“I was born in the US but became a permanent UK resident at the age of six. I have been a dual UK/US citizen for 31 years. Yet my US citizenship means I am treated as a pariah by most UK investment platforms,” one reader told the Investors’ Chronicle earlier this year.
We have often written about how having lived in two different countries can bring a host of tax complications. For example, one reader recently realised they had been paying tax on their pension to the wrong country – their German state pension should have been taxed in Germany, rather than the UK, where they live.
UK residents with a US passport face by far the biggest hurdles, particularly when it comes to investing. A number of DIY platforms, including Interactive Investor, Bestinvest, Fidelity, Vanguard, Freetrade and Trading 212, simply do not accept US citizens. On AJ Bell, they can only open a Sipp, not an Isa or a general investment account. Among the major platforms, their options are restricted to Hargreaves Lansdown, Interactive Brokers and Charles Stanley.
This has to do with tax complications, trading restrictions and reporting requirements that platforms have to deal with in the case of US citizens. For example, Fidelity says it doesn’t accept US citizens because “the investments made available through our platform include clauses in the fund prospectus which prohibit distribution to US persons, and also because the funds haven’t been and will not be registered under specific Acts”.
On top of the difficulty of finding a platform, there are the many individual tax complications. Our reader says that while they do not wish to renounce their US citizenship, they are “actively considering it due to the amount of tax reporting required”.
Alex Straight, partner at Blick Rothenberg, explains that the US taxes its citizens and green card holders regardless of where they live in the world. At the very least, this means that they have to report the likes of bank accounts, investments and certain pensions to the US’s Internal Revenue Service (IRS); sometimes, there can also be US taxes due.
“There are domestic US and UK tax rules and a US/UK double tax treaty to help ‘referee’ who gets to tax what. This provides relief from double taxation for common items such as wages and interest,” Straight explains.
But it still leaves a number of complications, including the fact that Isas are not recognised as tax-free accounts in the US. As a result, investing in non-US funds within an Isa can lead to gains being taxed as income and penalties applied on top.
US taxpayers in the UK are “constantly trying to please both the IRS and HMRC by reporting everything they need to, and trying where possible to fit in the middle of a Venn diagram of investments, accounts and income streams that work for both countries”, Straight says.
Of course, the tax part has nothing to do with platforms. And platforms are for-profit companies; it makes sense that if there isn’t enough demand for a service to justify the cost and effort, they won’t provide it. Still, as with the case of investment clubs, when certain people and groups are left with fewer options to invest, it feels unfair. In a country such as the UK, whose investment culture is generally in need of a boost, it also feels like a missed opportunity.