US expat in UK looking for UK reporting fund investment advice

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Londoner123
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US expat in UK looking for UK reporting fund investment advice

Post by Londoner123 »

Hey everyone! I'm an American living in the UK indefinitely and I spoke with a financial advisor who recommended I move all my non-UK reporting mutual funds over to UK-reporting funds for tax purposes. I had originally wanted to do the following split with my assets:

- VTI - Vanguard Total Stock Market ETF (50%)
- Vanguard FTSE All-World ex-US ETF (15%)
- Vanguard Total Bond Market ETF (30%)

The advisor cautioned me against investing so much in US stocks, especially in VTI, because the top ten holdings are almost all tech companies and 23% of the fund. They believe there's likely a correction coming in the US similar to the dotcom boom and to slightly underweigh the US from their 60% market cap down to around 55%.

I'm wondering if anyone is willing to share their current ETF investment strategy (ideally it's simple with 3-4 funds) or if they have a better suggestion than the VTI fund? There is a massive list of UK reporting funds and I use Schwab, so I've stuck to Vanguard because I know Schwab has those. Thanks!!
TedSwippet
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Re: US expat in UK looking for UK reporting fund investment advice

Post by TedSwippet »

Welcome.
Londoner123 wrote: Mon Jan 18, 2021 12:39 pm There is a massive list of UK reporting funds and I use Schwab, so I've stuck to Vanguard because I know Schwab has those.
This wiki page can save you the effort of hauling through HMRC's rather unwieldy list of Vanguard's US domiciled UK reporting funds:

Vanguard US domiciled ETFs that are UK HMRC reporting funds - Bogleheads

My only comments on your other points would be a) that everyone has been saying for some time now that US markets are due a fall, and so far they have all been wrong, and b) recommending underweighting by just 5% doesn't seem to be evidence of a lot of conviction. :-)
jw50
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Re: US expat in UK looking for UK reporting fund investment advice

Post by jw50 »

Stick to your 3 ETFs BND, VTI and VXUS.

Its not un reasonable to go up to 50/50 VTI/VXUS.

Be extremely careful if you need to file tax return with IRS. Any investments outside pension, most UK funds are no go because of the PFIC rule. :oops:
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Forester
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Forester »

Why not simply own the Vanguard global index fund VWRL, it's already 56% US stocks.
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empb
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Re: US expat in UK looking for UK reporting fund investment advice

Post by empb »

Vineviz has a post on a five-fund model portfolio. All of them are HMRC Reporting Funds: VTI, VIOV, VSS, VWO, EDV.

Buy some combo of those and whatever crappy total market fund you can get in your pension.
Topic Author
Londoner123
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Londoner123 »

jw50 wrote: Mon Jan 18, 2021 2:53 pm Stick to your 3 ETFs BND, VTI and VXUS.

Its not un reasonable to go up to 50/50 VTI/VXUS.

Be extremely careful if you need to file tax return with IRS. Any investments outside pension, most UK funds are no go because of the PFIC rule. :oops:
Thanks for this advice!! I'm a bit confused though - if I choose BND, VTI and VXUS, would those be an issue? Or you are just saying UK funds in general?
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Londoner123
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Londoner123 »

empb wrote: Mon Jan 18, 2021 3:24 pm Vineviz has a post on a five-fund model portfolio. All of them are HMRC Reporting Funds: VTI, VIOV, VSS, VWO, EDV.

Buy some combo of those and whatever crappy total market fund you can get in your pension.
Thx so much for this! I'm checking it out. To be honest, I'm still new at all of this and these five funds seem more intimidating than three...I'm also still trying to learn the difference between small cap, large cap, etc. So much to learn!
jw50
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Re: US expat in UK looking for UK reporting fund investment advice

Post by jw50 »

Londoner123 wrote: Tue Jan 19, 2021 3:45 pm if I choose BND, VTI and VXUS, would those be an issue? Or you are just saying UK funds in general?
The 3 ETFs are OK with both IRS and HMRC.
TedSwippet
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Re: US expat in UK looking for UK reporting fund investment advice

Post by TedSwippet »

Forester wrote: Mon Jan 18, 2021 3:20 pm Why not simply own the Vanguard global index fund VWRL, it's already 56% US stocks.
VWRL is an Ireland domiciled ETF. For a US citizen, that would be a terrible ETF to hold. The reason is the US's protectionist PFIC tax law.
Marseille07
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Marseille07 »

Like other posters are saying, read up on PFIC before making a move. I can't believe your FA is advising to go with UK-reporting funds. Might have to find a different FA.
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Re: US expat in UK looking for UK reporting fund investment advice

Post by TedSwippet »

Marseille07 wrote: Tue Jan 19, 2021 4:35 pm Like other posters are saying, read up on PFIC before making a move. I can't believe your FA is advising to go with UK-reporting funds. Might have to find a different FA.
Right on PFIC, but just for clarity, 'UK reporting' is not the same as 'UK domiciled'.

