Investing: I'm British, my wife is American

Hi all!

Apologies if this question has been asked before, but the search function doesn't seem to be helping.

I'm a British citizen, and my (dual-citizen) wife and I live in England. I used to have an US green card, but I surrendered it when we moved here. She is part of a family business based in the US, so she files a (complex) US tax return every year. My only earnings are through a standard UK salary job.

I can't remember the terminology, but I have elected to be treated as a US resident/citizen for the purposes of her US taxes. This means a lower tax bill for us.

But it's put me in a bit of a pickle when it comes to investing (in particular, with a view to my son's college fund). Can't open a UK isa or mutual fund because it's a PFIC according to the US, fair enough.

So it seems like opening a US Roth IRA or a plain taxable US ETF (with reporting fund status) is the way forward. Does anyone happen to know if I can do either of these things? (I'm not worried about currency fluctuations because I would just pay in some of the wife's earnings in dollars.)

My status is a bit complicated because I'm a nonresident alien for IRS purposes, but treated as resident/US citizen for tax purposes, at least income tax.

I know I can't be the only person in this situation, so any thoughts welcome!

Well the easiest thing is to just let your wife file separately then your UK income would not be US taxable and you'd be able to invest in PFICs without any US tax consequences......I assume that you are applying FTCs and/or the FEIE. But if you choose to be treated as resident alien then the simplest thing to do would be to put the money in a UK long term savings account (usually called a savings bond in the UK) that simply pays interest. You can invest a lot this way without UK tax now, but if that's an issue you could use a cash ISA, but there will still be US tax on the interest. If you want a bit more risk buy a some US Vanguard ETFs through a UK low cost broker. They will be taxable in both the UK and the US, but you will get the usual dividend and capital gains tax free allowances and avoid PFIC and non-reporting funds issues. Another idea would be for US resident grandparents to open a 529 plan for your son, lots of foreign universities qualify...most UK universities are on the list.

http://www.savingforcollege.com/eligible_institutions/

Here's a US Vanguard ETF from H&L. You must be careful to only buy the US registered ETFs.

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

Well the easiest thing is to just let your wife file separately then your UK income would not be US taxable and you'd be able to invest in PFICs without any US tax consequences......I assume that you are applying FTCs and/or the FEIE. But if you choose to be treated as resident alien then the simplest thing to do would be to put the money in a UK long term savings account (usually called a savings bond in the UK) that simply pays interest. You can invest a lot this way without UK tax now, but if that's an issue you could use a cash ISA, but there will still be US tax on the interest. If you want a bit more risk buy a some US Vanguard ETFs through a UK low cost broker. They will be taxable in both the UK and the US, but you will get the usual dividend and capital gains tax free allowances and avoid PFIC and non-reporting funds issues. Another idea would be for US resident grandparents to open a 529 plan for your son, lots of foreign universities qualify...most UK universities are on the list.

http://www.savingforcollege.com/eligible_institutions/ [nofollow]

Here's a US Vanguard ETF from H&L. You must be careful to only buy the US registered ETFs.

http://www.hl.co.uk/shares/shares-search-results/v/vanguard-index-fund-total-stk-market-vipe [nofollow]

Thanks for this! This is very useful. I know what you mean about it being easier if my wife filed separately - it would also mean I don't need bank statements etc! But our accountants ran the numbers and our tax bill would be substantially higher in that case, sadly. There is always that option but once I choose not to be treated as a resident alien, I can't change my mind again.

Savings account interest in the UK is pitiful at the moment, so I'm looking to do some investing. (Got a decent amount in cash isas, any more cash would be a bit troublesome.)

I know what you mean about a 529 plan being an option -- in fact I believe that a Roth IRA is preferable because it avoids federal as well as state taxes. But there is that option. We have some family in the US who are looking at colleges now, and the prices are truly astounding - about $70k a year sticker price at the top end. To be honest I think the tax implications etc are a secondary matter - the important thing is just to start investing regularly now.

Another option of course is for me to take out a (second) UK pension scheme. They are not affected by UK or US taxes, and now that one can withdraw tax-free from age 55, it is tempting!

