American expats in the UK face unique and frustrating challenges when it comes to investing. This article explains why it's so difficult, answers the most common questions expats have, explores potential solutions, and highlights what options may be available, especially for those with limited wealth.
As the numbers of Americans leaving the US grows, the UK is one of the most popular destinations to relocate and start a new life. The similarities in language and culture are obviously huge draws, but as with relocation to any other country, it also brings with it a number of frustrating challenges, specifically when it comes to investing.
At Experts for Expats, we deal with thousands of American expats every year, and questions around investing are always high on the list. Our experience is that whether you’ve recently relocated or have lived in the UK for a number of years, it’s likely that you’ve encountered barriers when trying to open investment accounts, invest in funds, or even make use of traditional tax-efficient savings options that other UK residents rely on every day.
It’s also likely that you’ve approached independent advisors for help and been turned away because you’re under their minimum investment amounts.
These are just some of the challenges American expats face whether they live in the UK or elsewhere in the world. This guide outlines the key issues American expats face when investing from the UK, offers potential solutions, and answers some of the most frequently asked questions from our community.
Please be aware that this article is intended for information purposes only and does not constitute financial, tax, or legal advice. This article was created following a webinar held in October 2024 and while every effort has been made to keep the information up-to-date and relevant, every individual’s circumstances are unique, and you should not make any decisions based solely on the content of this article. You must always consult an independent, regulated professional with cross-border (UK and US) expertise before taking any decisions.
The primary issue stems from the fact that the United States is one of the only countries in the world that taxes its citizens regardless of where they live. This unique tax system means that even if you’ve lived outside the US for decades, you will still be subject to IRS rules and annual US Federal tax filing requirements.
The introduction of the Foreign Account Tax Compliance Act (FATCA) means that many UK-based financial institutions either refuse to work with Americans or severely limit the investment products available to them.
If you’ve ever been told “sorry, we can’t help” by a UK based adviser or platform, FATCA is likely to be the root cause. For some firms, the additional costs that come from IRS scrutiny mean that smaller investment amounts are simply not cost effective for either the investor or the firm, hence why people with under €250k to invest will often be unable to get formal advice.
On top of this significant barrier, the IRS classifies many popular UK investment options, including mutual funds and ETFs (Exchange Traded Funds), as Passive Foreign Investment Companies (PFICs), which are taxed heavily and come with highly complex reporting obligations.
Despite these significant barriers and complications, there are options available for you to investigate, depending on your personal circumstances. You will always face a challenge if you are investing smaller amounts, but you could consider looking into any or all of the following.
Some US brokerages will maintain investment accounts for Americans living overseas, allowing you to access US mutual funds and ETFs that are IRS-compliant. Be aware that not all firms offer this service and those that do may still have asset minimums and/or restrictions based on your UK residency.
A bespoke solution for many US expats is an IMA which is an investment portfolio tailored to your specific circumstances as an American expat. IMAs are created with tax efficiency and UK/US cross-border compliance in mind and will often use IRS-recognised assets. They are typically managed by firms experienced in working with US-connected individuals.
UK pensions (eg SIPPs or employer provided schemes) may be possible although their treatment by the IRS is not consistent. While UK tax rules around pensions may offer benefits, these do not always align with US tax treatment. If you are in any doubt about a pension and how it will be treated by the IRS, it is essential to understand the specific structure of your pension and you can do this by speaking to an independent financial advisor with cross-border expertise.
As part of our service, we offer a free discovery call and while this is not designed to answer specific questions, below are a number of questions which American expats regularly ask. We’ve provided these general answers, but you should seek advice if you are unsure or if anything is unclear.
While you can invest in a Stocks and Shares ISA, they are still taxed by the IRS. Not only does this mean that the benefit of being a “tax-free” account is lost, but the underlying investments are highly likely to be PFICs, taxed by the IRS at a punitive rate (see above). Therefore, the most sensible answer is no, it is usually best to avoid Stocks and Shares ISAs.
Yes. If your foreign accounts exceed $10,000 (when all combined) during the year, you must file FBARs in the US.
While renouncing your US citizenship is always possible, it is a serious step and can result in an exit tax and permanent loss of certain rights. It can be a complex process, and it should never be done without independent, specialist advice.
US tax treatment of UK pensions varies depending on the structure and the application of the US/UK tax treaty itself. Reporting is typically required, and tax benefits which you may receive in the UK may not be replicated as tax advantages in the US.
Without doubt, the biggest challenge that American expats face is trying to get formal, independent advice – not because it’s not possible, but because of the barriers already mentioned.
This often means that people with under $100k are left with very few, if any, options which is incredibly frustrating given you will be told to avoid doing things on your own.
Without expert help, Americans living in the UK will often miss opportunities or, even worse, face expensive compliance issues.
In addition, many well-meaning advisers in the UK do not fully understand the implications of working with US citizens, leading to decisions that seem sensible locally but can create serious problems with the IRS. Although in most cases, UK financial advisors will know not to work with US citizens as a matter of course.
At Experts for Expats, we try to connect people like you with independent, trusted professionals who are experienced in both US and UK cross border issues, but even then our partners cannot always help.
Our free introduction service will attempt to connect you with a qualified specialist, without obligation, so you can get some degree of clarity before you commit to any course of action.
Investing as an American expat in the UK can be complex, especially if you have limited wealth. Unfortunately, it’s more complex than just choosing the right fund or platform due to FATCA and the complications which descend from the reporting requirements.
It’s essential that your financial plan is aligned with the laws and tax systems of both countries (the US and the UK in this case) but with the right support, you can still make compliant decisions about your investments, and we’d like to try and help.
If you’d like to request an introduction, please use our free service and you will potentially be eligible for a free discovery call with one of our trusted partners. Even if they cannot provide you with formal advice, they may be able to put your mind at rest that you’re doing everything by the book.
