Avoiding long term currency fluctuations

I've been in the UK for about a year now. I'm saving my GBPs into mutual funds back in the US. However, I think I'll be in the UK for quite a few years and I want to avoid any currency fluctuation issues over the life of my investments, so can I do that by buying US funds that invest in UK based companies or a FTSE Index fund?

Investing in the USD shareclass of US Funds investing in UK companies will not do the trick for you because they themselves hedge the currency risk. In other words, it won't be the negating effect you are hoping for.  One way to do it is either to subscribe to a GBP shareclass if the fund offers it OR buy currency forwards each time you send your GBP back to the U.S.  If you are sending back smaller amounts, XETrade offers you forwards.  I used MoneyCorp to send a medium size amount back to the US and it appears they offer forwards to those who plan on sending larger amounts (the rep asked me if I planned on sending back more than 100K in GBP over the next year).  Feel free to contact me offline if you would like to discuss this further.

I am just ever so slightly cautious here because:

1. The US mutual funds give rise to 40% (not 18%) UK CGT if sold while UK resident, and
2. The forward contracts will attract UK CGT at 18% from 6 April 2008 (in addition to US short-term tax rates)

So in summary the non-dom changes will impact these strategies dramatically!

I have a contact with a money exchange broker if that is of any help.  They can discuss all these issues, so please PM if interested.

Vicky

I am just ever so slightly cautious here because:

1. The US mutual funds give rise to 40% (not 18%) UK CGT if sold while UK resident, and
2. The forward contracts will attract UK CGT at 18% from 6 April 2008 (in addition to US short-term tax rates)

So in summary the non-dom changes will impact these strategies dramatically!

Wow is that 40% because I'm non-domiciled in the UK? I thought you only paid 40
% on remitted CG if they fell above the 40% basic rate income tax limit. I have no problem in paying UK tax rates, but 40% on all remitted CG would be bad.

What's a US citizen to do when it comes to investing when in the UK. Foreign mutual funds are off limits because of US tax laws and now we have to pay 40% CGT on US mutual funds if we sell them and move the money to the UK. I was thinking of buying a flat, but I have to sell some US mutual funds to get the money.

One way to avoid 40% CGT is to invest in mutual funds through an IRA.  Albeit, you can only invest up to $5000 in 2008 and you cannot already be a part of a employer sponsored plan (401K for example). 

It will be interesting to see how the nondom tax issue plays out when the budget is announced.  I know Darling has taken a lot of heat from industry associations and financial institutions who have threatened to leave the UK if the tax is imposed.  It would have been fair for him to have a sliding scale tax - because the proposed law, as it stands, still benefits the oligarchs (30K is a drop in the bucket for them AND they don't have to disclose nontaxable offshore assets) and punishes those who are not in that bracket.  However, the nondom tax is only applicable for those who have stayed here for 7 years or longer without filing to become a UK resident.  So again, if you've just moved here, the point above on the nondom tax is somewhat moot.  Correct me if I am wrong.

One way to avoid 40% CGT is to invest in mutual funds through an IRA.  Albeit, you can only invest up to $5000 in 2008 and you cannot already be a part of a employer sponsored plan (401K for example). 

I have no US income, so I don't think I can fund an IRA

The IRS taxes you on worldwide income.  Therefore, you do have income.  You may want to check with your own financial advisor, however I am certain that it can be done.