US citizen in UK

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
sellidor
Posts: 10
Joined: Mon Oct 28, 2019 8:23 am

US citizen in UK

Post by sellidor »

I'm a US citizen living in the UK. It seems that most US citizens here opened Vanguard accounts before leaving the country, but I wasn't so lucky. ​After hours of research, I still have no idea what to do: EU funds are off-limits due to PFIC, and US brokers won't accept me as a non-resident (I have no family there or connection to the US besides citizenship...).

I was able to open a Schwab international account (https://international.schwab.com/expatriate-essentials), but they won't let me buy US funds.

I have absolutely no idea how to proceed, and a financial advisor has actually suggested investing in EU funds and just not reporting them. I know there's a $10,000 penalty if you're caught, but how is this enforced?

There must be others here in my situation? I'm at my wit's end.
User avatar
LadyGeek
Site Admin
Posts: 73009
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: US citizen in UK

Post by LadyGeek »

For the record, discussions of dishonest behavior or bypassing the law are totally unacceptable.

The intent is to understand how to do this within the existing legal framework; in which case this discussion can continue.

The approach is to educate members on how to do things legally. State your points in a factual manner. If the intent strays from this objective, please report the post and we'll investigate.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
LadyGeek
Site Admin
Posts: 73009
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: US citizen in UK

Post by LadyGeek »

Do you maintain a US address? See this article: Why US Brokerage Accounts of American Expats are Being Closed (2020)

That advisor should be reported to the company he works for. Large companies often have a Compliance department where they keep a leash on their employees. They'd very much like to know if one of their advisors is giving illegal advice.

Otherwise, you can report him/her to the agency which gave him his license. Enforcement | FINRA.org
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Marseille07
Posts: 4140
Joined: Fri Nov 06, 2020 1:41 pm

Re: US citizen in UK

Post by Marseille07 »

I think you need to get a short-term lease, come back to the states, take care of business then head back to the UK.

Maintaining a US address is extremely difficult - even if you get a virtual mailbox, the address is actually a commercial address and financial institutions can detect this if they want to. You need a real US residential address.
ivk5
Posts: 1201
Joined: Thu Sep 22, 2016 9:05 am

Re: US citizen in UK

Post by ivk5 »

Are you also a UK or other non-US citizen? Or only US? How important is it to you to retain US citizenship?

If you have another citizenship (eg UK), no US ties, and no great attachment to the benefits of US citizenship, you might consider renouncing…

Another alternative is to just put up with the PFIC reporting headache.

Don’t forget FBAR reporting for any non-US accounts you do open.
User avatar
BeBH65
Posts: 1742
Joined: Sat Jul 04, 2015 7:28 am

Re: US citizen in UK

Post by BeBH65 »

Our wiki has a number of pages that would be of interest to you.
Have a look at Outline_of_non-US_domiciles
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
cbeck
Posts: 397
Joined: Sun Jun 24, 2012 1:28 am

Re: US citizen in UK

Post by cbeck »

Before you buy foreign mutual funds, consider this:

https://thunfinancial.com/home/american ... tual-fund/

Will Schwab not let you buy ETFs either?
TedSwippet
Posts: 3683
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US citizen in UK

Post by TedSwippet »

ivk5 wrote: Mon May 31, 2021 2:45 pm If you have another citizenship (eg UK), no US ties, and no great attachment to the benefits of US citizenship, you might consider renouncing…
Unfortunately, this is easier said than done:
Washington Post: How corona makes it impossible to renounce U.S. citizenship

The UK situation for the past 14 months (and counting):
Loss of U.S. Citizenship (i.e. Expatriation) | U.S. Embassy & Consulates in the United Kingdom
Due to limited staffing and resources during to the COVID-19 outbreak, the U.S. Embassy in London, Consulate General Edinburgh, and Consulate General Belfast are unable to accept appointments for Loss of Nationality applications. We cannot provide a timeframe for when this service will resume, but will update this website when services can resume. Please do not email documents or send by mail until normal services resume.
ivk5
Posts: 1201
Joined: Thu Sep 22, 2016 9:05 am

Re: US citizen in UK

Post by ivk5 »

TedSwippet wrote: Tue Jun 01, 2021 1:44 am Unfortunately, this is easier said than done:
Washington Post: How corona makes it impossible to renounce U.S. citizenship
Wow, thanks, had no idea. Absurd, especially for so-called accidental Americans (perhaps the OP is one).
maddletom
Posts: 1
Joined: Tue Jun 01, 2021 12:40 pm

