Investing as a US person living in the UK

[boringmath]

So I am currently living in the UK and i just turned 18 meaning I got access to my trust fund. I have decided that I wanted to invest this money by opening a stocks and shares ISA (specifically with trading 212). So when I tried to open an account, it told me I could not as I am a "US person" (I was born with duel citizenship USA and UK). Upon further research I discovered the reason why many UK banks do not allow US persons to open ISAs. The short answer is: Under FATCA, non-US banks and other “foreign financial institutions” are obliged to report to the IRS – as provided for by inter-governmental agreements signed by the governments of the various jurisdictions in which the relevant financial institutions are located, and the US government – on the assets held by their American clients. In other words U.S. laws, like FATCA, require foreign banks and investment firms to report accounts held by U.S. citizens to the IRS and many dont want to go through the hassle of that so they wont let us open an account to begin with. Also i was told [im not sure if its true but it sounds it] that the USA doesn't recognize ISAs as a tax free savings account so even if I managed to get an ISA i might not get any benefit from it. So I would like to know, what options do I have for investing/growing my money as a US person living in the UK? (I have plans of probably moving back to the USA in the future as this seems to be the simplest way to solve this issue but not for a minimum of 5 years because i have to finish college and than uni. Yes I looked into revoking my US citizenship and it is not an easy process and you have to pay a lot for it)

I can’t answer, but just to say it sounds complex - be aware, my friends have to pay tax in both countries on the same income (UK taxes AND additional tax in the US).

Also their UK pension payments would have an equivalent amount taken off (negating a large part) from their monthly US pension

We're dual US/UK citizens and it's the type of ISA you tried to open that's the problem AFAIK. We all have ISAs, but not the stocks and shares ones - just the regular ones. You can also buy premium bonds and the US govt won't tax those, but the IRS doesn't recognise certain investment vehicles that are tax-free to UK citizens.

Soooo if you don't mind, could you give me a quick walkthrough of how to open a "normal" ISA account or alternatively direct me to a resource that teaches me how?

Cash ISAs can be opened like bank accounts from any local bank branch or online.

It's unfortunate you've been caught up in the US citizen tax system mess. For your investing problem, I recommend looking up "American Expatriates for Residency Based Taxation" - they have a lot of guidance on this type of situation. There are a lot of factors to consider to for the exact hows, but there are ways to invest as a US/UK dual citizen.

You need to employ an independent financial adviser to advise you rather than rely on information posted on mumsnet

The comment on Premium Bonds is incorrect and taxed as gambling by the IRS. See https://www.nsandi.com/help/join-nsandi/using-nsandi-outside-uk in the section called "Can I save with Premium Bonds?" where is says...
The US has strict gaming and lottery laws which mean that it might not be possible or practical to hold Premium Bonds while in the US.

Some people, though, report the gains as income in the IRS tax return.

I've seen young people using the IFA Edale Investments https://edale.co/wealth-curation-care-monitoring-treasures/usa-residents-and-us-persons-ifa-uk-citizen/

I am also a dual US & UK citizen.

A cash ISA isn't really an investment, it is just a type of bank account. Anyway, as you say, the US doesn't recognize ISAs as tax free savings accounts, so you might have to pay US tax on the interest.

If you have a trust fund, it sounds like you have a reasonably big chunk of money. As above, you really need a specialist independent financial adviser to advise you rather than relying on random strangers on MN.

What do you do as a duel citizen? Also my trust fund has about £450 so not really "a reasonably big chunk of money". You are probably right tho I should try and find a financial advisor. I dont really want to pay lots for one though so idk.

If the trust fund is only about £450, I agree it's not a big chunk. I don't think it would be worthwhile paying for an IFA for that amount.

Mostly what I do is keep my money in ordinary savings accounts or bonds. I usually go on the Money Saving Expert website and choose from the ones they recommend with the highest interest rates.

I also have some shares in individual companies, not investment funds (like those typically in stocks and shares ISAs) because foreign funds are taxed punitively by the IRS.

What do you want to do with the money? How long do you envision hanging onto it? What you do in terms of saving or investing should really be guided by how you want to use the money.