If you (an NRA) and your US citizen spouse have both jointly elected under IRC Section 6013(g) you are a US person for US tax purposes.

A UK pension scheme of the kind you describe is probably a foreign grantor trust; so would add significantly to your annual US reporting.

The key question is why filing separately increases your wife's overall global tax position. UK tax rates are higher than US tax rates. Is your wife filing on the arising or remittance basis in the UK?

Thanks for this, just to respond:

If you (an NRA) and your US citizen spouse have both jointly elected under IRC Section 6013(g) you are a US person for US tax purposes.

Thanks! Unfortunately I think this prevents me from opening a US domicile account through HL, of the sort suggested above: http://www.hl.co.uk/funds/terms [nofollow]

But does this mean that I can open an account with a US broker, or even a roth IRA? I've noticed that their websites tend to ask whether I am a 'resident alien', and I'm not sure what to say: as far as immigration, no; as far as tax... yes?

A UK pension scheme of the kind you describe is probably a foreign grantor trust; so would add significantly to your annual US reporting.

Are you sure about that? My understanding is that the UK-US tax treaty specifically allows for retirement schemes.

The key question is why filing separately increases your wife's overall global tax position. UK tax rates are higher than US tax rates. Is your wife filing on the arising or remittance basis in the UK?

The main point is that she doesn't really earn anything in the US (just a few thousand a year), and I don't earn anything in the US. Therefore (I think) precisely because UK tax rates are higher, the tax I've paid on my salary is credited towards what would have been her tax bill. (She also gets to claim me as an exemption.) She files on the arising basis in the UK.

Thanks! Unfortunately I think this prevents me from opening a US domicile account through HL, of the sort suggested above: http://www.hl.co.uk/funds/terms

You will find it almost impossible to open a US domiciled investment account without a US address. However, you can buy US domiciled Vanguard ETFs through UK brokers and platforms like H&L....the account is in the UK, but you buy an ETF that is traded on US exchanges that is therefore not PFIC and it is also HMRC reporting because the right paper work has been submitted by Vanguard. If you or your wife already has an investment account in the US you could buy the same funds through that as well and better still you could do it inside a ROTH IRA if your wife has earned income on her 1040 and avoid US and UK tax forever, but you should be aware of the withdrawal restrictions if this is to fund college....the restrictions aren't too bad though.

But does this mean that I can open an account with a US broker, or even a roth IRA? I've noticed that their websites tend to ask whether I am a 'resident alien', and I'm not sure what to say: as far as immigration, no; as far as tax... yes?

As I said opening a US account without a US address is almost impossible.....almost is important there...I have heard that Charles Schwab UK will deal with US expats and open ROTH accounts in the US.

Are you sure about that? My understanding is that the UK-US tax treaty specifically allows for retirement schemes.

The tax treaty allows for some good and sensible tax treatment of crossborder pensions. However, that does not change domestic tax laws or filing requirements. Guya did not say that you would necessarily pay more tax, but you filing would be more complicated. The exact US status of a non employer UK pension account is debatable, but the safest thing to do would be to treat it as a foreign grantor trust.

The main point is that she doesn't really earn anything in the US (just a few thousand a year), and I don't earn anything in the US. Therefore (I think) precisely because UK tax rates are higher, the tax I've paid on my salary is credited towards what would have been her tax bill. (She also gets to claim me as an exemption.) She files on the arising basis in the UK.

I think your best options to fund your son's college would be

1) ROTH IRA with existing US brokerage if you have one or Schwab UK
2) 529 plan set up by US grandparents that you gift them money to contribute.
3) US Vanguard ETFs bought through UK broker
4) UK savings bond/junior ISA...low risk and low returns and US taxable.

You will find it almost impossible to open a US domiciled investment account without a US address. However, you can buy US domiciled Vanguard ETFs through UK brokers and platforms like H&L....the account is in the UK, but you buy an ETF that is traded on US exchanges that is therefore not PFIC and it is also HMRC reporting because the right paper work has been submitted by Vanguard. If you or your wife already has an investment account in the US you could buy the same funds through that as well and better still you could do it inside a ROTH IRA if your wife has earned income on her 1040 and avoid US and UK tax forever, but you should be aware of the withdrawal restrictions if this is to fund college....the restrictions aren't too bad though.