Re: US citizen in UK

Post by maddletom »

I'm in the same boat as OP. US citizen who moved to the UK a while ago for a Masters degree and have been working here for several years. No prior brokerage account in the US and no maintained address. Have just recently started to look at investment planning options thanks to salary raise etc. Was feeling quite excited at first and now fairly depressed! Have gone through the same logic tree (no Non-US funds due to PFIC, no US funds due to PRIIPs/brokers not taking non-resident clients - have tried Schwab as well but they won't allow ETF purchases due to non-US residency. Can't imagine giving up citizenship as I might want to return to the US some day (lot's of family there etc), but this seems pretty ludicrous!

Keen for any other ideas :confused . I'm not particularly comfortable with individual stock picking, but it also seems silly to sit on cash (particularly given recent inflation indicators). I have a decent workplace pension which is thankfully shielded from PFIC, but am maxed out on what I can contribute and would like something accessible on a medium term horizon.
iamthewalrus
Posts: 17
Joined: Sun Feb 11, 2018 4:14 pm

Re: US citizen in UK

Post by iamthewalrus »

I'm sorry about your situations, US tax compliance for expats is extremely burdensome.

One option I've heard about is to use options trading on the ETFs. While Interactive Brokers (just like other US brokers) will not let you purchase ETFs directly as a non-US resident they don't restrict trading options on the same ETFs. So what you can do is buy an option on the ETF and exercise the option on expiry and collect the ETF and you're left holding the ETF (usually when people trade options they don't intend to ever let them expire, they will trade them based on the price difference before expiration, but if you let it expire the terms kick in and the underlying securities change hands).

This is (briefly) described here: https://www.reddit.com/r/eupersonalfina ... out_kid.3F

Also pay close attention to HMRC reporting funds, of which most of the Vanguard core ETFs are. You probably want to make sure that you only hold US ETFs that are HMRC reporting. These will allow you to sell the ETFs at capital gains tax rate in the UK and not a punitive tax rate (similar in spirit to the US PFIC rules). The bogleheads wiki has some information here: https://www.bogleheads.org/wiki/Vanguar ... ting_funds. Note that the HMRC funds produce a report every year that includes the amount taxable in that year which you'll have to include with your UK taxes. For Vanguard index funds this amount is usually either 0 or very close to it.
Marseille07
Posts: 4140
Joined: Fri Nov 06, 2020 1:41 pm

Re: US citizen in UK

Post by Marseille07 »

maddletom wrote: Tue Jun 01, 2021 1:00 pm Keen for any other ideas :confused . I'm not particularly comfortable with individual stock picking, but it also seems silly to sit on cash (particularly given recent inflation indicators). I have a decent workplace pension which is thankfully shielded from PFIC, but am maxed out on what I can contribute and would like something accessible on a medium term horizon.
I think you pretty much need to come to the states for a month or two. It's not easy or cheap, but worthwhile long-term.
xzhou
Posts: 39
Joined: Mon May 28, 2007 1:14 am

Re: US citizen in UK

Post by xzhou »

If OP buys Berkshire-Hathaway, GE, and maybe a few other individual stocks, would that be sufficiently close to S&P500? In other words, at any given tracking error, we can minimize the number of stocks to buy.
User avatar
LadyGeek
Site Admin
Posts: 73009
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: US citizen in UK

Post by LadyGeek »

Substituting a few individual stocks for a total market or S&P 500 fund is discussed often in this forum. It's not simple nor easy.

Here's a google search on the topic: minimum number of stocks site:bogleheads.org - Google Search
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Valuethinker
Posts: 42644
Joined: Fri May 11, 2007 11:07 am

Re: US citizen in UK

Post by Valuethinker »

xzhou wrote: Tue Jun 01, 2021 6:42 pm If OP buys Berkshire-Hathaway, GE, and maybe a few other individual stocks, would that be sufficiently close to S&P500? In other words, at any given tracking error, we can minimize the number of stocks to buy.
GE has a small market cap these days.

It's a question of whether you blindly hold the top 10 stocks (which include all the big internet companies FB, Apple, Amazon, Microsoft, Google) or whether you try for a stratified sampling technique (1-2 stocks in each industry sector).

I would be tempted to look at the top 100 global stocks as my universe (the top 10 are basically same as S&P 500, but include Nestle I believe).
xzhou
Posts: 39
Joined: Mon May 28, 2007 1:14 am

Re: US citizen in UK

Post by xzhou »

Valuethinker wrote: Wed Jun 02, 2021 3:52 am
GE has a small market cap these days.

