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Topic: Buying HMRC-Reporting US-listed ETFs via a UK share account  (Read 2317 times)

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Can one buy US listed ETFs that are HMRC Reporting funds using a funds account with a UK firm, or would this still fall foul of IRS PFIC regulations?

I have found various US based ETFs (the ones with CUSIPs) that are listed by HRMC as reporting funds (http://www.hmrc.gov.uk/collective/rep-funds.xls [nofollow] ). As the funds are HMRC reporting the gains should be considered dividends and capital gains, rather than income, by HRMC. As the funds are US based I would hope that the IRS would not apply PFIC rules to them and thus not consider the gains as income. However, as I want to buy the ETFs via an account provided by a UK company (e.g. H&L) I am a little worried.

I'm assuming that a UK company would probably not provide me with 1099-DIV and 1099-B. Will that be a problem in filing my US taxes?



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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #1 on: July 09, 2013, 03:18:56 PM »
I'd try to avoid UK brokers if at all possible because of the ridiculous fees they charge, they are far higher than US brokers.

I don't think it's possible to buy US mutual funds through a regular UK fund supermarket, you'll need one of the financial firms specializing in expat investing. Two I know of are

http://www.thunfinancial.com

http://www.iwm.eu.com/

but I expect both of those options to have expensive fees.

If you have a US address you can open an account with US Vanguard and invest in Vanguard ETFs directly or you can buy individual stocks through a UK or US broker as those have no negative tax consequences, but you'll have to keep good records for tax purposes.

One piece of advice I'd give to someone thinking of becoming a US expat is to open a Vanguard account before they leave so they can continue to invest in the USA.
« Last Edit: July 09, 2013, 03:28:36 PM by nun »


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #2 on: July 09, 2013, 10:41:24 PM »
I took a look at the H&L Vanguard ETFs and as long as you avoid "Vanguard plc" funds I think you'll be ok. Definitely check with H&L and get the CUSIP number of any fund to make sure, but it looks like the Vanguard Index Funds ETFs are the same ones as are offered in the USA. They are NYSE and country is USA etc.


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #3 on: July 10, 2013, 12:20:55 PM »
My thanks to 'nun' for mentioning our firm iwm.eu.com.
We're not expensive! We're with you fellows - pay as little as we can for the trade and custody - we run a course for non-clients on what the costs are, and how to drive them down (among other techniques).
The question is how to buy low cost US ETFs. We think the broker HL does not make it clear whether they are continuing to deal through an institutional broker and simply putting a layer of fees on top: and they have platform fees. We don't always find ETFs that cheap when you add in the non-disclosed expenses, and we don't like buying a whole sector (we can't pick and choose for better security): so above $200k we prefer to buy directly. But if you really wanted ETFs, our partner firm in the USA confirmed in April 2013 it can open accounts at a US broker for NRAs and USC abroad, and we would be happy to make an introduction. No fee from our end and our partner firm takes no commission and will add a small admin fee for compliance :}
Robert Noble-Warren
Chartered Tax Adviser


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #4 on: July 10, 2013, 03:36:37 PM »
My thanks to 'nun' for mentioning our firm iwm.eu.com.
We're not expensive! We're with you fellows - pay as little as we can for the trade and custody - we run a course for non-clients on what the costs are, and how to drive them down (among other techniques).
The question is how to buy low cost US ETFs. We think the broker HL does not make it clear whether they are continuing to deal through an institutional broker and simply putting a layer of fees on top: and they have platform fees. We don't always find ETFs that cheap when you add in the non-disclosed expenses, and we don't like buying a whole sector (we can't pick and choose for better security): so above $200k we prefer to buy directly. But if you really wanted ETFs, our partner firm in the USA confirmed in April 2013 it can open accounts at a US broker for NRAs and USC abroad, and we would be happy to make an introduction. No fee from our end and our partner firm takes no commission and will add a small admin fee for compliance :}


I've been looking at the costs of investing in the UK and I've been amazed at how expensive it can be. I'm a DIY investor and try to keep my costs as low as possible so H&L's constant recommendations of funds with 1.5% management fees plus the platform costs really gets my blood boiling.

In general if you are a US citizen living in the UK and you want to keep investing costs down and avoid tax issues the easiest thing to do is to make sure you have a US brokerage account with someone like Vanguard, Fidelity etc before you leave the USA. That way you can buy inexpensive Vanguard ETFs and avoid IRS PFIC and HMRC non-reporting fund rules. If you buy Vanguard ETFs through Vanguard there will be no transaction fees and the annual expense ratio could be as low as 0.05% and you can come up with an asset allocation appropriate for your situation. The issue you'll always face when going to an advisor or a place like H&L is their belief in active management, you'll pay for that and IMHO it just isn't worth anything in the long run.

