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UK to US, lifetime ISA options

UK to US, lifetime ISA options

Old Sep 7th 2023, 10:47 am
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Default UK to US, lifetime ISA options

Hi,

Moved from UK to US in July. Now a US permanent resident. Likely will nationalise in time (my wife is American); regardless, expecting to be in the US for the immediate future.

Before I left, I transferred my Lifetime ISA to AJ Bell - it's currently sitting as cash, so I'm not currently sitting on a PFIC issue.

Trying to work out my options with the money. I believe they are:
  1. close it. Would lose I think £5k or so in what appear to be unavoidable penalties. About £4k of that would be giving back up the government bonus and the rest out of my own pocket. Simplest but very annoying. if I could find a way to keep that £5k then of course that would be preferred.
  2. leave it as cash indefinitely, earning a somewhat meagre interest rate (and of course subject to US taxes on that).
  3. invest it in one or more non-US domiciled funds via AJ Bell and accept the PFIC pain. The least preferred option based on my research so far, still trying to understand the details of PFICs for various other reasons, but I realise it's not good.
  4. potentially: invest it in a US-domiciled ETF via AJ Bell (or another Lifetime ISA provider who accept US tax persons if one can be found) - has anyone had any luck with this? AJ Bell don't appear to offer any but I have messaged them enquiring further. I realise that there are various complications around investing in US-domiciled ETFs when a UK resident, which of course I'm not, but I'm also aware that AJ Bell will be mostly set up to handle UK resident needs, so I'm not hugely optimistic on this but will update if I learn anything interesting.
  5. invest directly in US stocks or other investments. Not a huge fan of this as I'm not a huge trader and not that interested in micromanaging a stocks portfolio myself, but haven't ruled it out.
For anyone who has gone through this, what did you do? In particular I'm interested to learn of any options for threading the needle and managing to invest in US-registered ETFs. And am I missing any other options?

Thanks!

Last edited by raggedyak; Sep 7th 2023 at 10:54 am.
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Old Sep 7th 2023, 1:16 pm
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Default Re: UK to US, lifetime ISA options

After several years, Option (1) will provide better total returns than Options (2) and (3). Unless you are very unlucky with your investments, the 25% hit on the bonus payments will be clawed back by the better returns available by freely investing in US based securities. In any case Option (3) is a disaster. The tax paid on PFIC profits is typically well over 50% when you have held them for more than a few years. And then there is the pain of PFIC reporting which is substantial. Whatever you do, avoid Option (3) unless you really think you will return to the UK and abandon your PR status. Fortunately you had the foresight to move into cash before your move.

On Option (4) don’t think you will find any funds available at AJ Bell or any other LISA administrator, that avoid PFIC issues, but if you do be sure to report that as many of us would be interested in such funds. I looked for years for such funds and came up short.

On Option (5) you can invest in any stocks listed on any recognized international exchange not just US stocks. However, what may be of more interest is that bonds (or bond funds) are not classified as PFICs. Therefore if there are any opportunities to invest in bonds within your AJBell LISA that may enable you to retain your LISA bonus with better investment rates than cash investments, the risk of individual share ownership and the significant PFIC ownership issues.

Of course you still have to pay US taxes annually on any investment gains whatever you do.

Last edited by Glasgow Girl; Sep 7th 2023 at 1:21 pm.
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Old Sep 8th 2023, 3:44 am
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Default Re: UK to US, lifetime ISA options

Originally Posted by Glasgow Girl
After several years, Option (1) will provide better total returns than Options (2) and (3). Unless you are very unlucky with your investments, the 25% hit on the bonus payments will be clawed back by the better returns available by freely investing in US based securities. In any case Option (3) is a disaster. The tax paid on PFIC profits is typically well over 50% when you have held them for more than a few years. And then there is the pain of PFIC reporting which is substantial. Whatever you do, avoid Option (3) unless you really think you will return to the UK and abandon your PR status. Fortunately you had the foresight to move into cash before your move.

On Option (4) don’t think you will find any funds available at AJ Bell or any other LISA administrator, that avoid PFIC issues, but if you do be sure to report that as many of us would be interested in such funds. I looked for years for such funds and came up short.

