Non-UK Reporting Funds for Americans in the UK

For many Americans living in the UK, the term Passive Foreign Investment Company, or PFIC, is one that many will discover if they were not fortunate to have done so before moving to the UK. Although the PFIC tax regime is not new, more and more people are becoming aware of the adverse US tax consequences and investment restrictions associated with it. The subject has gained an increasing amount of consideration in recent years, but a similar issue involving the UK tax code has received less attention.

While PFIC’s are subject to punitive tax treatment under the US tax code, the UK applies a similarly unfavorable tax rate to funds that are “non-reporting”. The result of this is that Americans investing in the UK often fall foul of the PFIC rules, and those who try to avoid this by investing through a US account risk investing in funds that are not UK reporting.

So, what is the best way to navigate this?

This will largely depend on the individual’s and family’s own specific circumstances. Someone electing to be taxed on a remittance basis may need a different strategy to someone being taxed on the arising basis. Similarly, someone on a short-term secondment will probably have quite a different approach to someone who intends to remain in the UK for a long and indefinite period. For example, you move to the UK owning a non-UK reporting fund and you stay for 5 years. You then decide to return to the US and then sell the fund when you are no longer tax resident in the UK. In this scenario the non-reporting nature of the fund becomes irrelevant. However, if you decide you want to change that fund whilst living in the UK, or you end up staying longer than planned, you could end up paying tax on the gains at 45%. The risk is that the investment decisions start to be led by the tax outcome, not whether the investment itself is the best option.

Understanding which country to open an account in and what types of structures are going to be the most tax efficient, now and in the long run, is an important step of the investment process. This will determine whether non-UK reporting funds are likely to even come into the equation. In situations where a US account is the most appropriate option or where someone already has a US account open, it is important to consider what that account is and whether non-UK reporting funds are going to be an issue.

Despite many funds in the UK and the US being tax inefficient for Americans in the UK, there are some US registered funds that are UK tax reporting. It is also possible to avoid these issues by investing in individual stocks and bonds. However, depending on the size of the portfolio and the time and resources available for research, this can potentially create other issues such as increasing the investment risk through a lack of diversification.

Non-UK reporting funds are just one of many aspects of US/UK financial planning that require more thought than the typical considerations of somebody that does not have to worry about two different tax codes. Other considerations such as currency and retirement accounts are separate topics in themselves. The movement between GBP and USD over the past 20 years means that you could be substantially better off or worse off in retirement, depending on where you end up residing and which currency you hold most of your assets in.

Despite the complications of investing for an American in the UK, this should not deter someone from making smart financial planning decisions. Equally, being an American expatriate should not mean that financial advice to help make these decisions is unattainable. Cross Border Financial Planning USA specialize in creating flexible financial plans, with cross-border tax considerations factored into the investment process. If you would like to find out more about how we can help, please email Edward Cole at

Cross Border Financial Planning USA LLC is an investment adviser located and registered in Pennsylvania.  Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the State of Pennsylvania.  Cross Border Financial Planning USA LLC only transacts business in states in which it is properly registered or is excluded or exempted from registration.  A copy of Cross Border Financial Planning USA LLC’s current written disclosure brochure which discusses among other things, Cross Border Financial Planning USA LLC’s business practices, services, and fees, is available through the SEC’s website at: