find most of this site very relevant. You just get the extra complexity of having the US wanting to tax you on your worldwide income because you're their citizen, at the same time as the UK wanting to tax you on your worldwide income because you're their resident.

The point he mentions about 'FATCA' is the main reason a number of brokers over here have stopped offering accounts to 'US persons' and the reason you're hearing - from probably a majority of firms - that they don't want customers who are US citizens.

Effectively the UK has signed an inter-government agreement with the US about reciprocal tax information exchange. This led to HMRC writing some tax regulations which say that UK banks, custodians and certain other financial institutions (like investment funds) have to report information about account balances and account credits to their US accountholders, to HMRC annually each May ; HMRC then passes this information on to the IRS a few months later.

This is a huge pain for financial institutions because they have to put the information together and review it and file it, and on an ongoing basis monitor for potential changes in circumstances of their accountholders/investors to see if they might have gained or lost US status. The shortcut for the banks / brokers / custodians etc is to just declare themselves a 'local client base' financial institution which will close the account of any US accountholder it identifies, and then they don't have to worry about spending hundreds of thousands of pounds on the relevant systems and compliance.

So basically because the US wants to know about its residents and citizens who have non-US accounts which they 'accidentally' might not declare on their tax returns, and the UK authorities are happy to collect and share data (because they will get information back in the other direction too, and they found it difficult to argue with the IRS who proposed it a few years ago)... you find yourself with a much more limited set of options. Many firms, in pursuit of a quiet life will have a clause like this one from Youinvest:

We cannot open an ISA for you, or a Junior ISA for a child, if you, or the child, are, and we will close your account if you become, a US citizen or a US resident for tax purposes.
You must inform us immediately if you become a US citizen or a US resident for tax purposes

Fortunately the departure of a lot of firms from this niche market means there is now more business for those that are left and want it. According to this article from a couple of months ago: http://www.telegraph.co.uk/finance/personalfinance/investing/isas/11634040/Isa-providers-refuse-to-open-accounts-for-British-Americans.html , Hargreaves Lansdown and Barclays Stockbrokers / Barclays Wealth are examples of firms that will still take on US citizens. H-L and Barclays are both more expensive than the cheapest options which the rest of us (non US) people can access, but they do an OK job, and the high percentage-based fees, when you're only dealing with the relatively small amounts that fit inside an ISA allowance, are not really a lot in ££ terms.

The light at the end of the tunnel is that in the coming years the UK is signing similar FATCA-like agreements with the rest of the EU and tens of other OECD countries, where HMRC will make UK financial firms report on a whole bunch of other overseas residents (e.g. French residents, German residents etc). So, it will then stop being just about Americans, and any broker that takes pretty much any type of non-UK resident as a customer is going to have to invest in the systems to perform the international tax reporting.

As a consequence, more firms may start to open their doors again to Americans if they are doing the reporting for the other countries anyway. Though of course some will just keep them shut and say UK residents only thanks, and no American citizens either. The US is pretty much the only country that wants an extra-terratorial reach to get tax returns from its citizens who live abroad; most of the rest of the civilised world just taxes based on residence.

Probably a longer answer than you were looking for ; the short version is 'try HL or Barclays'.

colsten

bowlhead99 wrote: »

Colsten may be missing the point slightly as there is no fundamental problem (from a legal / UK tax perspective) with you using ISAs, so long as you are UK resident.

You are right, I got carried away somehow and missed the point about OP asking as a UK resident. Thanks for picking me up on this.

bowlhead99 wrote: »

He's right.......

He isn't since I am a she

EdSwippet

bowlhead99 wrote: »

... The US is pretty much the only country that wants an extra-territorial reach to get tax returns from its citizens who live abroad; [STRIKE]most of the rest of[/STRIKE] the civilised world just taxes based on residence.

The US and Eritrea are the only countries that tax their citizens who live abroad.

Anyone in this situation should look carefully at whether it is worthwhile opening an ISA at all, since anything the UK doesn't take in tax, the US perhaps will. Both income tax on dividends and capital gains tax on any sales -- the US does not have any annual tax free capital gains allowance, and investment income and capital gains are not protected by the US's 'Foreign Earned Income Exclusion'. Also worth noting that most UK unit trusts (aka mutual funds) explicitly exclude US citizens from holding them. This would restrict holdings to US-domiciled ETFs or individual stocks.

colsten

EdSwippet wrote: »

The US and Eritrea are the only countries that tax their citizens who live abroad.

I am neither a US nor an Eritrean citizen but from very recent personal experience, I can assure you that you are mistaken. Even when double taxation agreements exist, there are cases when your home country can go after you and make you pay tax in your home country. They will even demand a full tax return, on which you have to detail your earnings and your tax payments in your country of residence.

EdSwippet

colsten wrote: »

I am neither a US nor an Eritrean citizen but from very recent personal experience, I can assure you that you are mistaken...

Please cite your source. From Wikipedia:

Citizenship
Almost all countries tax foreign income only of residents, if at all. Only two countries tax the worldwide income of nonresidents who are citizens of the country:
- Eritrea taxes its nonresident citizens on their foreign income at a reduced flat rate of 2% ...
- The United States taxes its citizens and resident foreigners on their worldwide income ...

colsten

EdSwippet wrote: »

Please cite your source.

I have already cited it: very recent personal experience.

Wikipedia is not exactly a credible source on such matters.

Before you ask: no, I will not post proof as my personal tax matters are just that - personal.

EdSwippet

colsten wrote: »

Wikipedia is not exactly a credible source on such matters.

Would you consider other sources equally not credible? For example:

The United States is the only country that taxes its citizens’ worldwide income, even when those citizens live indefinitely abroad.

from a research paper published in May this year by Ruth Mason, Hunton & Williams Professor of Law, University of Virginia School of Law.

colsten wrote: »

Before you ask: no, I will not post proof as my personal tax matters are just that - personal.

Fair enough. But it seems that your personal situation goes against all reported cases and academic literature on the subject.

colsten

EdSwippet wrote: »

But it seems that your personal situation goes against all reported cases and academic literature on the subject.

If the literature is academic, that could explain why they didn't get it quite right.