It's a question of whether you blindly hold the top 10 stocks (which include all the big internet companies FB, Apple, Amazon, Microsoft, Google) or whether you try for a stratified sampling technique (1-2 stocks in each industry sector).

I would be tempted to look at the top 100 global stocks as my universe (the top 10 are basically same as S&P 500, but include Nestle I believe).
Hmm, am I getting dated for mentioning GE?
I agree that blindly holding the top ten market-cap stocks entails the least work and possibly the least regret. Holding one hundred stocks would require that you love this thing as a hobby, instead of as an investment per se, because it's very likely that you will continue to track which stock is coming in or falling out of the top group.
finrod_2002
Posts: 52
Joined: Fri Feb 15, 2019 6:04 am

Re: US citizen in UK

Post by finrod_2002 »

As mentioned you can get US ETFs via the option route. See here for an explanation.

viewtopic.php?p=4386305#p4386305


Basically, you buy a call and exercise it, so you get the physical underlying, for example VTI and VXUS.


Another option would be to use tastyworks.

https://tastyworks.com/

Last time I checked you could still buy US ETFs there. Drawback is that they accept only dollars, so total fees might be relative high. On the other hand it’s possible to use transferwise or currencyfair which mitigates this.
ExpatFun
Posts: 8
Joined: Thu Feb 25, 2021 12:48 pm

Re: US citizen in UK

Post by ExpatFun »

I'm a US citizen living in UK for 10+ years.

Recently went through similar issue (although my investments are in Roth IRA, so might differ from your situation - when it comes to PFIC). I can buy VWRA, but not VTI and american etfs....

That said, Interactive Brokers has been the best broker for me, in terms of opening an account and buying ETFs in my ROTH IRA. Might be worth looking into opening an account there - it's very clear they support US citizen, Uk Resident without account opening issue.
Topic Author
sellidor
Posts: 10
Joined: Mon Oct 28, 2019 8:23 am

Re: US citizen in UK

Post by sellidor »

LadyGeek wrote: Mon May 31, 2021 2:09 pm Do you maintain a US address?
Unfortunately I have no US address and haven't even been to the US in over a decade.
BeBH65 wrote: Mon May 31, 2021 2:52 pm Our wiki has a number of pages that would be of interest to you.
Have a look at Outline_of_non-US_domiciles
Investing in a US domiciled ETF that is a UK HMRC reporting fund is a great idea, but how? No broker will take me--except Schwab, and they won't let me buy ETFs.

I work in financial services, so buying individual stocks is complicated because of my employer's regulations...
Topic Author
sellidor
Posts: 10
Joined: Mon Oct 28, 2019 8:23 am

Re: US citizen in UK

Post by sellidor »

ExpatFun wrote: Thu Jun 03, 2021 2:23 am That said, Interactive Brokers has been the best broker for me, in terms of opening an account and buying ETFs in my ROTH IRA. Might be worth looking into opening an account there - it's very clear they support US citizen, Uk Resident without account opening issue.
Thanks. At first glance, InteractiveBrokers doesn't seem very user friendly, but I'll try and see if I can open an account there.
finrod_2002 wrote: Wed Jun 02, 2021 1:51 pm As mentioned you can get US ETFs via the option route. See here for an explanation.

viewtopic.php?p=4386305#p4386305

Basically, you buy a call and exercise it, so you get the physical underlying, for example VTI and VXUS.
Ok, this seems concrete. Maybe I can try this through my Schwab account.
halfnine
Posts: 1512
Joined: Tue Dec 21, 2010 1:48 pm

Re: US citizen in UK

Post by halfnine »

sellidor wrote: Fri Jun 04, 2021 6:39 pm
ExpatFun wrote: Thu Jun 03, 2021 2:23 am That said, Interactive Brokers has been the best broker for me, in terms of opening an account and buying ETFs in my ROTH IRA. Might be worth looking into opening an account there - it's very clear they support US citizen, Uk Resident without account opening issue.
Thanks. At first glance, InteractiveBrokers doesn't seem very user friendly, but I'll try and see if I can open an account there.
finrod_2002 wrote: Wed Jun 02, 2021 1:51 pm As mentioned you can get US ETFs via the option route. See here for an explanation.

