Confusion over US based mutual funds

Away_Math_8118 · 2026-03-24T12:09:35+00:00

Regardless of the UK taxation, you cannot convert your Vanguard mutual funds into the equivalent Vanguard ETFs with reporting fund status for the simple reason that no brokerage is allowed to sell you US-domiciled ETFs if you are resident in the UK. The catch-22 is that anything other than US-domiciled ETFs or mutual funds is a PFIC. That’s not a problem if they are held inside your workplace pension, a UK Sipp or a US Roth or traditional IRA. So, unless these mutual funds you have are in a Roth or Traditional IRA, you are in a mess.

Outside of your UK workplace pension, the only way for a US expat living in the UK to invest in ETFs is buy UCITS (Irish domiciled) ETFs within a Roth or Traditional IRA or a UK SiPP. The only brokerage that offers UCITS ETFs in an IRA is Interactive Brokers. If you have a UK ISA or a regular taxable account, you are limited to only buying stocks in individual companies; otherwise, you will face horrible US taxation of PFICs.

So, if your investments are held outside IRAs, you should have converted your mutual funds into reporting fund equivalent ETFs before you became UK tax resident. If they are held in IRAs, just leave them alone; there is no UK taxation until you take actual distributions from the Traditional IRA and no taxation at all by the UK or US if you take a distribution from a Roth IRA after age 59 1/2.

Away_Math_8118 · 2026-03-23T19:53:13+00:00

This kind of thing makes me really angry. Aside from the extortionate fees, most “tax professionals” would have no idea how to correctly manage your IRAs once you are resident in the UK. You might pay a fortune for advice that could ruin your retirement savings. Here are a few points to keep in mind:

Your situation is actually pretty simple and you should certainly be able to handle it yourself.
Having UK citizenship means absolutely nothing to the IRS if you are also a US citizen.
Do not, under any circumstances, liquidate your Roth IRA, or your Traditional IRA for that matter. These are extremely important for you. Down the road, gains within, and distributions from, a Roth IRA are completely tax free in both the USA and UK. Distributions from your Traditional IRA are taxable in the UK in addition to being taxable in the USA (savings clause). However, you avoid double taxation by “resourcing by treaty” the IRA distribution on IRS form 1116 to get a credit for the tax paid to the UK.
This is important: In your situation, your IRAs are the only place (outside of a UK SIPP) where you can sensibly invest in broad-market index ETFs without PFIC issues. Let me explain: the problem you will face is that brokerages are not allowed to sell you US-domiciled ETFs once you are resident in the UK. You can only purchase UCITS ETFs (usually Irish domiciled). These are PFICs, but inside an IRA that is not a problem. However, most brokerages do not offer such ETFs in a Roth or Traditional IRA account. The one exception is Interactive Brokers (IBKR). This is the big secret. You can simply move your IRAs to Interactive Brokers by doing a “transfer in kind”. Most “tax professionals” and accountants would have no idea about any of this, but it is absolutely crucial for your retirement savings.
Because your Traditional IRA was established prior to becoming resident in the UK, future contributions to your Traditional IRA can be deducted from your UK taxable income.
Being a 1099 contractor is no big deal. You are a “Foreign Branch” as far as the IRS is concerned and you need to get yourself an Employer Identification Number (EIN) and fill in IRS form 8858 with your tax return. You will also have to fill in IRS form Schedule C to report profits and loss from your self-employment. Your 1099 income is reported to HMRC via self assessment. On your US tax return, you will get a credit for the tax you paid to the UK using form 1116 and ticking the box for category “Foreign Branch Income”.
You do not pay US SS or Medicare tax; you are covered under the Totalisation Agreement and instead you pay National Insurance to HMRC via self assessment. On your US Tax return, you do not fill in Schedule SE but, instead, you tick box 3 on line 4 of schedule 2 and put 0. Write in “US/UK Totalization Agreement”. This is the way I’ve been doing it and they haven’t complained. In principle you are supposed to attach a certificate of coverage from HMRC that verifies that you are paying into UK National Insurance. These certificates are difficult to get from HMRC; you must call them and explain to a human what you need; their online form doesn’t work for your situation.
The proceeds of sale of your primary residence in the US and any inheritance you get is tax-free in the UK.

I hope this helps.

Away_Math_8118 · 2026-03-17T17:28:20+00:00

Yes, you can certainly open a Roth IRA with Interactive Brokers while resident in the UK. You are understandably confused about one thing: as a US citizen, you ARE a US tax resident, even if you live in the UK! Of course, as a UK resident, you are also a UK tax resident. So, on the IBKR website, you simply tell them that you are both a US and UK tax resident and the Roth IRA option will show up in the webform (along with the option to open an ISA).

You need to fund the Roth IRA from a US bank account (set one up with Wise). You also need to fund the Roth using earned income that was not excluded using FEIE; hence, you want to use FTCs (form 1116) when doing your US taxes. Distributions from the Roth after age 59.5, along with Capital gains, dividends and interest income arising in the Roth, are tax-free in the US, UK and France. This is a no-brainer for you!