On Option (5) you can invest in any stocks listed on any recognized international exchange not just US stocks. However, what may be of more interest is that bonds (or bond funds) are not classified as PFICs. Therefore if there are any opportunities to invest in bonds within your AJBell LISA that may enable you to retain your LISA bonus with better investment rates than cash investments, the risk of individual share ownership and the significant PFIC ownership issues.

Of course you still have to pay US taxes annually on any investment gains whatever you do.
That's really useful - thank you very much. I was thinking about bonds as a potential option as well. And you are right that in the long run it's probably worth taking the penalty hit to close the lifetime ISA but it does grate!

AJ Bell came back to me (they are pretty prompt to reply, I'm impressed with that so far), and have said that they no longer offer US-based ETFs. They advise:

Unfortunately we cannot offer investing in US registered ETFs/funds to our retail customers.

Due to the PRIIPs regulation introduced in 2018 by the FCA, we can only offer collective investments (funds, ETFs, investment trusts etc)
to retail customers whereby the fund/trust manager has published a Key Information Document (KID) or Key Investor Information
Document (KIID) for that product.

This is a very specific filing separate to a factsheet or prospectus that, being introduced by the FCA, we find that most European registered
funds have published but US funds do not. This therefore means that we are unable to offer them.

Other than this particular regulation, there’s little other issues with these ETFs and we used to trade US ETFs fine prior to 2018 however this
regulation unfortunately ties our hands somewhat but as it’s a regulation rather than an internal AJ Bell policy, you’ll find the same
limitation with other brokers."

I take a few points from this:
  1. this is a regulatory compliance move rather than a technical limitation
  2. they don't offer US ETFs to retail customers - I wonder if this means that I'd be able to get the funds invested in a US ETF through an advisor that utilises AJ Bell (of course the advisor fees would need to be taken into consideration)
  3. if a US ETF that does publish a KID/KIID could be found, I wonder if AJ BELL would assist in buying into it even if not offered on the online platform? TBC, maybe such funds literally don't exist. Obviously the usual considerations of the fund performance etc. need to be taken into account even if one is found.
I'll dig a little further and update again with any new info I find.
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Old Sep 8th 2023, 8:19 am
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Default Re: UK to US, lifetime ISA options

If you're likely to become a citizen as you say, just close it as it will never give you any tax advantage anyway. You lose the 1k but that is what is it.
Yes you could psuedo-index through individual stocks or try bonds but the effort needed is huge for zero benefit. Take the hit and put it in a US account and fund.
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Old Sep 18th 2023, 4:57 am
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Default Re: UK to US, lifetime ISA options

Originally Posted by porkedpie
If you're likely to become a citizen as you say, just close it as it will never give you any tax advantage anyway. .... Take the hit and put it in a US account and fund.
This. ^ End of story.

If you are going to be a US resident long-term/ permanently, there is nothing but expense and inconvenience without any redeeming benefit, in holding on to UK financial investments. Sell up and move your money to the US, then get on with your life.
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Old Sep 18th 2023, 5:04 am
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Default Re: UK to US, lifetime ISA options

Originally Posted by porkedpie
If you're likely to become a citizen as you say, just close it as it will never give you any tax advantage anyway. You lose the 1k but that is what is it.
Yes you could psuedo-index through individual stocks or try bonds but the effort needed is huge for zero benefit. Take the hit and put it in a US account and fund.
Thanks, agree that this is looking like the way.
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Old Sep 18th 2023, 5:05 am
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Default Re: UK to US, lifetime ISA options

Originally Posted by Pulaski
This. ^ End of story.

If you are going to be a US resident long-term/ permanently, there is nothing but expense and inconvenience without any redeeming benefit, in holding on to UK financial investments. Sell up and move your money to the US, then get on with your life.
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Old Sep 18th 2023, 5:08 am
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Default Re: UK to US, lifetime ISA options

Thanks everyone for the thoughts. Looking like I'll just close it and move it across as suggested.

For posterity, here is the additional information I found on this topic:
  1. AJ Bell would not offer me access to US ETFs as a retail investor regardless of my residency. Their view is that they are bound by restrictions on selling these products on the basis that they are a UK based financial services company.
  2. if I could find a professional investment service, then yes potentially they could invest the lifetime ISA in US ETFs on my behalf, but for the amount of principle involved I suspect it's not worth the ongoing cost and hassle. Haven't really looked into it but adding that here as a possibility for others in future.
  3. could invest it directly in US shares etc. but again I suspect not worth it.
Thanks again all.
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