PFIC....
 

Hi all,

My question in a nutshell is - is a UK-based Stocks and Shares ISA automatically deemed a PFIC for US tax purposes or is it dependant on the nature of its holdings?

With absolutely no idea what I was doing, I took out a S&S ISA seven years ago when I inherited some money and to my great good fortune the pot has grown very well during that time.

I've tried everything to find out what and with whom the actual investments are but all I can discern is that it's comprised of 85% stocks and 15% bonds.

I'm due to move to the US next year and in an ideal world I'd love to retain this S&S ISA as it's doing really really well at the moment but having Googled the dreaded PFIC rules I'm not willing to take on that world of hurt.

Any advice greatly appreciated!

Re: PFIC....
 

Are you a US person today? If not, why not sell and re-invest within the ISA wrapper in more American friendly investments?

Re: PFIC....
 

No it is entirely dependent on the holdings within the S&S ISA. A S&S ISA on its own is not a PFIC each position is either a PFIC or it is not

e.g. a U.K. registered mutual fund is considered to be a PFIC

a U.K. registered REIT is often a PFIC as well so you want to be mindful of the stocks you hold to make sure they are not passive income producing companies as these will also fall under the PFIC rule.

Bonds will often be held in a fund so be mindful if they are in a mutual fund as these would be PFIC's

I think there are some U.S. reporting mutual funds that do not classify as pfic's as the mutual fund is registered in the U.S.

That being said, that is an area which i have less knowledge of so others might want to comment on that front.

If you are moving back to the U.K. it might be worthwhile to keep the ISA but if you are not planning to return an in-specie contribution to a U.K. Pension might be worth considering if you want to keep the PFIC's as they are currently held.

My experience of the PFIC rules are that PFIC's held within a U.K. pension scheme are exempt from the PFIC rule as they are not directly directly held by the individual investor. The pension scheme is the beneficial owner and you are merely a beneficiary and do not have enjoyment of the asset.

There is an investment consultancy firm that our business refers these cases to in the U.K. who I could provide details of if this is an avenue you want to look at further.