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Stocks and Shares ISA

Stocks and Shares ISA

Old Mar 4th 2019, 9:23 pm
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Default Stocks and Shares ISA

I am a US resident with a legacy UK Stocks and Shares ISA with underlying OEIC investments. The ISA provider has recently changed its policy and now requires US Persons to sell or transfer all OEIC investments. This is not a FATCA issue (as ISAs are FATCA exempt) but a policy change by the ISA provider who is responding to feedback from its fund managers (as least that's what it's told me). I am neither resident nor ordinarily resident in the UK and don't want to sell the investments at this time as this will incur significant additional US costs and expenses.

Does anyone know of any UK ISA providers who are willing to accept UK non-residents for a transfer of an existing Stocks and Shares ISA?

If a transfer does not take place within 60 days, the ISA provider has informed me that they will just sell/liquidate the investments without consent. Has this happened to anyone else?

Any thoughts welcome. I'm happy to post any developments back to the forum as I learn more.
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Old Mar 4th 2019, 9:33 pm
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Default Re: Stocks and Shares ISA

ISA's are FATCA exempt?
I don't think you're exempt individually even if the provider that manages is it is exempt from reporting..
Link please...just to add to my body of knowledge.

And I believe Stocks and Shares ISA's won't get any preferential tax advantaged treatment from the IRS. Therefore no advantage in having them
In fact I think they're taxed at the maximum rate.

Honestly, why even bother with investments in the UK. Just liquidate and move to the US.
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Old Mar 4th 2019, 10:07 pm
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Default Re: Stocks and Shares ISA

See the 2012 UK-US FATCA agreement (Annex II) for exempt products (including ISAs). (I'm new to the forum so I can't post the url but the agreement is on the Treasury.gov website).

Although not FATCA reportable, my understanding is that ISAs are US taxable accounts.

There's a potential UK tax advantage in retaining ISAs if you return to the UK but there's also a potential tax disadvantage if the ISA provider is forcing the investments to be liquidated at a time of their choosing. (How can that even be allowed?)
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Old Mar 4th 2019, 10:47 pm
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Default Re: Stocks and Shares ISA

Originally Posted by Chris_NYC View Post
See the 2012 UK-US FATCA agreement (Annex II) for exempt products (including ISAs). (I'm new to the forum so I can't post the url but the agreement is on the Treasury.gov website).

I think that only applies to institutions but you as an individual have to report it on your 8938. (I could be wrong.)

Although not FATCA reportable, my understanding is that ISAs are US taxable accounts. Yes. They are. And potentially complex too.

There's a potential UK tax advantage in retaining ISAs if you return to the UK.
Yes, maybe, depends on what US status you've achieved, Green Card, Citizenship etc..big downside depending on future plans.

but there's also a potential tax disadvantage if the ISA provider is forcing the investments to be liquidated at a time of their choosing. (How can that even be allowed?)
True, it sucks, but it's in their small print. They can't be forced to maintain business with you. At least you can reinvest the assets very quickly.

Also,
https://johnschachter.com/internatio...xes-on-uk-isa/

Good luck with finding more info!

Last edited by Hotscot; Mar 4th 2019 at 10:51 pm.
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Old Mar 5th 2019, 8:47 am
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Default Re: Stocks and Shares ISA

From a US reporting perspective, the OEICs you currently hold require annual PFIC reporting on Forms 8621. The ISA accounts are reported on Form 8938 each year. As you mention, the disposal could result in a large PFIC tax liability. Have you elected for mark-to-market treatment on each Form 8621 to ameliorate this?
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Old Mar 5th 2019, 11:29 am
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Default Re: Stocks and Shares ISA

AJ Bell will open new accounts, and accept transfers, from US residents for SIPPs. Whether that applies to ISAs I do not know. As others have indicated, you seem to be mistaken in your view of ISAs from a US perspective and, if it was me, I would just get rid of them.

Last edited by MidAtlantic; Mar 5th 2019 at 11:33 am.
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Old Mar 8th 2019, 2:25 pm
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Default Re: Stocks and Shares ISA

Hargreaves will also open accounts I think but you can only hold equities which includes ETFs, IT's or individual stocks according to their helpdesk. I am preparing to move to the US and trying to decide what to do with my Fidelity-held ISA at present. They have told me they would liquidate it.