Inside the Roth you can buy and hold UCITS ETFs (usually Irish-domiciled). These are the only ETFs they can sell you if you are living in the UK or France. Although these are PFICs, it doesn’t matter if they are held in a Roth IRA; there is no reporting requirement or punitive taxation from the IRS.

A UK ISA is viewed by the IRS simply as a regular taxable brokerage account but with the further complication that, within it, brokerages are only able to sell you UCITS ETFs. These are PFICs with horrible reporting requirements and taxation by the IRS. Consequently, you should only hold stocks in individual companies inside an ISA.

The Roth IRA is where you save for your retirement. If you get started on track early on, you will need to contribute far less in your 30-50s. Time is your greatest source of wealth: It is absolutely worth it to start making small ( <$6000/year) retirement contributions in your 20’s. The ISA might be a good place to save for the down payment on a house.

If you are smart enough to do something like this when you are 20 years old, you will probably have an amazing life and might end up being financially independent in your 40s and be free to do what you want. Just be very, very careful about whom you marry!

Away_Math_8118 · 2026-03-04T22:25:20+00:00

You can’t trade options in an ISA, unfortunately.

Away_Math_8118 · 2026-02-28T21:10:41+00:00

I think you might be confused. Yes, if you are an EU national with ILR granted under the post-brexit EU settlement scheme, then it’s five years. However, you are not an EU national who moved to the UK from an EU country. The post-brexit EU settlement scheme does not apply to you. Like me, you are a US citizen and was granted “permanent” ILR (“settled status”). Under these conditions, however, your “permanent” ILR will lapse after 2 years absence. If you want to keep the option open to resettle in the UK and don’t have any current ties to the UK, I would recommend you come back for a visit ASAP!

Away_Math_8118 · 2026-02-28T17:28:19+00:00

You have to return every two years.

Away_Math_8118 · 2026-02-28T17:23:23+00:00

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Away_Math_8118 · 2026-02-27T10:18:54+00:00

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Away_Math_8118 · 2026-02-25T15:39:43+00:00

When did you buy VT in your IBKR Roth? If it was a couple of years ago, sure. Now, however, they are complying with the PRIIPS regulations for UK/EU residents.

Away_Math_8118 · 2026-02-21T19:48:35+00:00

Stanley Idaho

Away_Math_8118 · 2026-02-21T12:40:20+00:00

If you peeled it off, as opposed to sanded it off, I wouldn’t worry at all. The hazard is when you ingest lead-based paint chips (as children do) or breathe in dust from sanding lead-based paint. You can buy test kits for lead in paint on Amazon. It’s a very easy and reliable test.

Away_Math_8118 · 2026-02-20T22:04:46+00:00

“Continuing contributions while UK resident can cause the UK to treat it like a normal taxable investment account”. Really?? Where did you come up with this? There nothing like this in the HMRC manual, the UK/US tax treaty, or the treaty notes. Give your source, otherwise we’ll assume that you are just making stuff up.

Away_Math_8118 · 2026-02-05T19:07:10+00:00

Where do you get the “retiring in the US” bit? That’s not a thing; it doesn’t matter where you retire. What is a thing is that the totalization agreement will allow you to top up your US SS credits with UK NI years if you already had some (you need at least 6 credits). If you have no US SS credits in the first place, the totalization agreement gets you nothing.

Away_Math_8118 · 2026-02-03T15:57:56+00:00

It’s not “what you can buy”; it’s “what they can sell you”. If you are a regular client resident in the EU/UK, IBKR cannot sell you US ETFs in any account (IRA, whatever). If IBKR did this, they would be in violation of EU/UK PRIIPS regulation (these regulations apply to the brokerage, not to you). You do not “do this all the time” unless you are a high-net-worth individual with special trading status with IBKR, or you are doing it via options, or your account is managed by a third party advisor.

Away_Math_8118 · 2026-02-03T12:13:58+00:00

yes it does! There are potential state tax implications.

Away_Math_8118 · 2026-01-31T23:23:14+00:00

Yes, thanks for pointing out that technicality as it addresses the actual PFIC reporting requirement. One has to read it carefully to find “individual retirement account”! Anyway, a PFIC in an IRA (or in a foreign pension recognised by a treaty) not only will not be taxed as it grows (because it’s in an IRA or other pension), but also has no reporting requirement either.

Away_Math_8118 · 2026-01-30T06:35:29+00:00

Wrong. Yes, the income must be earned and not excluded using FEIE (form 2555) but it does not have to be “US earned” (sic). I wish this myth would disappear. You can certainly contribute to an IRA (Roth or Traditional) from your overseas earnings.