Not only will a financial adviser be out of the question for this amount, they also cannot advise US citizens.

Yea i found a good savings account with HSBC that pays 7% AER for one year which is pretty good. I should be able to just keep it there and have it transfer into a new one after one year and then set up monthly payments into it and job done.

UK financial advisors can't advise US citizens?

To be honest, if you are a dual national, why are you even telling them about your us citizenship. My dd has isa's and is a dual national, no one had ever asked if she has other citizenship because she opened her account with her British passport

Not sure if a cash account is different but all forms I’ve dealt with always ask for residency, citizenship and if they hold US/Canadian citizenship.

Cash ISA is treated as savings account. Declare interest on 1040.

I wouldn't bother investing in stocks/shares in the UK due to hellish tax rules and paperwork US end.

Stick with investing US side and declare as normal on 1040.

Don't forget to file FBAR paperwork each year detailing all non-US accounts and pensions if over an aggregate of $10,000 per year.

Very useful forum with relevant info:

https://talk.uk-yankee.com/index.php?board=11.0

Contact Vanguard’s UK subsidiary. They are a big, reputable American investment firm and will have experience with these issues.

With that amount I would probably put it in the highest interest savings account you can find - ISA or non ISA. The interest will be US taxable, but highly unlikely you would actually have to pay any tax on it as either your overall income will.be too low or you would get an exclusion or credit for any UK tax you pay anyway.

When you finish uni, maximise use of your pension for tax efficient savings and access to mutual funds.

DH is a US citizen and we avoid the issue putting extra money into DH pension and my S&S ISA. I think there may be other niche ways to access mutual funds without being subjected to punitive taxation but it's not straightforward.

yeaa thats called tax evasion

Vanguard UK operations do not accept US Persons.. "Clause 1.3.3. Our Accounts and the Vanguard Funds are not available under these Terms to US persons. “US persons” include any citizen of the United States of America (US), any person holding a US passport (regardless of residency or domicile),..."

There are some US/UK Finamcial Advisers. A few listed below....
https://masecoprivatewealth.com/us-families-in-the-uk/
https://partnerswealthmanagement.co.uk/pwm-international/us-citizens/
https://www.tanagerwealth.com/
https://edale.co/wealth-curation-care-monitoring-treasures/usa-residents-and-us-persons-ifa-uk-citizen/
https://www.londonandcapital.com/international-americans/
https://ceritypartners.com/insights/top-12-financial-planning-issues-for-american-citizens-living-in-the-united-kingdom/

I seem to recall that you can buy CDs (certificates of deposit) as a US expat so that might be an option.

Well some can. I have plenty US/UK clients who have tailored portfolios through their wealth adviser. Admittedly, they have closer to £45m to invest that £450.

The clash between US and UK rules is an enormous pain. My basic investing advice is to invest in diversified low cost funds. Unfortunately US PFIC laws mean you’re limited to US funds. UK PRiiPs laws mean that none of those funds are available to buy in the UK unless you’re an experienced investor. It’s incredibly annoying.

For those amounts one is willing to jump through the hoops and expense to get licensed, obviously.

The basic answer is that you are severely limited to UK financial products because the US tax system obviously doesn't recognise non US tax free financial products including mutual funds. No point having a S&S Isa and growing UK tax free gains when this doesn't exist in the US tax system and is treated as a gain and subject to US tax accordingly.

It is relatively straight forward to renounce your US citizenship. DH did it 6 yrs ago so we can speak from experience. As you are 18 yrs old, you obviously don't want to take this option if you want to ever live/work there. It's a different matter when you're middle aged and don't wish to sacrifice a hefty pension pot which includes holding mutual funds for decades plus tax on the "gain" made on the value of your home due to currency fluctuations from mortgage overpayments!

As an 18 yr old student who lives here but plans to "return"
to the US in the short term, I would advise to not bother investing or saving in the UK outside of a high interest account since 5 yrs is too short term. You should open a US investment account and do it that way (assuming you have close family members resident there). File your US tax returns (as you should know). If you have never lived there as an adult/ever, it would help in the future when you plan to move there to live/work.

Do you not have close US family members to advise you on this?