US citizen, UK resident and buying Vanguard ETFs online

[nun]

I'm a US and UK dual citizen and will be moving to the UK soon to retire. I have my retirement funds at Vanguard as well as ETFs in a general brokerage account to avoid future non-reporting tax issues with HMRC. However, I read that EU and UK rules don't allow the sales of US ETFs and mutual funds to UK and EU residents. So I emailed Vanguard to ask what transactions I would be allow to make as a UK resident and this is their reply.

Since you have existing accounts with us, you are still able to do all of the following regarding Vanguard funds:

-Make additional purchases of your existing funds
-Make additional purchases of new funds
-Exchange money from an existing fund you own into an existing fund
-Exchange money from an existing fund you own into a new fund

This is great news, but seems to be at odds with what I've read about the restrictions on buying US domiciled funds by UK residents. Is there some nuance in the term "selling" that applies if you already have a US based account and buy them inside that account?

[TedSwippet]

This is great news, but seems to be at odds with what I've read about the restrictions on buying US domiciled funds by UK residents. Is there some nuance in the term "selling" that applies if you already have a US based account and buy them inside that account?

No "selling" nuance. Just spotty and inconsistent application of the rules by assorted platforms and brokers. The regulation is "PRIIPs", and it regulates the broker, not the individual. A UK or EU broker has to follow it. A US based broker, particularly one with limited or no operations in the EU or UK, has more leeway. Some adhere to it (Schwab International, and IBKR, IIRC -- search the forum for example posts), and some do not.

Covered in the wiki:

- US tax pitfalls for a US person living abroad - Bogleheads
- Investing from the UK for US citizens and US permanent residents - Bogleheads

Two points to note. Firstly, what Vanguard tells you is the case may or may not be the actual case when you come to put it to the test; their frontline reps sometimes have scant or zero knowledge of international issues, and appear at times to perhaps just make stuff up. And secondly, even if this is right at the moment, it may change later. Regular reinterpretation of international tax rules is a recent Vanguard trait.

Finally, there is talk that post-Brexit (sigh) the UK might relax this, at least for US domiciled funds and ETFs. This would be welcome news, not only for US citizens living in the UK, for whom this rule makes life even more difficult than the US's precious citizenship-based taxation already makes things, but also because it is, simply, mad that an Ireland or Luxembourg (or Germany, or France, or ...) domiciled S&P 500 or other index tracker fund is apparently perfectly fine for UK investors, but a US domiciled one is not.

[nun]

This is great news, but seems to be at odds with what I've read about the restrictions on buying US domiciled funds by UK residents. Is there some nuance in the term "selling" that applies if you already have a US based account and buy them inside that account?

No "selling" nuance. Just spotty and inconsistent application of the rules by assorted platforms and brokers. The regulation is "PRIIPs", and it regulates the broker, not the individual. A UK or EU broker has to follow it. A US based broker, particularly one with limited or no operations in the EU or UK, has more leeway. Some adhere to it (Schwab International, and IBKR, IIRC -- search the forum for example posts), and some do not.

Covered in the wiki:

- US tax pitfalls for a US person living abroad - Bogleheads
- Investing from the UK for US citizens and US permanent residents - Bogleheads

Two points to note. Firstly, what Vanguard tells you is the case may or may not be the actual case when you come to put it to the test; their frontline reps sometimes have scant or zero knowledge of international issues, and appear at times to perhaps just make stuff up. And secondly, even if this is right at the moment, it may change later. Regular reinterpretation of international tax rules is a recent Vanguard trait.

Finally, there is talk that post-Brexit (sigh) the UK might relax this, at least for US domiciled funds and ETFs. This would be welcome news, not only for US citizens living in the UK, for whom this rule makes life even more difficult than the US's precious citizenship-based taxation already makes things, but also because it is, simply, mad that an Ireland or Luxembourg (or Germany, or France, or ...) domiciled S&P 500 or other index tracker fund is apparently perfectly fine for UK investors, but a US domiciled one is not.

Yes I've had various answers from Vanguard ranging from a phone rep saying that I can't buy funds from the UK, just sell and reinvest dividends and capital gains, to the email response I got. Some one on another forum regularly buys funds in his US Vanguard account from the UK so my email seems to reflect the current practice.

