ISAs and other non-US Investments

Expat investment options

Expat investment options can take many guises, but are broadly broken down into two categories: onshore or offshore. Although, for many expats, the offshore investment option is considered more favourable due to its tax benefits.

In the US, you are taxed on your worldwide income and gains. The US also have some punitive rules for holding some common investment structures such as ISAs, investment bonds, and OEICs. For example, while ISAs provide tax advantages in the UK, they don't provide the same advantage in the US and, in most circumstances, come with a significant tax disadvantage.

If you are an expat with existing ISAs, it is wise to explore potential options which could be more tax-efficient in both the short and longer term. 

Beware USA taxation on existing PFIC investments

Passive foreign investment company, or PFICs, are non-US investment funds, such as mutual funds, hedge funds, and Exchange-Traded Funds (ETFs). UK tax wrappers, such as ISAs, are also classified as PFICs.

These PFICs are subject to draconian taxation by the Internal Revenue Service (IRS). This means that taxation can often wipe out any profit they generate. There’s also additional administration to consider, as you must file a report to the IRS for each PFIC you hold.

Understanding your investment options as an expat can be complex and confusing. Getting the right advice is crucial to ensure you don’t fall foul of the more complex investment rules or end up paying unnecessary tax. Talk to one of our wealth advisers for independent advice about your course of action.

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