What to know about expat Americans living in the UK

These are few and far between but are available. Ensuring that the fund maintains this status is imperative.

There is a similar solution for the UK offshore fund rules.

There are a (small) number of US mutual funds and ETFs that have obtained ‘UK reporting status’, meaning they report the necessary information to the UK to ensure they are taxed in the same way as ordinary UK funds.

Both these options require an investor to choose from a limited pool and leave little option for sophisticated investment planning.

Another option is to invest in individual stocks and bonds. These individual assets are taxed under the normal regimes in both jurisdictions and give broader investment selection. There is also the potential to buy individual stocks that qualify for advantageous tax treatments on their dividends.

Pensions

In brief, the US and the UK have a pension treaty that means that any employer-sponsored pensions are considered by both jurisdictions in the manner they are treated in their home country.

This means that any investments within them are immune from any of the negative tax treatment discussed previously.

However, the water has been muddied since the dawn of private pensions and more specifically Sipps (self-invested personal pensions), as there is no specific reference made to these in the US/UK pension treaty.

Sipps are commonly set up as trusts and so could potentially fall under the ‘Foreign Grantor Trust’ rules in the US. 

This means they will need to file additional reporting information and to be transparent from an IRS perspective.

For those who end up deciding to stay in the UK for longer periods of time, or want to invest money in the UK, the structure of their offshore assets becomes extremely important.

This transparency would mean the underlying investment again must be reviewed, because, much like the Isa, the most common investment available within these products would fall foul of the PFIC rules.

Given the ambiguity in this area from a tax perspective it is difficult to provide a hard and fast ‘solution’. We like to find the path of ‘least regret’.

Should the IRS decide that Sipps are in fact foreign grantor trusts, then ensuring the money is not invested in assets that are taxed punitively is key. This prudent approach ensures that whichever the IRS decides, there will not be a negative tax surprise further down the line.

Structure

This may not be the most commonly reviewed area but where the investments are and how they are structured can be just as important as where they are invested.