Go Back  British Expats > Living & Moving Abroad > USA
Reload this Page >

Individual stocks in ISA, does PFIC and other IRS regs still apply?

Individual stocks in ISA, does PFIC and other IRS regs still apply?

Old Jan 26th 2024, 9:00 am
  #1  
Just Joined
Thread Starter
 
Joined: Jan 2024
Posts: 4
donblount is an unknown quantity at this point
Default Individual stocks in ISA, does PFIC and other IRS regs still apply?

I understand reporting requirements and punitive taxations apply to ISA if you keep investing in ETFs, Mutual Funds etc. If you invest in single stocks like Apple, Microsoft etc does the onerous IRS regulations still apply?

For UK citizen with an existing ISA, can the person sell all the existing investments prior to moving to USA and then invest in normal stocks. Is this a way to continue to keep ISAs? I understand ISA no longer has the benefit of tax saving from a IRS perspective. But if the person is planning to come back to UK several years down the the line, can the investments be kept as single stocks until returning to UK. ie. without any sales that would attract capital gains tax. I understand dividends will still be taxable.
donblount is offline  
Old Jan 26th 2024, 1:26 pm
  #2  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 868
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Individual stocks, whether in an ISA or not, are not PFICs and are therefore not subject to PFIC taxation or reporting on Form 8621. The ISA itself though is a foreign account regardless of what the internal investments are and would need to be reported on Form 8938 with your IRS tax return, and on an FBAR, if the aggregate total of all foreign accounts meets the thresholds. As you state dividends, interest and any capital gains will be subject to normal taxation rates by the IRS. Cash and bonds also escape PFIC reporting and taxation, so that is another alternative if your ISA provider has any decent options available. You are clearly aware that you need to sell all PFIC type investments before leaving the UK to avoid the onerous reporting and taxation.

Last edited by Glasgow Girl; Jan 26th 2024 at 1:34 pm.
Glasgow Girl is offline  
Old Jan 26th 2024, 3:33 pm
  #3  
Forum Regular
 
Joined: Mar 2022
Location: New York
Posts: 129
porkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond reputeporkedpie has a reputation beyond repute
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by Glasgow Girl
Individual stocks, are not PFICs.
99% of the time. There are occasional exceptions, Scottish Mortgage being one. Just be careful if you buy any stocks in investment companies (threshold is 75% of income is passive of 50% of assets are passive).
porkedpie is offline  
Old Jan 26th 2024, 6:22 pm
  #4  
Just Joined
Thread Starter
 
Joined: Jan 2024
Posts: 4
donblount is an unknown quantity at this point
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by Glasgow Girl
Individual stocks, whether in an ISA or not, are not PFICs and are therefore not subject to PFIC taxation or reporting on Form 8621. The ISA itself though is a foreign account regardless of what the internal investments are and would need to be reported on Form 8938 with your IRS tax return, and on an FBAR, if the aggregate total of all foreign accounts meets the thresholds. As you state dividends, interest and any capital gains will be subject to normal taxation rates by the IRS. Cash and bonds also escape PFIC reporting and taxation, so that is another alternative if your ISA provider has any decent options available. You are clearly aware that you need to sell all PFIC type investments before leaving the UK to avoid the onerous reporting and taxation.
I understand that PFIC is quite onerous to complete. Is form 8938 and FBAR manageable? If so can one just retain ISA things invested in single stocks? Or is it better to get rid of ISA fully before moving to USA
donblount is offline  
Old Jan 26th 2024, 7:28 pm
  #5  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 868
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

The PFIC Form 8621 is very complex and extremely time consuming to complete. The FBAR and Form 8938 are simple forms and don’t take too long at all. If you can follow instructions they are easy to complete, whereas Form 8621 will likely need professional help, at least the first time around, and since it takes quite a few hours to complete (one for each fund) that can be very expensive. If you are happy to invest in individual stocks, bonds or cash then there is no need to close the ISA.
Glasgow Girl is offline  
Old Jan 27th 2024, 10:03 am
  #6  
Just Joined
Thread Starter
 
Joined: Jan 2024
Posts: 4
donblount is an unknown quantity at this point
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by Glasgow Girl
The PFIC Form 8621 is very complex and extremely time consuming to complete. The FBAR and Form 8938 are simple forms and don’t take too long at all. If you can follow instructions they are easy to complete, whereas Form 8621 will likely need professional help, at least the first time around, and since it takes quite a few hours to complete (one for each fund) that can be very expensive. If you are happy to invest in individual stocks, bonds or cash then there is no need to close the ISA.

