Advice on Investing as an expat in the UK

[seeking626]

So I am a 23 M and I have U.S Citizenship. I currently working and living in the U.K after graduating from university this year in the U.K. I wanted to know the best route to invest into index funds, open a brokerage account etc. whilst I am in the U.K. I currently have a Robinhood account registered in the U.S with a U.S bank account (I send money that I make at my job from the U.K to my U.S bank account). I’m planning to stay in the U.K for a couple more years, however, I still want to be able to invest into index funds/open accounts whilst I’m in the U.K. I am a beginner investor so I would appreciate any advice on how to go about this. Also, should I reach out to a professional account advisor or something?

 

[rainylynn1980]

@seeking626 You're in a bit of a tough spot as a US citizen, because of various conflicting requirements on US and UK investors. This page has a discussion of some of those issues, and a list of index funds that should be "safe" from a US and UK tax perspective (always double check and do your own research, though).

 

[whitesunshinee]

@seeking626 I would avoid anything with PFICs on it. I am unsure if you can open up anything like an ISA in the UK as an american citizen, if you could it might help but I still think you would get taxed.

I would play safe and invest back in the US or through a US brokerage. If the exchange works out well you could potentially save more!

There is some good info on a few expat websites:

• Experts for Expats
• Investments For Expats

They are more UK based but have US content on them that might help understand the situation a bit more!

I hope this helps!

 

[seeking626]

@whitesunshinee Do you think opening a TD Ameritrade Account and sending my U.K money to the TD account investing in U.S based index funds is ok? I plan to pay U.S taxes on any gains within the TD Ameritrade account.

 

[stephendisraeli]

@seeking626

Do you think opening a TD Ameritrade Account and sending my U.K money to the TD account investing in U.S based index funds is ok?

If the US-based funds are not "HMRC reporting", then they will receive disadvantageous tax treatment by the UK.

 

[seeking626]

@stephendisraeli Is this disadvantageous tax treatment really bad? As in would it still be worth sending money to my TD Ameritrade account for investments?

Also, is it legal for me to send U.K money to U.S brokerages for investments whilst I live in the U.K? I am asking because I don’t want to open an account only for them to seize all the money and close my account or something :/

 

[stephendisraeli]

@seeking626

Is this disadvantageous tax treatment really bad?

Yes. Not quite as catastrophic as PFIC treatment, but up to 45% tax instead of up to 20%.

https://www.verfides.com/uk-taxation-of-reporting-and-non-reporting-funds/

 

[kwellham]

@seeking626 Stick to US based stuff. Don't touch any UK mutual funds as they will be a PFIC for you. Big taxes and complex. Stick to RH trading.

 

[seeking626]

@kwellham Does this mean it’s ok to create a TD Ameritrade Account and invest into U.S based index funds? I plan to pay taxes on any earnings with those index funds or any other capital gains I make with my U.S money/U.S accounts.

 

[kwellham]

@seeking626 That sounds reasonable. You will also get something around $105,000 per annum of foreign earned income exclusion. Meaning your UK income won't be taxed in the US (but you'll have to pay UK income tax of course).

 

[stephendisraeli]

@kwellham

You will also get something around $105,000 per annum of foreign earned income exclusion.

However, capital gains, dividends and interest are not earned income and hence are not touched by the FEIE.

 

[kwellham]

@stephendisraeli Unless you're taking out a PFIC investment then it will be US based anyway?.....

 

[stephendisraeli]

@kwellham Not every possible investment domiciled in the UK would be a PFIC. Single stocks, or interest from accounts or bonds (even though this is mostly a theoretical option in todays low-interest financial environment), or income from renting out property.

The UK should have higher overall tax rates, so using the FTC instead of the the FEIE may result in the same tax outcome and more flexibility (FTC credits can be carried forward for several years and backward for one year) at the price of slightly more effort.

 

[shybow]

@kwellham My understanding was that the cap gains would be foreign sourced income - https://www.irs.gov/pub/int_practice_units/ftc_c_10_02_05.pdf

 

[kwellham]

@seeking626 You'll be back walking the fine line of a US expat wanting to open an investment account. Might be able to, might get knocked back (in the real world). But good point on the foreign tax credit system Vs FEIE. However FTC is more common for expats earning huge bucks I thought?