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Dual US&UK citizen investment options
Hi
Am trying to help a dual US and UK citizen so they can start investing a modest amount (ie 3 figures per month rather than a six figure lump sum). They are currently being put off because of the complexity.
My limited understanding is that this area is a minefield and there’s realistically about 4 funds that they can invest in and a choice of 3 brokers who’ll accept US citizens. In theory such limited choice sounds like it should make it easier to decide…
Anyone know what these funds are?
Additionally does also have recommendations on tax advisors who can assist them? It seems most are geared up for super high net worth individuals.
I’m sure they can’t be the only dual US-UK citizen that this applies to!
Comments
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I wouldn't have thought there would be much in the way of restrictions on investments if they use a broker that will accept them.
Interactive Brokers is the one that I see mentioned most often in relation to US people.
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I think the OP's referring to the punitive US taxation of non-US registered funds and conversely the punitive taxation by the UK of non-UK registered funds. IIRC there are a few which are registered in both the UK and the US (Vanguard?).
If the OP's friend never plans to go back I'd renounce my US citizenship.
"Most non-US registered funds are treated as Passive Foreign Investment Companies (PFICs). These rules create punitive tax and reporting requirements, so such investments are generally unsuitable for US taxpayers."
https://partnerswealthmanagement.co.uk/us-tax-payers-in-the-uk-faqs
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I have friend who has UK, US and Australian citizenship. It is a nightmare. Your friend will need very good advice. I do not believe my friend is a suitable example to follow.
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Ah yes, if not in a SIPP that could be a problem.
That said, holding US funds would probably be the lesser of two evils, depending on how much they throw off in dividends. With the CGT allowance having shrunk from £12k to £3k and basic CGT rate hiked from 10% to 18% at least some of the punishment is gone.
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@Bostonerimus1 is this something you can comment on from your experience?
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There are problems with that. My friend is not allowed to trade or add to US mutual funds but can sell them. He recently had a US cash account closed. He thought that he had forestalled that by giving his US rather than his UK address, but to no avail. His Medicare payment bounced as a result, and his son in the US had to rush to a bank to get a banker's draft and post it. UK Unit Trusts that he has held for over 50 years are also inclined to be sold. He has investments in Australia too. I expect that his tax affairs are a real can of worms.
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https://www.bogleheads.org/wiki/Investing_from_the_UK_for_US_citizens_and_US_permanent_residents
Investments within a pension wrapper simplify matters considerably.
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If your friend has access to a SIPP or workplace pension then they can invest in funds inside those wrappers as they are recognized under the US/UK tax treaty and will only be taxed as income when withdrawals are made.
Do not invest in UK funds in general investment accounts or ISAs as these will be heavily taxed by the US. It is ok to put money into UK saving accounts and also individual stocks and shares, but obviously taxes will need to be filed in both the US and the UK.
If your friend has access to non-retirement US investment accounts then they can invest in funds that are UK reporting to avoid punitive UK taxation, these funds include most US Vanguard ETFs.
And so we beat on, boats against the current, borne back ceaselessly into the past.1 -
The following guide provides very useful pointers for expat American looking to utilise UK retail investment opportunities-
Outside of pension wrappers, for modest 3 figure monthly direct investing in UK shares ( but not Investment Trusts) and UK gilts seem to offer the least complicated investment options from an IRS compliance perspective and sidestep the rigours of PFIC. However direct investment in UK shares are at highest risk level of investing.
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Dual tax filing is an annoying burden for US citizens resident in the UK. If the situation is relatively simple, ie just working in the UK with a DC pension and some bank accounts then it's possible for the individual to do it, but once investments with capital gains, dividends etc and real estate is involved it can get very complicated. There are firms set up to do this, but they often concentrate on US taxes and don't know much about the UK side of things.
Good UK based firms are
https://www.britishamericantax.com/
both won't be inexpensive
A more generic solution might be
https://www.greenbacktaxservices.com/
And so we beat on, boats against the current, borne back ceaselessly into the past.2
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