Challenges Faced by US Citizens Living in the UK
                     Challenges facing US citizens living in the UK
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Challenges facing US citizens living 
in the UK
High net worth US citizens living in the UK face a number of complex challenges 
when it comes to allocating and investing their assets, from IRS and HMRC dual 
reporting requirements to conflicting tax considerations.
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Rules and Regulations
Reporting obligations to the IRS and HMRC:
• T he US taxes the worldwide income and capital gains of all US citizens regardless 
of where in the world they live.
• T he US Bank Secrecy Act states that every US citizen, Green Card holder or 
resident must file a report of Foreign Bank and Financial Accounts (FBAR) if they 
have a financial interest in (or signatory authority over) foreign accounts worth 
$10,000 or more during any one tax year. This includes US beneficiaries of foreign 
trusts.
•  The passing of the Hiring Incentives to Restore Employment (HIRE) Act in the 
US and its Foreign Account Tax Compliance Act (FATCA) provisions were set up 
with the explicit aim of tackling offshore tax evasion. The Act requires all Foreign 
Financial Institutions (FFIs) to report all significant accounts held by US taxpayers 
to the US  Internal Revenue Service (IRS).
 
•  The UK’s introduction of a ‘stay-related’ threshold (resident for seven of nine years) 
automatically attracts UK income tax residency status. UK resident non-domiciles 
have to pay either an annual levy to HM Revenue & Customs (HMRC) and continue 
paying tax on a remittance basis, or they must declare their income and gains 
on US (and offshore) assets and pay tax in the UK annually on an arising basis. 
Beginning in April 2017 anyone resident in the UK for 15 out of the last 20 years will 
no longer have a choice and will be required to pay tax on an arising basis. The vast 
majority of Americans living in the UK elect to pay tax on an arising basis anyway 
and are therefore taxed by the UK on their global portfolios.
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Tax Issues
• I nvesting in UK or offshore ETFs, Unit Trusts and OEICs will cause them to fall • T he way the IRS classifies UK pensions is complex and beyond the scope of 
foul of the IRS’s Passive Foreign Investment Company (PFIC) rules. this paper. Most SIPPs would be classified in the US as ‘foreign trusts’. As a 
‘foreign trust’, growth within a SIPP is fully taxable. Fortunately, the UK has 
•  They will be taxed aggressively by the IRS and all gains may be subject to a treaty with the US that may allow the US taxpayer to claim the SIPP is a 
taxes and penalties of up to 100% of the growth in value of the investment. Foreign Pension and thus the growth in value will be tax deferred. This same 
provision may also protect the growth in company pension arrangements 
•  Utilising UK-based savings arrangements such as ISAs and SIPPs may have from becoming US taxable. Additional US trust reporting may arise for 
unattractive US tax consequences for US citizens resident in the UK. ISAs individuals. Many US citizens may consider using a QROPS as a potential 
do not enjoy a tax deferred status in the eyes of the IRS and the US  tax pension  structure. However, care should be taken as the transfer of assets 
consequences of SIPPs are even more complex. from a UK pension to an offshore QROPS is usually considered a US taxable 
event, and the QROPS may also not be covered by the valuable treaty 
protection on any future growth in value.
• H MRC classifies the growth of most US Mutual Funds and Exchange Traded 
Funds (ETFs) as Offshore Income Gains (OIG) and the growth is taxed at 
the individual’s marginal income tax rate rather than at capital gains tax 
rate. This is because the vast majority are Unregulated Collective Investment 
Schemes (UCIS) without reporting status. For most wealthy Americans, 
this would mean being taxed at up to 45% on all gains made on their 
portfolios. This can be exacerbated if the foreign exchange rate moves in an 
unfavourable direction. The net result is that there is a much larger gross UK 
tax liability for Americans who own US Mutual Funds or US based ETFs.
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Investment consideration
It is essential to appreciate that Americans are taxed on a worldwide basis, irre- There are a number of key considerations in developing an appropriate investment 
spective of where income/gains arise. strategy and it is important that they are not looked at in isolation.
Coupled with the past and upcoming changes to the domiciliary rules in the UK, •  Are any of the current investments US Mutual Funds and possibly taxed at 
this creates an additional set of challenges for US citizens living and working in income tax levels in the UK?
the UK. Their investments need to be risk-managed, currency-sensitive and tax- •  Are any of the current investments PFICs for US purposes?
compliant. An experienced investment adviser should also consider whether there • A re the client’s US education (529) plans structured appropriately for UK 
are any tax-efficient or tax-planning opportunities. residents?
