UK/US dual citizen - investing in "dual reporting" funds with IRS & HMRC

hi all -

I am a U.S. national living in the U.K. - I have been here for many years, married and plan to stay. I wish to invest my GBP in largely local, GBP denominated investments. other than buying UK stocks and bonds directly, I want to allocate to ETFs (and wish to avoid the PFIC / tax nightmare that comes with many mutual funds).

This is trickier than most American's living in the U.K. who are happy to hold USD and invest in USD.

Does anyone have information on where I can find GBP / London traded ETFs or funds that satisfy the dual reporting with both the IRS and the HMRC. I found this link: newcomer link: https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds [nonactive]

but without tickers and many ISINs and CUSIPs missing, I was hoping to find more info. Many thanks for any assistance.

There are very few reporting funds, both because of the AIFMD and because it costs the fund managers money to become and remain HMRC reporting. Most American fund families focus on their core market; which is not the UK.

If you want Sterling based funds, you'd probably want to hold UK based funds that have made a QEF election; but these are incredibly rare and I am not aware of any available directly to retail investors.

I don't know of any UK funds that would not be PFIC, but US Vanguard ETFs are UK reporting........unfortunately these are all $ denominated. You can buy these funds through UK brokers like H&L.

http://www.hl.co.uk/shares/shares-search-results/v/vanguard-index-fund-total-stk-market-vipe?tab=security_details

You can buy these funds through UK brokers like H&L.

Is that possible? The Hargreaves and Lansdown account opening form requires one to make this declaration:

Investment Account only
I do not qualify as a US person under the Securities Act. ... I have read your dealing terms which are available at www.hl.co.uk/funds/terms or upon request. By proceeding you confirm that for tax purposes, you are solely resident in the United Kingdom and that you are not a citizen of the USA.

Referring to these H&L dealing terms reveals the further information:

U.S. Persons
In purchasing units in the fund, you warrant that:
You are not a U.S. Person
You are not purchasing the units as a nominee for, or for the account or benefit of, any U.S. Person
You will not transfer the units to a U.S. Person.

H&L helpfully provide a definition of  "U.S. Person according to Regulation S of the U.S. Securities Act 1933". Interestingly this does not actually use the words "U.S. citizen". But I once did the experiment of phoning H&L to ask about opening a stocks and shares dealing account as a U.S. citizen and was told they would not do this.

If Hargreaves and Lansdown won't sell to a "US person" then try the UK Schwab operation.

http://www.schwab.co.uk/public/schwab-uk-en/us-investing/us_expat_essentials

H & L will sell to Americans, as long as they are not U.S. persons. According to Wikipedia (so, take it with a pinch of salt, but I'm sure I read it elsewhere), using the 1933 regs quoted by H&L, simply being a U.S. citizen does not qualify you as a U.S. person, IF you're not living in the U.S.

https://en.wikipedia.org/wiki/United_States_person#Securities_market_regulation

My understanding of those regs is to basically regulate dealers of securities (although, I have absolutely no qualifications in U.S. tax or securities law.

I actually emailed H&L last year as I had previously opened accounts for my kids, and this was their reply:

"I can confirm that if you are a full time resident in the UK for tax purposes, then you are eligible to open and operate a Junior Stocks & Shares ISA. The aforementioned declaration regarding confirming that you are not a US citizen refers to being solely based in the United States. Even though you have dual citizenship in the US and the UK, because you are currently solely resident in the UK you would not be considered a US Person by our definition."

Hope that helps.

Also, as pointed out previously, there are some Vanguard funds that do the HRMC reporting. I made a spreadsheet about a year ago that converted the CISP numbers to ISIN (or whatever is required to find them easily over here), and there are some decent options, but none can be used in an ISA wrapper because they are not UK based. So, not sure if it really helps you. Anyway, the spreadsheet must be on my home computer (I might be at work right now), I'll try to upload it tonight so you can have a look

As promised, kind of. I've attached a list of 19 (I think) Vanguard funds that are included on the HRMC reporting list here:



I've just taken the CUSIP numbers supplied and run them through a little Python script to convert them to ISIN (the numbers look almost the same, but there is a check digit or something or other, I wrote the script last year!). I cannot guarantee the validity of any of the data.

I was working on the assumption that CUSIP numbers are used in the U.S. and Canada for securities identification, so am assuming they are U.S. based (so IRS is happy with that) and as they are on the HRMC reporting list, HRMC are happy too. However, I do not know for a fact the items listed are indeed U.S. based and do reporting required by the IRS. Use at your own risk!

Anyway, the original HMRC list is here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/606663/20170404-Web-List.xlsm

Since this costs Vanguard money and I do not know who is paying them to do this, they could cease being reporting funds at any date that Vanguard chooses. You might want to ask Vanguard if they have any plans to cease to offer reporting funds.

So does that mean my wife and son (who are US and UK citizens but now reside in the UK)  could invest in these funds without incurring the wrath of the US tax authorities? They haven't filed a tax return (due to low income) since they came here...

As promised, kind of. I've attached a list of 19 (I think) Vanguard funds that are included on the HRMC reporting list here:

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no - any U.S. citizen must file a tax return until the end of time. but they can invest in these funds to receive the most optimal tax treatment (as I understand it).

no - any U.S. citizen must file a tax return until the end of time. but they can invest in these funds to receive the most optimal tax treatment (as I understand it).

Not every US citizen is required to file taxes with the IRS, for example there are income limits.

that is true and could be particularly relevant for kids - not everyone needs to file. if you earn below something like $10K USD or $20K married ... not required by IRS.

that is true and could be particularly relevant for kids - not everyone needs to file. if you earn below something like $10K USD or $20K married ... not required by IRS.

But PFIC reporting may still be required in some circumstances even where there is zero income. An 8621 can be filed without a tax return. Children may also need to file FBARs.