Has anyone experienced holding ETFs or IT's in an ISA as a US resident? I'm struggling to understand if this still falls under PFIC taxation?
Thanks
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Old Mar 8th 2019, 2:30 pm
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Default Re: Stocks and Shares ISA

Look at the link above.
Personally if I wanted to keep an ISA it would be cash.
If I was coming over here for an appreciable time I'd get rid of them. But that's me.

Last edited by Hotscot; Mar 8th 2019 at 2:36 pm.
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Old Mar 8th 2019, 2:52 pm
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Default Re: Stocks and Shares ISA

Thanks I did, it's just not that detailed when it comes to specific investment types ("It is beyond the scope of this briefing to discuss complex tax rules surrounding PFICs"). I understand OEIC's are definitely classed as PFIC but unclear on how entities deemed as shares would be treated from a tax perspective. Since I'm not sure how long I'll be out there for I'm trying to understand if it might be worthwhile taking a small US taxation hit on profits if ETFs for example are more favorably taxed, to maintain the long-term tax-free status of the holdings in there, if I come back within 5 years. Especially since there would be fees to liquidate, an exchange rate hit to ship out and back, and no tax-free investment vehicles out there other than a 401k which that could not be deposited in anyway.

I also came across this from Hodgen Law which suggests you could hold certain stocks and bonds without them being classed as PFIC:
(But in that scenario I'm not clear on how it's taxed, assuming it would just be standard income)

So how do I know if I have a PFIC?

The two criteria given in the PFIC definition in Section 1297(a) are known as the “income test” and the “asset test”.
  • The income test tells you to determine if 75 percent or more of the gross income of the corporation is passive. If it is, the corporation is a PFIC.
  • The asset test tells you to determine if 50 percent or more of the corporation’s assets are passive or are held for the production of passive income. If they are, the corporation is a PFIC. (Hint: Cash is considered a passive asset for the asset test.)
Note that your investment only needs to qualify under one of the two tests to be a PFIC.

What is “passive income” exactly?

Passive income for the purposes of Section 1297 is defined in Section 954(c). It includes things like interest, dividends, capital gains and losses, commodities transactions, foreign currency gains, and so on.

Bonds are not PFICs

Bonds are debts, not equities. In other words, if you own a bond, you do not have ownership in a company – you have ownership in a debt instrument. Therefore bonds cannot be PFICs, even though they produce passive income (interest).

Stocks can be PFICs

Stocks are equity ownership in a corporation. If the foreign corporation meets either the income test or the asset test, it is a PFIC.Most publicly traded stocks are not PFICs, because they are businesses producing primarily non-passive income and holding primarily non-passive assets. Take Nestle stock, for example. Nestle is a corporation organized under the laws of Switzerland, so it is a foreign company.Nestle has inventory, receivables, factories, warehouses, offices, etc on its balance sheet far in excess of cash. Those are all assets held for the production of non-passive income. The vast majority of Nestle’s assets are held for the production of non-passive income, so it does not meet the 50% or more passive asset test.Nestle’s income comes primarily from sales of products. That is non-passive income. The majority of Nestle’s income is not interest, dividends, capital gains, and so on. Nestle does not meet the 75% or more passive income test.We can be reasonably certain that Nestle is not a PFIC. Most companies you own stock in will behave this way, but it is important to remember that your stock in a regular company like Nestle can be PFIC stock if the company meets either the income test or the asset test.

Funds are usually PFICs

Mutual funds, exchange traded funds (ETFs), bond funds, currency tracking funds, and similar assets are all vehicles that make various investments and pay out a portion of the returns to you.A fund makes investments in corporations and various instruments on your behalf so that it can generate income such as interest, dividends, capital gains, foreign currency gains. These are all types of passive income, and indeed, typically a fund receives 100% passive income and 100% of its assets are held for the production of passive income. Foreign funds are usually PFICs.

How can you tell if your stock or fund is foreign?

