US domiciled ETFs that are UK HMRC reporting funds

 lists Vanguard's US domiciled exchange-traded funds (ETFs) that meet UK HMRC reporting fund requirements.

US citizens and US permanent residents (green card holders) living in the UK can hold the funds listed below without running into problems with the US's harsh Passive foreign investment company (PFIC) tax regime, and also without running into higher UK tax because they hold HMRC non-reporting funds. The information in this article is specific to US citizens and US permanent residents who are UK residents.

Introduction
US citizens and US permanent residents (green card holders) living in the UK cannot use the normal range of UCITS funds and ETFs offered to other UK and EU residents, because of the way the US's citizenship-based taxation and harsh Passive foreign investment company (PFIC) tax regime intersect. For these investors, holding US domiciled funds or ETFs is one of the few viable ways to hold collective investment vehicles.

However, the UK also has rules that discourage some "offshore" fund holdings. Gains in a non-UCITS fund or ETF that lacks HMRC reporting status are taxed to the investor at higher income rates, rather than lower and more beneficial capital gains rates.

Many US domiciled funds and ETFs will not have HMRC reporting status. However, a selection of Vanguard's US domiciled ETFs are HMRC reporting funds. A US citizen or green card holder living in the UK can therefore invest through these ETFs without running into either country's unpleasant tax regime for "offshore" funds.

Vanguard US domiciled ETFs with HMRC reporting status
The following table summarises Vanguard US domiciled ETFs that a US citizen living in the UK can safely use in taxable accounts. These would also be safe to use in a UK Individual Savings Account (ISA), although for US citizens and green card holders the ISA wrapper only provides protection from UK taxes, not from any US taxes. The US will tax ISA gains annually as if it is a normal taxable account.

The table shows data from HMRC's approved offshore reporting funds list, as of 21 Dec 2022. This list shows funds by CUSIP. The mapping from CUSIP to fund exchange ticker uses data provided by DTCC, as of 21 Dec 2022.

Investors planning to rely on the information in this table should first check the above sources to ensure that the table data remains accurate. Also, note that this table is not an exhaustive list of all US domiciled ETFs that are HMRC reporting funds.

Problems caused by FATCA and PRIIPs
After FATCA in 2010, many UK financial institutions and brokerages started refusing accounts for US citizens and US green card holders, even those living in the UK. At the same time, some US brokerages began shutting off access for US citizens and green card holders living outside the US.

In 2018, the European PRIIPs (Packaged Retail and Insurance-based Investment Products) regulation became effective. One result is that it is now difficult or even impossible for residents of the EU community to purchase US domiciled funds directly (although indirect purchases potentially remain possible ). Shares purchased before the regulation came into effect can be kept and sold, but EU residents can generally no longer buy new shares of these funds or ETFs. The UK left the EU in January 2020, but created its own 'UK PRIIPs' regime that is fully aligned with the EU PRIIPs, so PRIIPs restrictions continue to apply in the UK.

US citizens and green card holders living in the UK can however use US brokerage accounts, if they have one available to them, to access US domiciled ETFs. Unfortunately however, the combination of these restrictions has made life tricky for US taxable person investors living in the UK, since it has severely limited the options for holding Vanguard US domiciled ETFs with HMRC reporting fund status.

Effects of ETFs gaining or losing HMRC reporting status
Investors should pay close attention to the "HMRC reporting since" column in the table above. HMRC has different tax rules where an ETF or other "offshore" fund is held by an investor outside of any period in which it is an HMRC reporting fund.

PFICs in UK pensions
Under regulations issued by the IRS in 2016, there is an exemption to PFIC reporting for any funds held in UK pensions. Here, the US/UK tax treaty protects US taxable person investors from PFIC rules, so that they can hold any funds that they like in a UK pension, without being affected by these rules.

Non-reporting funds in US pensions
Symmetrically with the above, the UK's HMRC reporting funds regime only applies to funds held outside of UK tax-sheltered accounts. Holding non-reporting funds in a US pension, including Roth accounts, causes no tax problems. (Also, no problems in a UK pension or ISA, to the extent that PRIIPs does not prevent their being traded at all inside UK based accounts.)