Thanks you. This is very helpful.


A follow up question if I may. With normal ISA, one wont be able to avoid US taxes for dividend in ISA because the adult will likely be earing income in the USA. What about Junior ISA? If the child's total dividend income in Junior ISA (JISA) is low ( sets say few thousand dollars), will the dividend income of child be below the IRS threshold of taxation. It will be exempt from HMRC because it is in JISA. So in effect you can continue to have no taxes in both jurisdiction for JISA, if you dont have a lot of income in JISA. Am I thinking correct?
donblount is offline  
Old Jan 27th 2024, 3:11 pm
  #7  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 868
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

I’m no expert on tax on children but I am pretty sure that the first $1,250 of investment income is tax free, anything between that and $2,500 is charged at the child’s marginal tax rate which I assume would be 10% at those amounts, and anything above $2,500 will be taxed at the parents marginal tax rate. If the income exceeds $1,250 you will have to declare their income on your tax return, or file one on their behalf. Either way it won’t change the tax bill, it may just be more convenient to attach their income to your return. Google Kiddie Tax and that should provide more details. The amounts mentioned are for 2023, they likely are marginally higher for 2024.
Glasgow Girl is offline  
Old Jan 27th 2024, 3:27 pm
  #8  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 868
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Cool Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by porkedpie
99% of the time. There are occasional exceptions, Scottish Mortgage being one. Just be careful if you buy any stocks in investment companies (threshold is 75% of income is passive of 50% of assets are passive).
Scottish Mortgage is an Investment Trust, and all Investment Trusts, Unit Trusts, OEICs, and ETFs are PFICs. A confusing factor may be that Investment Trusts and ETFs are priced real time on the stock market, whereas Unit Trusts and OEICs are priced once per day. However they are all vehicles investing in a basket of underlying assets thus falling into the PFIC definition.
Glasgow Girl is offline  
Old Jan 27th 2024, 3:57 pm
  #9  
Just Joined
Thread Starter
 
Joined: Jan 2024
Posts: 4
donblount is an unknown quantity at this point
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by Glasgow Girl
Scottish Mortgage is an Investment Trust, and all Investment Trusts, Unit Trusts, OEICs, and ETFs are PFICs. A confusing factor may be that Investment Trusts and ETFs are priced real time on the stock market, whereas Unit Trusts and OEICs are priced once per day. However they are all vehicles investing in a basket of underlying assets thus falling into the PFIC definition.
What about buying shares of Berkshire Hathaway. They mostly invest in other companies. Will they be effectively considered as a PFIC?

donblount is offline  
Old Jan 27th 2024, 4:53 pm
  #10  
Just Joined
 
Joined: Feb 2021
Posts: 17
leuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond repute
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by donblount
What about buying shares of Berkshire Hathaway. They mostly invest in other companies. Will they be effectively considered as a PFIC?
Berkshire Hathaway is a US company and hence would not be a PFIC. OP wanted to know about UK companies. BRK also owns/operates a lot of companies directly rather than just invest in other companies (if it was a foreign company would need to look carefully at ratio of own operations and investments)
leuler is offline  
Old Jan 27th 2024, 4:58 pm
  #11  
Just Joined
 
Joined: Feb 2021
Posts: 17
leuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond reputeleuler has a reputation beyond repute
Default Re: Individual stocks in ISA, does PFIC and other IRS regs still apply?

Originally Posted by Glasgow Girl
The PFIC Form 8621 is very complex and extremely time consuming to complete. The FBAR and Form 8938 are simple forms and don’t take too long at all. If you can follow instructions they are easy to complete, whereas Form 8621 will likely need professional help, at least the first time around, and since it takes quite a few hours to complete (one for each fund) that can be very expensive. If you are happy to invest in individual stocks, bonds or cash then there is no need to close the ISA.
Fully agree with this. Also, you are likely to be completing FBAR and 8938 anyway if you have UK bank accounts, pensions etc and adding an extra account is then fairly trivial.
leuler is offline  

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service -

Copyright © 2024 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.