US ETF , UK brokerage, UK resident, US citizen

Many thanks, both. Yes--Vanguard offers equivalent ETFs for most of the mutual funds, so like durhamlad I'm only aiming to exchange those for now.

The UK side is where I'm less certain: I haven't seen anything that suggests the exchange would trigger a UK liability, but if anyone's spent more time thinking-about/looking-into that side of things, I'd be grateful to hear where/how they landed.

Well the mutual fund is not on the UK reporting fund list, but the ETF is......so HMRC might take the stance that you would have to pay tax on any capital gain at the time of conversion even if it's done through Vanguard and there is no US tax. This would be nasty for future sales as you'd have a different cost basis in the US and the UK. Of course as the ETF is a share class of the mutual fund you could argue that the mutual fund also satisfies the UK reporting fund rules. You will have to ask HMRC or a qualified UK tax person. This is why it's important to get these financial things straight before you move.

I think there have been a few posts talking around this point, in various conversations on threading the needle with US ETFs and HMRC Reporting Funds, but has anyone been down the road of exchanging their holding in a Vanguard mutual fund for its HMRC-reporting Vanguard ETF equivalent after moving to the UK?

I'm just trying work through whether that exchange would give rise to taxation in either the US or UK--I wasn't privy to the issue before moving to the UK, and am now stuck looking at chunky gains on those funds, which are going to wilt under punitive UK treatment if I sell out.

I've done this exchange quite a few times and Vanguard is quite happy to do it even if you have a UK address on file with them.

As for the UK tax consequences, I believe that it should be non taxable as it is an exchange of one share class for another, within the same fund.

As for the UK tax consequences, I believe that it should be non taxable as it is an exchange of one share class for another, within the same fund.

I'm with you from a common sense point of view, but the US tax treatment of the transfer does not necessarily apply in the UK because the mutual fund is not on the UK reporting list. Maybe it satisfies all the rules so you could argue it is in fact reporting??

Practically speaking if you've filed SAs treating your Vanguard mutual funds as reporting funds and you do the transfer and continue to report in the same way I wonder if rC would ask any questions.



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As for the UK tax consequences, I believe that it should be non taxable as it is an exchange of one share class for another, within the same fund.

I agree otherwise it would be very difficult to keep track.  In the US it is zero tax and no paperwork to show what gain there might have been.  To pay cap gains in the UK you have to do all your own calculations, and then ongoing the cost basis is going to be totally different so you you would have to independently keep track of the UK version of the cost basis.

I agree otherwise it would be very difficult to keep track.  In the US it is zero tax and no paperwork to show what gain there might have been.  To pay cap gains in the UK you have to do all your own calculations, and then ongoing the cost basis is going to be totally different so you you would have to independently keep track of the UK version of the cost basis.

So you are saying that it's ok to treat Vanguard mutual funds as HMRC reporting rather than as foreign funds. I'd check that with HMRC first.

So you are saying that it's ok to treat Vanguard mutual funds as HMRC reporting rather than as foreign funds. I'd check that with HMRC first.

No, but the OP already has MF's so how is HMRC treating them now, and how does he do the paperwork and calculations to "sell" them and buy the equivalent ETF,  how does he then treat the ETF going forward since the reported basis by  the brokerage is now different to what he has reported to HMRC.  Can you suggest how to report the sale of a MF and purchase of the equivalent ETF when the brokerage says there has been no sale or purchase.

Assuming that he has been paying whatever taxes HMRC demands, e.g.  the dividends of a stock MF taxed as regular income, then going forward he now has an ETF with exactly the same value and cost basis of the MF, he has not made any cap gains taxable by the US so does he invent a cap gain to report to HMRC, pay taxes and do double accounting going forward?

Unless we have any actual examples or guidance from qualified tax advisors then all we are doing is speculating. This year I completed the conversion of my MF's to HMRC reporting  ETF's to avoid this issue next year but I am interested in how UK residents with MF's manage all this.