viewtopic.php?p=4386305#p4386305

Basically, you buy a call and exercise it, so you get the physical underlying, for example VTI and VXUS.
Ok, this seems concrete. Maybe I can try this through my Schwab account.
I am curious as to what the tax implications of this might be. Depending on disparities between tax laws (on options specifically) between the two countries and/or currency movements it is not impossible to find yourself subject to double taxation without the benefits of foreign tax credit.
Topic Author
sellidor
Posts: 10
Joined: Mon Oct 28, 2019 8:23 am

Re: US citizen in UK

Post by sellidor »

What about just investing in my UK pension? My employer has set up a SIPP and is making monthly contributions. I could make lump-sum contributions on top of that, but I don't know how this is viewed by the US.
TedSwippet
Posts: 3683
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US citizen in UK

Post by TedSwippet »

sellidor wrote: Wed Jun 09, 2021 12:59 pm What about just investing in my UK pension? My employer has set up a SIPP and is making monthly contributions. I could make lump-sum contributions on top of that, but I don't know how this is viewed by the US.
It's an option. The US/UK tax treaty is one of the better ones in this respect, though (of course) there are several grey areas, and also a reasonable number of IRS reporting rule traps just to ensure that nothing is plain sailing. A couple of articles to lay out the general rules:

How to keep UK pension savings tax efficient in the US | EY UK
The Foreign Pension Plan Dilemma for American Expats

A few notes on this:
  • While you can subtract UK pension contributions from your US income, the treaty restricts you to only making contributions up to the same limit as you would have in a comparable US plan, and you may also have to watch out for the HCE (highly compensated employee) limitation.
  • Even if there is no annual tax, you have to report UK pension balances on FBAR (FinCEN 114) and FATCA form 8938 where required. Perhaps also some form 3520 reporting, depending on how the pension is treated.
  • If using the treaty, gains in the pension are not UK or US taxable until withdrawn, and US PFIC rules do not apply to holdings in a UK pension.
  • There may be a case for not using the treaty, but instead using UK pension contributions to 'mop up' otherwise unused US foreign tax credits. This could apply if your UK tax rate exceeds the comparable US rate. Maybe beware PFIC if going this route, though.
  • Unlike the US, there is absolutely no means of early access to a UK private pension. The earliest you can withdraw from them is age 55, rising soon to age 57. You haven't mentioned your age, but potentially a long wait there.
  • The UK allows a 25% UK tax-free lump sum on withdrawals. Opinions vary on whether the treaty covers this so that it is also US tax-free or not. Careful reading required.
grok87
Posts: 9614
Joined: Tue Feb 27, 2007 9:00 pm

Re: US citizen in UK

Post by grok87 »

xzhou wrote: Tue Jun 01, 2021 6:42 pm If OP buys Berkshire-Hathaway, GE, and maybe a few other individual stocks, would that be sufficiently close to S&P500? In other words, at any given tracking error, we can minimize the number of stocks to buy.
what about tech stocks?
RIP Mr. Bogle.
Valuethinker
Posts: 42644
Joined: Fri May 11, 2007 11:07 am

Re: US citizen in UK

Post by Valuethinker »

grok87 wrote: Thu Jun 10, 2021 5:22 am
xzhou wrote: Tue Jun 01, 2021 6:42 pm If OP buys Berkshire-Hathaway, GE, and maybe a few other individual stocks, would that be sufficiently close to S&P500? In other words, at any given tracking error, we can minimize the number of stocks to buy.
what about tech stocks?
If one hasn't looked at it in a while (I haven't) it's easy to not know that c 25% of US index is now the big 5? (FB Apple Amazon Microsoft Alphabet/ Google)? And that other than Berkshire Hathaway I don't think there are any "old economy" stocks in the top 10?

(20% of the valuation of Berkshire Hathaway is its Apple holding)

AAPL APPLE INC Information Technology Equity 5.60
MSFT MICROSOFT CORP Information Technology Equity 5.34
AMZN AMAZON COM INC Consumer Discretionary Equity 3.92
FB FACEBOOK CLASS A INC Communication Equity 2.22
GOOGL ALPHABET INC CLASS A Communication Equity 2.02
GOOG ALPHABET INC CLASS C Communication Equity 2.01
BRKB BERKSHIRE HATHAWAY INC CLASS B Financials Equity 1.54
JPM JPMORGAN CHASE & CO Financials Equity 1.39
TSLA TESLA INC Consumer Discretionary Equity 1.28
JNJ JOHNSON & JOHNSON Health Care Equity 1.22
Post Reply