I know nothing about robnw's firm other than what's on the web, but if you are having difficulty opening a US brokerage account because of residency issues you might look into the things he mentions......as always ask about fees upfront.
« Last Edit: July 10, 2013, 05:35:19 PM by nun »


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #5 on: July 10, 2013, 06:02:45 PM »
nun, robnw,

Many thanks for your responses. I have found funds in H-L whose ISIP numbers correspond to the CUSIPs in the HRMC spreadsheet. e.g.:

On HMRC spreadsheet: Vanguard Index Funds - Vanguard Mid-Cap Growth Index Fund - ETF Shares  (CUSIP:   922908538)
On H-L: Vanguard Index Fund Vanguard Mid-Cap Growth ETF (ISIN: US9229085389)

 I'm with nun in that I'm not a fan of active management and the fees involved. I had assumed that H-L would just charge me to buy or sell an ETF; is that not the case? Are their currency conversion rates poor?

I do have a US Vanguard account but would prefer not to have regular currency transfer fees in order to make monthly or quarterly additions to my investments. However, if the fees are bad enough they may outweigh the inconvenience.

There may be other disadvantages to investing through a UK broker. I think I would have to fill out a W-9 and it sounds like H-L thinks that would cause them to have to withhold 30% on all dividends.


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #6 on: July 10, 2013, 09:07:53 PM »

Many thanks for your responses. I have found funds in H-L whose ISIP numbers correspond to the CUSIPs in the HRMC spreadsheet. e.g.:

On HMRC spreadsheet: Vanguard Index Funds - Vanguard Mid-Cap Growth Index Fund - ETF Shares  (CUSIP:   922908538)
On H-L: Vanguard Index Fund Vanguard Mid-Cap Growth ETF (ISIN: US9229085389)

Yes I saw this and the registration of the Vanguard Index Funds is the USA which is whay I said they looked like the US funds and would be ok wrt PFIC and HMRC reporting, but I'd double check to make sure that the CUSIP is definitely the one you want.

Quote
I'm with nun in that I'm not a fan of active management and the fees involved. I had assumed that H-L would just charge me to buy or sell an ETF; is that not the case? Are their currency conversion rates poor?

You'll be charged for each trade and dividend reinvestments and those can add up. Also will your US citizenship ring any FATCA bells with H&L?

Quote
I do have a US Vanguard account but would prefer not to have regular currency transfer fees in order to make monthly or quarterly additions to my investments. However, if the fees are bad enough they may outweigh the inconvenience.

There may be other disadvantages to investing through a UK broker. I think I would have to fill out a W-9 and it sounds like H-L thinks that would cause them to have to withhold 30% on all dividends.

Going directly with the US Vanguard sounds easier to me. You'll get all the required US tax forms and then be able to fill in the UK self assessment. Maybe invest a couple of times a year to keep the foreign exchange fees to a minimum.


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #7 on: July 11, 2013, 12:48:35 AM »
You'll be charged for each trade and dividend reinvestments and those can add up. Also will your US citizenship ring any FATCA bells with H&L?

Eek, a new acronym! What does FATCA stand for/mean?

I still have a non-reporting fund in Vanguard that I haven't decided what to do with yet (it's "income" from dividends etc. is well below £2k so currently looking at it on a remittance basis) so I am thinking maybe I should buy any new ETFs through my TD Ameritrade or Invesco accounts in the US (which have negligable amounts of very some very badly performing dot.com stocks that I never got around to selling) in order not to muddy the waters of my Vanguard account HRMC-wise?


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Re: Buying HMRC-Reporting US-listed ETFs via a UK share account
« Reply #8 on: July 11, 2013, 02:31:14 AM »
FATCA is the Foreign Account Tax Compliance Act, you'll need to file a FATCA form with the IRS if you have above a certain amount in a foreign account. I assume you already know about FBAR which requires a similar form if you have over $10k in foreign accounts. Anyway the issue with FATCA is that foreign financial institutions have to inform the IRS about the accounts of any US citizens so many foreign banks and brokerages are dubious about taking or keeping US clients.

How HMRC taxes your foreign dividends etc will depend on your UK tax status. I don't see why you should avoid buying the Vanguard ETFs in the Vanguard account. You'll have to deal with the Vanguard non-reporting fund when you become liable to UK tax. If you are taxed on a remittance basis now it would be a good time to transfer the non-reporting Vanguard fund into a reporting one.

I'm a US/UK dual citizen and when I return to the UK I'll be taxed on my worldwide income on an arising basis by the US and the UK. So, before I move back to the UK I'm going to sell all my non-retirement US assets to realize capital gains and park them in a money market for a couple of months before moving them to a lazy  Vanguard ETF portfolio.


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