• H ave appropriate tax wrappers been used to ensure that the currency of 
assets matches the client’s long-term liabilities?
• Are the client’s foreign tax credits being used effectively?
•  In the case of couples who are of dual nationality, an understanding of the 
framework of both tax jurisdictions is vital.
•  In the case of entrepreneurs, careful wealth structuring can result in flexible 
investment options.
• A  deep understanding of legacy plans for US families can be of significant 
benefit when developing a wealth plan.
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Getting good advice Our Service
There are many reasons why Americans living in the UK should seek out the advice We provide an integrated wealth management service that encompasses the 
of an experienced wealth manager who understands their specialist circumstanc- implementation and ongoing monitoring of US clients who need:
es and is authorised and regulated to give advice in the UK and the US. It is virtually 
impossible for investment advisers to adequately advise US citizens if they are not • Wealth structuring
fully aware of the intricacies of US investment tax law, retirement planning and • Investment strategy
estate planning. MASECO is authorised and regulated by the Financial Conduct • Tax-efficient investing
Authority (FCA) in the UK and by the Securities Exchange Commission (SEC) in • Estate and Trust structuring
the US. Its founding partners each have close to 15 years’ experience specialising • Philanthropic considerations/Charitable Giving
in this complex area. • Relationship management
Although MASECO does not provide tax, legal or accounting services, we have 
a deep understanding of where they fit in the process. When required, we work 
closely with a network of expert US/UK tax advisers and lawyers. This professional 
network can help implement the complex tax and legal issues facing US citizens 
and we are happy to make appropriate introductions for you if required. 
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The MASECO solution
Portfolio management: • Custody is regulated by the SEC. 
MASECO has developed market-leading strategies and structures specifically de- •  Investments avoid coming under the IRS’s Passive Foreign Investment 
signed to cater to the needs of Americans overseas. Our portfolio management Company (PFIC) rules. 
service includes managing assets within: 
US funds with UK reporting status: 
• Taxable Accounts  • W e  generally invest our clients’ assets in pooled funds that are subject to 
• SIPPS Capital Gains Tax treatment in the UK (28%) versus Offshore Income Gains 
•  IRAs – including assistance with consolidating 401K plans of 45%. Clients may also use their annual CGT allowance against the growth 
• ISAs in these funds. 
• Trusts  •  US tax-efficient and subject to 15-20% capital gains tax in the US, whereas 
• Donor Advised Funds PFICs can be taxed at up to 100% of the gain. 
•  The funds are tax managed from a US perspective with the purpose of reduc-
US custody: ing US taxes. 
There are a number of reasons why it may be beneficial for Americans living • W e use institutional funds that are typically comparatively inexpensive. 
abroad to invest globally but have their money custodied in the US: 
Retirement accounts and planning: 
•  No FBAR – avoids up to 50% US tax penalties on filing mistakes on non-US •  We help our clients make use of tax-advantaged retirement vehicles such as 
based assets. IRAs, 401ks and Roth IRA. This may help to reduce their tax burden. 
• 1099 US Tax reporting – makes life easier. 
•  Lower fees – custody and transaction costs are much lower in the US compared Reporting and record keeping: 
with most other places in the world. • C onsolidated reporting in the UK and the US irrespective of where the assets 
• Tax-efficient accounts. are custodied. This allows for more accurate asset allocation and performance 
•  US collective investments are typically much cheaper than offshore collective reporting. 
investments. • GBP tax year activity reporting. 
• I f the custodian goes bankrupt clients are typically covered by $500,000 • USD calendar year tax reporting.
SIPC (Securities Investor Protection Corporation) insurance and excess SIPC 
insurance. 
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MASECO Private Wealth is not regulated to provide tax advice either in the US or the UK. We strongly recommend that every client seeks their own tax advice prior to acting on 
any of the strategies described in this document.
MASECO LLP trading as MASECO Private Wealth.
Registered office at Burleigh House, 357 Strand, London, WC2R 0HS | Registered in England and Wales, Number OC337650
MASECO LLP is Authorised and Regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate tax advice. MASECO LLP is a Securities and 
Exchange Commission Registered Investment Adviser in the United States of America.
[email protected]
+44 (0) 207 043 0455 | +1-888-MASECO1
 MASECOPRIVATEWEALTH.COM
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