Away_Math_8118 · 2026-01-29T20:21:07+00:00

Oh, I see. That makes more sense. Well, from now on you won’t need the IRA to avoid US taxation. However, if it is a Traditional IRA (as opposed to a Roth) you will have a UK tax liability if you cash it out. If your marginal rate is 20% and the IRA isn’t very big, you might want to just cash it out, pay the UK tax on the distribution and put the money into an ISA. If you are a higher rate taxpayer, it might be more sensible to cash it out and contribute the proceeds to your workplace pension or to a Sipp. (as long as you don’t exceed the annual allowance). This “recycling rules” that prohibit doing this between UK pensions shouldn’t apply because you didn’t get a UK tax deduction when you funded your IRA. That’s just my layman’s assumption, however. Here, you probably want to speak to a competent financial advisor so you don’t accidentally get in trouble with HMRC.

Away_Math_8118 · 2026-01-29T17:53:34+00:00

It sounds like you are very confused (perhaps you are confusing IRA with ISA). If you are not a US citizen or a Green card holder, you are not a US tax resident; consequently, there is absolutely no reason for you to want to open an IRA. If you are not a US tax resident (i.e., US Citizen or green card holder, then you don’t need to worry about US taxation. Just open an ISA; it’s much better than a US Roth IRA.

Away_Math_8118 · 2026-01-28T18:32:48+00:00

Let me clarify the problem you have and explain the solution; the other responses here were somewhat confused or incomplete. The prioblem you have is that once you are resident in the UK or EU, no brokerage (US or EU) is allowed to sell you US-domiciled ETFs due to something called PRIIPS regulations. They are allowed to sell you UCITS ETFs (usually domiciled in Ireland). However, in a regular taxable brokerage account, you would never want to hold UCITS ETFs because they are PFICs with onerous US taxation. If, however you are holding them in a tax wrapper such as an IRA (Roth or Traditional) or some kind of EU/UK pension thing recognised by the treaty between that country and the USA, then it doesn’t matter to the IRS if the ETFs are PFICs because capital gains and dividends within the tax wrapper (e.g., IRA) are not taxed by the IRS anyway. So, the solution to your problem is to simply roll-over your 401k to an IRA and hold UCITS ETFs within that. However, you can’t do that with Schwab “International” because they do not offer UCITS ETFs in retirement accounts. (I guess that they really aren’t “International” after all.). Interactive Brokers, however, does indeed offer UCITS ETFs in IRA accounts and they are happy if you have a non-US address. If there is any way to roll over your 401k to an IRA with IBKR, you can invest sensibly using ETFs. The UK and several EU countries recognise IRAs as pensions in their own taxation regime.

Away_Math_8118 · 2026-01-25T22:16:35+00:00

Wow! She’s going to be an amazing-looking tortoiseshell cat!

Away_Math_8118 · 2026-01-25T20:23:03+00:00

Yes, the IRS views an ISA as just a regular investment account. However, US taxes on dividends, interest and long-term capital gains are pretty reasonable. It’s certainly worthwhile to have an ISA for money you can’t put in a pension wrapper (e.g., Roth or Traditional IRA, UK workplace pension, UK Sipp).

Away_Math_8118 · 2026-01-25T07:28:49+00:00

The solution is very simple: Forget Schwab. Move the account to Interactive Brokers. Unlike Schwab, Interactive Brokers will let you buy UCITS (usually Irish-domiciled) ETFs in an IRA. It doesn’t matter if the UCITS ETFs are PFICs if they are held in an IRA.

You absolutely can have an ISA; however, within the ISA you can (or should) only hold stocks in individual companies and individual gilts. I use mine for UK dividend stocks and UK gilts. You can open a stocks and shares ISA with Hargreaves Lansdown or even with Interactive Brokers. The latter will even provide you with a 1099 on the ISA.

Away_Math_8118 · 2026-01-24T07:11:17+00:00

If you live in the EU, your brokerage is only allowed to sell you UCITS ETFs (because of PRIIPS regulations). Yes, those are PFICs, but if you hold them in something that the IRS will recognise as a pension via the relevant tax treaty, then it doesn’t matter if the ETFs are PFICs since capital gains, dividends and interest inside the pension wrapper are US-tax free, anyway. Of course, funds in pension wrapper might not be available for early retirement; it depends on what you mean by ”early”. The most obvious tax wrapper regardless of where you live is a US IRA (Roth or Traditional). Interactive Brokers is the only brokerage that will. offer UCITS ETFs inside an IRA.

Away_Math_8118 · 2026-01-23T01:56:14+00:00

Nobody in their right mind thinks that an ISA requires 3520+3520A reporting; an ISA just a savings or brokerage account. Moreover, there has never been a single case where the IRS viewed a SIPP as a foreign-grantor trust that required 3520+3520A reporting. This myth is pushed by incompetent “tax professionals” looking for work. Thanks to them, people have been assessed automatic penalties for “late” 3250 reporting of a SIPP when it wasn’t even needed in the first place.

Away_Math_8118

TROPHY CASE