Let's say a UK resident owns Vanguard Total Stock Market Index Fund (VTSMX). This is NOT a UK reporting fund so they should declare any capital gains distributions and dividends as income for UK tax. The difficulty comes when the shares are redesignated as the ETF (VTI) which is UK reporting. I see the problem with different cost basis in the UK and the US, but if we are being strict I think you just have to deal with it. The key is to plan ahead so that you never have to worry about how HMRC sees VTSMX vs VTI.

Let's say a UK resident owns Vanguard Total Stock Market Index Fund (VTSMX). This is NOT a UK reporting fund so they should declare any capital gains distributions and dividends as income for UK tax. The difficulty comes when the shares are redesignated as the ETF (VTI) which is UK reporting. I see the problem with different cost basis in the UK and the US, but if we are being strict I think you just have to deal with it. The key is to plan ahead so that you never have to worry about how HMRC sees VTSMX vs VTI.

I agree with you completely and if  you are going to treat the conversion as if you sold the fund and paid UK Cap gains on the sale then you may not have a corresponding cap gain in the US against which to claim a tax credit so you may as well sell the fund and buy the ETF so that you are in synch going forward.

Personally I would take a risk and do the exchange without reporting it to HMRC unless a tax advisor told me otherwise. If HMRC come back to me and said ""last year you had shares in VTMX,  this year you do not, what happened to them?", then you can show exactly what happened, and that you did not make any cap gains.  I expect it would be a bit like owning shares in company "A" and company "B" acquires A, and all shareholders of A now have the same $ value of shares in B  but no cap gains or losses.

I agree with you completely and if  you are going to treat the conversion as if you sold the fund and paid UK Cap gains on the sale then you may not have a corresponding cap gain in the US against which to claim a tax credit so you may as well sell the fund and buy the ETF so that you are in synch going forward.

Personally I would take a risk and do the exchange without reporting it to HMRC unless a tax advisor told me otherwise. If HMRC come back to me and said ""last year you had shares in VTMX,  this year you do not, what happened to them?", then you can show exactly what happened, and that you did not make any cap gains.  I expect it would be a bit like owning shares in company "A" and company "B" acquires A, and all shareholders of A now have the same $ value of shares in B  but no cap gains or losses.

I agree. If you've been treating the mural fund as UK reporting I wouldn't rock the boat by reporting the transfer to the ETF. However, if you've been treating the mutual fund correctly for UK taxes and declaring capital gains and dividends as income I would declare the transfer. Best to be consistent.


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I agree with you completely and if  you are going to treat the conversion as if you sold the fund and paid UK Cap gains on the sale then you may not have a corresponding cap gain in the US against which to claim a tax credit so you may as well sell the fund and buy the ETF so that you are in synch going forward.

Personally I would take a risk and do the exchange without reporting it to HMRC unless a tax advisor told me otherwise. If HMRC come back to me and said ""last year you had shares in VTMX,  this year you do not, what happened to them?", then you can show exactly what happened, and that you did not make any cap gains.  I expect it would be a bit like owning shares in company "A" and company "B" acquires A, and all shareholders of A now have the same $ value of shares in B  but no cap gains or losses.

I agree. If you've been treating the mural fund as UK reporting I wouldn't rock the boat by reporting the transfer to the ETF. However, if you've been treating the mutual fund correctly for UK taxes and declaring capital gains and dividends as income I would declare the transfer. Best to be consistent just in case you get a call from HMRC.


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You will be able to take credit for dividend and capital gains tax paid in one country in the other, you just have to get the order and amounts correct. There is an instructive example on page 104 of the technical explanation to the treaty.

It is my understanding that a US Capital Gains dividend is considered by HMRC to be a return of Capital rather than a realised capital gain, so the two cannot be set off against each other as they are not the same thing.  In the UK it would reduce your basis cost, so it is taxable as a potential capital gains when you sell it - but I am unclear on this and welcome further comment.