I have some money with Schwab because of their slightly better services for US expats, but do you know if US Schwab will allow a UK resident with pre-existing accounts at Schwab to buy US EFTs and mutual funds?

[TedSwippet]

I have some money with Schwab because of their slightly better services for US expats, but do you know if US Schwab will allow a UK resident with pre-existing accounts at Schwab to buy US ETFs and mutual funds?

No idea on specifics. In my own tentative, ongoing negotiations with Schwab, they told me for sure that as a UK resident I could not currently buy or use any US domiciled funds or ETFs in my own accounts (both taxable and IRA), but that they "expected" some possible relaxation in this, perhaps by September. Early stages with them for me. I'd very much like to get out of Vanguard before their deterioration in services renders them even more obstructive for non-US residents than currently, but I do not want to jump ship to something worse.

That said, I'm not in your situation. I don't hold any pre-existing Schwab accounts, and I am not a US citizen. Either or both of these could entirely change things, positively, or negatively. Shrug.

[nun]

I have some money with Schwab because of their slightly better services for US expats, but do you know if US Schwab will allow a UK resident with pre-existing accounts at Schwab to buy US ETFs and mutual funds?

No idea on specifics. In my own tentative, ongoing negotiations with Schwab, they told me for sure that as a UK resident I could not currently buy or use any US domiciled funds or ETFs in my own accounts (both taxable and IRA), but that they "expected" some possible relaxation in this, perhaps by September. Early stages with them for me. I'd very much like to get out of Vanguard before their deterioration in services renders them even more obstructive for non-US residents than currently, but I do not want to jump ship to something worse.

That said, I'm not in your situation. I don't hold any pre-existing Schwab accounts, and I am not a US citizen. Either or both of these could entirely change things, positively, or negatively. Shrug.

Yeah, as a US/UK dual citizen, when I move to the UK I'm trying to avoid Catch-22 situations. I'll probably open up accounts with Schwab before I leave to give me an option in addition to Vanguard. I'm not really considering UK brokerages because of my US citizenship.

[tonimann]

Thanks for the useful insights on this thread. Can anyone see any pitfalls for the individual investor if they continue to buy US-domiciled ETFs from a US brokerage such as Vanguard after they become tax resident in the UK (e.g. through auto-reinvestment of dividends)? There was a comment above about PRIIPS relating to the brokerage and not the individual, but would be interested if anyone has any further information.

[TedSwippet]

Thanks for the useful insights on this thread. Can anyone see any pitfalls for the individual investor if they continue to buy US-domiciled ETFs from a US brokerage such as Vanguard after they become tax resident in the UK (e.g. through auto-reinvestment of dividends)? There was a comment above about PRIIPS relating to the brokerage and not the individual, but would be interested if anyone has any further information.

As long as you take care to only buy and hold US domiciled ETFs that are UK reporting status, none that I can see. As already mentioned, PRIIPs applies to the broker, not to the individual investor.

That said, some US brokerages are reported to follow PRIIPs even though not explicitly regulated by the EU or UK. So far Vanguard US doesn't seem to be one of them, but that doesn't mean they might not follow at some future date.

[typical.investor]

This is great news, but seems to be at odds with what I've read about the restrictions on buying US domiciled funds by UK residents. Is there some nuance in the term "selling" that applies if you already have a US based account and buy them inside that account?

I will guess you are a long time Vanguard customer.

There have always been conflicting reports on what Vanguard allowed people to do, and it seems that those who were customers prior to rule enforcement being tightened (post 911) appear to be classified as a US investor even when they go overseas.

So I emailed Vanguard to ask what transactions I would be allow to make as a UK resident and this is their reply.

Just curious, did you mention anything about your street address? If you didn't maintain a US residence, I wonder if that changes their position. If you didn't say anything, perhaps they assumed you would keep your US address. If you specify that you would only have a UK residence, I wonder if it would change things.

So it's quite murky. I am pretty sure that recent Vanguard customers who leave their US address behind would not get similar treatment. I know I did not.