Thanks for this! Unfortunately I think as I'm an US person (for tax purposes), I can't use HL to open a US-domiciled fund; their terms and conditions forbid it. My wife does have a Roth IRA through a Vanguard account that she opened before we left the US-- she's certainly planning to go for the max contribution in there.

Perhaps actually the best option is what you suggest, to use her investment account and I can buy some funds.

As I said opening a US account without a US address is almost impossible.....almost is important there...I have heard that Charles Schwab UK will deal with US expats and open ROTH accounts in the US.

Thanks for this I'll look more into Schwab. I do have access to several US addresses through my wife's family, but I don't have a US employer which they also seem to want. I'm hesitant to tick the 'resident alien' box on the form, because I'm not sure whether they mean for tax purposes or immigration purposes.

The tax treaty allows for some good and sensible tax treatment of crossborder pensions. However, that does not change domestic tax laws or filing requirements. Guya did not say that you would necessarily pay more tax, but you filing would be more complicated. The exact US status of a non employer UK pension account is debatable, but the safest thing to do would be to treat it as a foreign grantor trust.

Thanks I didn't know that! At the moment I've been investing by making voluntary overpayments to my UK employer pension scheme, so that can go on for awhile.

I think your best options to fund your son's college would be

1) ROTH IRA with existing US brokerage if you have one or Schwab UK
2) 529 plan set up by US grandparents that you gift them money to contribute.
3) US Vanguard ETFs bought through UK broker
4) UK savings bond/junior ISA...low risk and low returns and US taxable.

Thanks, I agree! Roth IRA would be the gold standard I think, because hopefully there'll be a lot of tax-free growth over the next 18 years!

For my own 'play' investments, I would very much like to open a taxable US account... maybe Schwab is the best bet.

Thanks for this! Unfortunately I think as I'm an US person (for tax purposes), I can't use HL to open a US-domiciled fund; their terms and conditions forbid it. My wife does have a Roth IRA through a Vanguard account that she opened before we left the US-- she's certainly planning to go for the max contribution in there.

That's one of the many issues of filing jointly. The bigger picture hear is that you are severely restricting your UK investment opportunities. As a British citizen in the UK it's silly that you can't take full advantage of things like ISAs. I'd think again about your choice.

That's one of the many issues of filing jointly. The bigger picture hear is that you are severely restricting your UK investment opportunities. As a British citizen in the UK it's silly that you can't take full advantage of things like ISAs. I'd think again about your choice.

Respectfully, that may be true but it's also not the question I asked. UK investment opportunities aren't really a worry for me- we may move to the US again in the future anyway (after Trump is out of office, at least), and I'm long-term sceptical about both the UK economy and the pound. So I would be looking to invest in something more US-focused anyway.

So a US equity fund inside an ISA would be good. You can invest in US stocks with a UK brokerage and if you don't have a US connection you get all the tax advantages of an ISA.
If you keep yourself as a US resident so your wife can file jointly then I'd look at Schwab, give then a call at

0800 917-1039

If that doesn't work then your options are limited.

Is the accountant who is advising you to file jointly located in the US or the UK?  I can't imagine an accountant in the UK would reach that conclusion.

Hi Britonn,

This is quite a complex area and as a number of people have advised, it is increasingly difficult to manage US assets whilst living in Europe.

We have been working with US clients for the past 30 years, due to our relationships have been able to work with a domestic US custodian, who is happy to open a brokerage account/IRA/401(k) for a US expat.

With regards to an additional Pension, a SIPP would be considered a foreign grantor trust and should be reported on your 3520 form. In addition, we would suggest investing the underlying investments in assets compliant from both a US and UK point of view.

If you would like to discuss in further detail you can send me a direct message.

Kind regards

Is the accountant who is advising you to file jointly located in the US or the UK?  I can't imagine an accountant in the UK would reach that conclusion.

Our accountant is dual-qualified, and spends about 6 months of the year in each place.