IFA for UK/US dual national

tomquery

Hello, I have reviewed a number of the helpful posts on this forum and think it may be useful for me to instruct an IFA, and in particular (given my dual US and UK nationality; I reside in the UK), one who is familiar with the US tax implications of UK investments.

My main goal is to start investing into low-cost tracker-style funds. It seems a Vanguard LS approach would suit me fine, and whilst I could in principle DIY this, I want to make sure I am doing so in a tax-efficient manner. I also have a few pensions from various (current and past) employers, so could benefit from advice on whether/how to optimise these.

My research so far has turned up various firms which seem to focus on expat advice (eg, Montfort, Buzzacott, Waverton, Tanager) and for portfolios starting around £500k to £1m. Indeed, many of these are wealth managers rather than IFAs. I am in my 30s and am currently more in the range of £100k-£200k. I am not sure that my situation requires quite this type of specialist focus, but rather an awareness of where there may be pitfalls.

Please let me know if you are aware of more run-of-the-mill IFAs who may be able to assist, or if I really do need to work with an "expat" specialist wealth manager / IFA.

Many thanks for any assistance!

Voyager2002

Well, you could make your life a lot simpler by renouncing your US citizenship so that you cease to be liable for US tax while living here.

Failing that, I suggest that you get yourself "up to speed" on US taxes that might affect you so that you can use a "run of the mill" IFA. Knowledge of two separate tax systems is fairly specialised, and you should expect to pay for such knowledge.

bostonerimus

As a US citizen it will be highly tax inefficient for you to put money in any UK investment funds outside of a UK pension wrapper as they will trigger PFIC reporting and taxatio, so look at your UK pension options. You can invest in individual stocks and bonds without running into PFIC issues or you can invest in US domiciled funds that are also HMRC reporting. You will find that US Vanguard ETFs are a good option and the easiest way to buy them is through a US broker if you have one. You will have to negotiate the dual tax reporting which can get tricky for capital gains.

Here is the website of someone who can help you

http://www.americantaxreturns.com.

Lomcevak

Mrs. L is a US/UK dual national, working and resident in the UK but with a few thousand dollars of US income as well, and we've found filing taxes reasonably straightforward. There's a lot of helpful information on the IRS webpages - even if the language is a bit opaque at times - and also on various expat blogs. Assuming that you're not on an unusually high income or doing anything out of the ordinary with your finances then i think a DIY route is perfectly possible.

You should already be filing a tax return in the US already, with a Form 2555 for the foreign earned income exclusion, even if you're not actually paying any tax. Mrs L. doesn't have a huge amount in investments outside her pension (our S&S ISAs are in my name) but she has some in the US, but they are below threshold and covered by the standard deduction (I think, would have to check - there might possibly be another form we fill out, but the net impact is zero). She then declares and pays tax on the US income.

Out of laziness we file electronically via one of the brand-name tax services, it's worth $30 a year for the convenience, but have printed out and posted forms to somewhere in Texas in the past.

Main advice would be to spend a bit of time with your research hat on and pull together the pieces, despite the reputation of the US tax system it's not that bad for run of the mill filing. Obviously if there's anything specialist about your finances then you'll either need to spend more time researching, or would want to find professional advice from an expert.

EdSwippet

tomquery wrote: »

... It seems a Vanguard LS approach would suit me fine, and whilst I could in principle DIY this, I want to make sure I am doing so in a tax-efficient manner.

Do not use any of the Vanguard LS funds commonly marketed to UK investors. As alluded to by bostonerimus above, this will be a US tax nightmare from which you will find it hard to escape. The US 's appalling PFIC tax rules can, if left long enough, consume 100% of your gains in tax.

You will also need to pay attention to ISAs. The US does not recognise the ISA wrapper as tax-free, and so will tax you on any gains you make inside an ISA as if in an unwrapped account. That includes the horrible PFIC rules.

bostonerimus wrote: »

... or you can invest in US domiciled funds that are also HMRC reporting. You will find that US Vanguard ETFs are a good option and the easiest way to buy them is through a US broker if you have one.