Many times I have seen foreign investment accounts that hold US investments. If it is a US investment, it is not a PFIC, even if it meets the income test or the asset test or both.An easy way to determine whether your investment is US or foreign is to look at the International Securities Identification Number (ISIN), if one is provided. If one is not provided on your statements, you may be able to obtain it from the financial institution where your account is held, or you may be able to find that information on the Internet.The ISIN numbering system begins with a two-letter country code. “US” means it is a United States investment. If the first two letters of the ISIN are “US”, it is not a PFIC.
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Old Mar 8th 2019, 3:09 pm
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Default Re: Stocks and Shares ISA

To clarify I understand that certain ETFs which are US-domiciled with UK reporting status, individual equities, and bonds may not be taxed under PFIC rules. This is from an article on theamerican.co.uk: So, in summary, the following types of securities are considered tax-efficient for a US person living in the UK: •Individual shares •Individual bonds •US ETFs with UK reporting status •US mutual funds with UK reporting status

Although this is from the opposite perspective of a US expat
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Old Mar 8th 2019, 6:31 pm
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Default Re: Stocks and Shares ISA

Originally Posted by hfurb View Post
Hargreaves will also open accounts I think but you can only hold equities which includes ETFs, IT's or individual stocks according to their helpdesk. I am preparing to move to the US and trying to decide what to do with my Fidelity-held ISA at present. They have told me they would liquidate it.

Has anyone experienced holding ETFs or IT's in an ISA as a US resident? I'm struggling to understand if this still falls under PFIC taxation?
Thanks
I cannot think of a good reason to hold a PFIC after one becomes a US resident; UNLESS it is standing at a loss and you can use the loss to offset other US taxable income.
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Old Mar 8th 2019, 8:31 pm
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Default Re: Stocks and Shares ISA

Thanks for your reply - totally agree so maybe I wasn't clear but I was wondering if there was any way to maintain investments within the ISA wrapper for the tax advantage and investment growth, but not be taxed on it as a PFIC. As I understand it if you hold equities or bonds directly, or US-domiciled ETFs then that could be the case, as per a thread I found on UK Yankee. After further digging I couldn't find a UK platform offering the US-domiciled vanguard funds however, so I was interested to know if anyone in a similar scenario had found a workable solution other than liquidation. Even if this is workable though it seems I will have to liquidate the OEIC / funds I hold and transfer to appropriate non-PFIC investments. I did find a couple of threads which have gone dry and given that hargreaves have said they would hold IT's / ETFs / equities once I'm stateside I was just curious if anyone had found any successful investments. However I fear it's hijacked the original post so apologies!

Last edited by hfurb; Mar 8th 2019 at 8:46 pm.
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Old Mar 8th 2019, 8:40 pm
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Default Re: Stocks and Shares ISA

For some reason I cannot post URLs until I complete 5 posts....
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Old Mar 8th 2019, 8:41 pm
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Default Re: Stocks and Shares ISA

https://thunfinancial.com/home/american-expat-financial-advice-research-articles/american-expat-pfic-uk-non-reporting-fund-investment-trap-article/

"
However, over the last couple of years, a core of U.S. registered mutual funds and ETFs have been granted UK “reporting fund” status. For the U.S. taxpayer residing in the United Kingdom, therefore, these U.S. registered funds with UK “reporting fund” status represent an elegant solution to the Catch-22 of U.S. and UK investment taxation: they both avoid the PFIC trap in the United States and the “non-reporting fund” trap in the United Kingdom. Most importantly, although the list of U.S. funds with UK reporting status is not extensive, it now includes a core of excellent, efficient ETFs (mostly from the U.S. fund company Vanguard). From these funds a fully diversified, global investment portfolio of stocks, bonds, commodities and real estate can be constructed, just as Thun Financial builds for its global clients elsewhere in the world."

Last edited by hfurb; Mar 8th 2019 at 8:51 pm.
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Old Mar 28th 2019, 12:51 pm
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Default Re: Stocks and Shares ISA

Originally Posted by MidAtlantic View Post
AJ Bell will open new accounts, and accept transfers, from US residents for SIPPs. Whether that applies to ISAs I do not know. As others have indicated, you seem to be mistaken in your view of ISAs from a US perspective and, if it was me, I would just get rid of them.
Here is a response from AJ Bell: "as a business, we have decided not to offer ISA or Dealing accounts for US citizens or US residents due to increased running costs" and "it is possible to transfer an existing ISA to another ISA provider whilst being a non-UK resident but we do not allow this as our systems are not set up for this scenario."
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