With apologies to nun, my seconf paragraph of 2 Sept 15 was not a quote, but my own thoughts on the subject.
PL

I note that the Hargreaves Lansdown website (not an endorsement in any way - there are others I'm sure) lists quite a few, but not all of the Vanguard ETFs, with a US ISIN number and US domicile, and I believe that these would be considered NOT PFICS.  The question then is how to match them to the HMRC list of Reporting Funds.  As an example, the Vanguard Index Trust Stock Market Vipers (VTI) is listed on the Hargreaves Lansdown site as having a US domicile and an ISIN number of  US9229087690, and the ticker is VTI.  This fund is similarly listed on US sites under this ISIN no.,  but generally under the title Vanguard Total Stock Market Index Fund - ETF Shares.

HMRC lists ths fund as Vanguard Total Stock Market Index Fund - ETF Shares, similar to US sites, but it does not give an ISIN number or ticker.  But it does give the CUSIP number as 922908769, i.e. the same as the ISIN number but without the US domicile identifier and the trailing zero which I believe is there for padding rather then for any identification purpose.  it seems to me therefroe that both these listings refer to the same fund, and it is therefore a reporting fund that is not a PFIC, and so safe for both US and UK taxpayers to invest in without problems.

I would not say this if it had an ISIN number on the HMRC website beginning with IE which indicates Irish domicile - then it would be a PFIC I think.

In all I have identified 46 Vanguard Funds that satisfy both criteria on the HL website - this may change of course.

I would welcome a second opinion on this - I'm not a professional so my research is open to review and correction - and it would help me and others solve what seems to be a common roblem.

Thanks, PL

I note that the Hargreaves Lansdown website (not an endorsement in any way - there are others I'm sure) lists quite a few, but not all of the Vanguard ETFs, with a US ISIN number and US domicile, and I believe that these would be considered NOT PFICS.  The question then is how to match them to the HMRC list of Reporting Funds.  As an example, the Vanguard Index Trust Stock Market Vipers (VTI) is listed on the Hargreaves Lansdown site as having a US domicile and an ISIN number of  US9229087690, and the ticker is VTI.  This fund is similarly listed on US sites under this ISIN no.,  but generally under the title Vanguard Total Stock Market Index Fund - ETF Shares.

HMRC lists ths fund as Vanguard Total Stock Market Index Fund - ETF Shares, similar to US sites, but it does not give an ISIN number or ticker.  But it does give the CUSIP number as 922908769, i.e. the same as the ISIN number but without the US domicile identifier and the trailing zero which I believe is there for padding rather then for any identification purpose.  it seems to me therefroe that both these listings refer to the same fund, and it is therefore a reporting fund that is not a PFIC, and so safe for both US and UK taxpayers to invest in without problems.

I would not say this if it had an ISIN number on the HMRC website beginning with IE which indicates Irish domicile - then it would be a PFIC I think.

In all I have identified 46 Vanguard Funds that satisfy both criteria on the HL website - this may change of course.

I would welcome a second opinion on this - I'm not a professional so my research is open to review and correction - and it would help me and others solve what seems to be a common roblem.

Thanks, PL

I agree with your conclusions.....The ISIN number adds a country identifier (in this case US) and a trailing check digit to the CUSIP number. So the VTI on the H&L site is the US Vanguard VTI. Also note that it is traded on the NYSE and is denominated in US$

To nail down my point after a long winded post, I believe that it is the ISIN (International Securities Identification Number) that uniquely identifies the fund.  If this is the same as identified on different sites, then even if the name of the fund is different, it is in fact the same fund.  The CUSIP seems to be the identifier, based on the ISIN, which the US system uses for itself.
I found these two links useful:
http://monevator.com/avoid-income-tax-with-reporting-funds/
http://thunfinancial.com/american-expat-pfic-uk-non-reporting-fund-investment-trap-article/