What to know about expat Americans living in the UK

  • To understand some of the financial complexities US expats face when living in the UK
  • To learn about the treatment of savings wrappers, such as Isas and Sipps
  • To grasp how to approach assets being brought in from offshore
What to know about expat Americans living in the UK

It was Winston Churchill who first coined the term ‘special relationship’ to refer to the close ties between Britain and America. 

The term was used in Mr Churchills’ “Iron Curtain Speech” given in March 1946 to a crowd in Fulton, Missouri.

In the 70 plus years since the former UK prime minister made his speech, the ‘special relationship’ has blossomed.

Today, the US and the UK are each other’s largest investor country; America is Britain’s top export destination and the US's second-largest trading partner. 

In 2016, the US State Department estimated that there are nine million US citizens living abroad and Britain has often been cited as the number one destination for US expats living outside their homeland, followed by France and Germany.

The Office for National Statistics estimates that there are around 140,000 Americans living in the UK (2017).

Despite the looming prospect of Britain outside the European Union, the UK is still seen as a favoured destination for Americans.

Yet for those US citizens currently living in the UK, or those in the process of moving, there are several important considerations when it comes to managing their wealth and financial affairs.

Various pieces of legislation, including the Hire Act, the Foreign Account Tax Compliance Act (or Fatca) and the Alternative Investment Fund Managers Directive (AIFMD), to name but a few, mean that any American living outside the US must contend with an alphabet soup of red tape and reporting requirements.

With this comes understandable confusion about where they can and can’t invest. For Americans living in the UK, the areas to consider can be broken down into four main categories.

Underlying investments

In the UK, the most common form of investment used is funds or collective investments that are usually either structured as Oeics or unit trusts.

These types of investments, however, if not structured in a US-friendly manner, are extremely tax disadvantageous for Americans as they are regarded as PFICs (Passive Foreign Investment Companies) by the Internal Revenue Service, or IRS and, as such, are taxed in a much more punitive manner than they would be for a non-US tax reporter.

In certain circumstances this can mean that the level of tax paid can completely wipe out any gain the investment makes.

It is not just the UK investments that require care. For those Americans who have passed through the seven out of nine tax years in the UK rule, or those who have gone past 15 out of 20 tax years after April 2017, are now taxed on an arising basis, they are now also subject to worldwide income and capital gains tax from a UK perspective.

This means that the UK will look at any investments that are held in the US.