Perhaps not just the easiest but the only way these days, unfortunately. At the start of the year a new EU directive known as PRIIPS came into effect. This prevents EU residents from buying any funds or ETFs that lack a 'Key Information Document' that has to provide assorted disclosure information. Unfortunately, none of Vanguard's US domiciled ETFs on HMRC's 'Reporting Status' list have these KIDs, and Vanguard have more or less said that they will not be providing them. This effectively puts US domiciled ETFs off-limits for EU resident investors.

That is particularly bad news for US citizens living in Europe if they do not already have a US based brokerage account. Most US brokers will now no longer open new accounts for non-US residents, even those who are US citizens.

bostonerimus

EdSwippet wrote: »

Perhaps not just the easiest but the only way these days, unfortunately. At the start of the year a new EU directive known as PRIIPS came into effect. This prevents EU residents from buying any funds or ETFs that lack a 'Key Information Document' that has to provide assorted disclosure information. Unfortunately, none of Vanguard's US domiciled ETFs on HMRC's 'Reporting Status' list have these KIDs, and Vanguard have more or less said that they will not be providing them. This effectively puts US domiciled ETFs off-limits for EU resident investors.

.

Does this explain why I can't find the US Vanguard VTI ETF quoted on the H&L site anymore?

dunstonh

You will probably find that most IFAs cannot deal with you. I know we couldn't as the PI insurance specifically rejects coverage of US citizens. Both due to the increased complexity of US tax law and the ability to use US courts. it is a very common exclusion with your normal IFA firm. Firms with an expat focus will do it but of course they tend to come at higher costs to reflect the higher risks and knowledge.

A number of the tax wrappers in the UK are not recognised in the US and would be treated as taxable.

tomquery

Thank you very much to everyone so far - this has been really useful. A few quick responses:

Voyager2002- at the moment renunciation is not in the cards, but perhaps in future!

bostonerimus and EdSwippet- I was under the impression that even UK investment funds within a UK pension wrapper would attract US tax. Perhaps I am confusing this with the ISA situation? The US-based investment option may work; if going this route perhaps I can still open a brokerage account in conjunction with US-based family members.

Lomcevak- Indeed it appears my situation is most like that of Mrs L, and there is nothing out of the ordinary with my finances. It sounds like the way to go would be to for my (non-US) spouse to invest our funds in a S&S ISA in her name.

bostonerimus

It is possible to find US and UK dual qualified tax advisors, but it's very tricky for investments. Many of the firms that deal in cross border investments are either for very high net worth individuals or little more than scams pushing expensive offshore funds that might land you with a significant US tax bill.

If you have access to a workplace pension that's probably your best option for UK fund investments without too much US tax complications.

You could see if Robert Noble-Warren at IWM can help you. I have no idea of costs or how good the service is, but he posts to various on-line forums and seems knowledgeable and doesn't dispense any BS.

http://www.iwm.eu.com/node/12

bostonerimus

tomquery wrote: »

bostonerimus and EdSwippet- I was under the impression that even UK investment funds within a UK pension wrapper would attract US tax. Perhaps I am confusing this with the ISA situation? The US-based investment option may work; if going this route perhaps I can still open a brokerage account in conjunction with US-based family members.
.

ISAs are not included in the US/UK tax treaty and so are meaningless to the IRS. They look straight through to the funds inside the ISA, so a cash ISA would not attract any complex US tax issues, you'd just declare the interest on your US taxes, however, something like VLS60, in an S&S ISA would be taxed as a PFIC.

You can insulate money from both US and UK taxes if you make contributions to a pension fund that is recognized in the tax treaty. You should probably take advice from an advisor as to how you will handle any employer contributions with reference to any plans you have to return to the US one day.

tomquery

Thank you to dunstonh as well - I was writing out my last reply as you posted so did not see this.

bostonerimus- it seems that even if I opt not to invest in UK funds via my workplace pension I may still require advice in respect of my employer contributions.

In conclusion, it looks like I will need to speak with an IFA who does not exclude US citizens; I will see if IWM can help.