A 'UK reporting' fund is a non-UK domiciled fund that the UK's tax authority will treat as if UK domiciled. This allows it to escape the UK's (much, much milder) analogue to the US's PFIC tax regime. Advising a US citizen living in the UK to use US domiciled UK reporting status funds is entirely a good thing.
jw50
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Re: US expat in UK looking for UK reporting fund investment advice

Post by jw50 »

A recent post on BH about US person moving to UK you should read.

viewtopic.php?f=22&t=336738

As a UK tax payer, you might like to take advantage of ISA. It is a UK tax free wrapper but you might find it difficult to buy US registered ETFs. In that case, I would go to individual shares (at least 15 to start with)
Valuethinker
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Valuethinker »

jw50 wrote: Wed Jan 20, 2021 12:26 am A recent post on BH about US person moving to UK you should read.

viewtopic.php?f=22&t=336738

As a UK tax payer, you might like to take advantage of ISA. It is a UK tax free wrapper but you might find it difficult to buy US registered ETFs. In that case, I would go to individual shares (at least 15 to start with)
Under the PRIIP (sp?) rules regarding what can be sold to individual customers in the EU, a UK broker won't sell him a US registered ETF? AFAIK that's not possible, unless we diverge from EU Financial Regulation right away.

So the PFIC will catch a US citizen with a UK ISA. It avoids UK tax (which is usually higher) but not US tax.

15 shares is a large portfolio to manage. Transactions costs could become a factor.
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Londoner123
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Londoner123 »

TedSwippet wrote: Tue Jan 19, 2021 4:48 pm
Marseille07 wrote: Tue Jan 19, 2021 4:35 pm Like other posters are saying, read up on PFIC before making a move. I can't believe your FA is advising to go with UK-reporting funds. Might have to find a different FA.
Right on PFIC, but just for clarity, 'UK reporting' is not the same as 'UK domiciled'.

A 'UK reporting' fund is a non-UK domiciled fund that the UK's tax authority will treat as if UK domiciled. This allows it to escape the UK's (much, much milder) analogue to the US's PFIC tax regime. Advising a US citizen living in the UK to use US domiciled UK reporting status funds is entirely a good thing.
Yes, exactly this. Thx for explaining!
Topic Author
Londoner123
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Londoner123 »

Valuethinker wrote: Wed Jan 20, 2021 3:04 am
jw50 wrote: Wed Jan 20, 2021 12:26 am A recent post on BH about US person moving to UK you should read.

viewtopic.php?f=22&t=336738

As a UK tax payer, you might like to take advantage of ISA. It is a UK tax free wrapper but you might find it difficult to buy US registered ETFs. In that case, I would go to individual shares (at least 15 to start with)
Under the PRIIP (sp?) rules regarding what can be sold to individual customers in the EU, a UK broker won't sell him a US registered ETF? AFAIK that's not possible, unless we diverge from EU Financial Regulation right away.

So the PFIC will catch a US citizen with a UK ISA. It avoids UK tax (which is usually higher) but not US tax.

15 shares is a large portfolio to manage. Transactions costs could become a factor.
Yes, I've been advised by multiple people not to invest in a UK ISA as an American citizen given it will be taxed punitively by the IRS.
Topic Author
Londoner123
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Re: US expat in UK looking for UK reporting fund investment advice

Post by Londoner123 »

jw50 wrote: Tue Jan 19, 2021 4:10 pm
Londoner123 wrote: Tue Jan 19, 2021 3:45 pm if I choose BND, VTI and VXUS, would those be an issue? Or you are just saying UK funds in general?
The 3 ETFs are OK with both IRS and HMRC.
Thanks for this! I'm going to start with these 3 because I'm intimidated by the 5-fund model lol. I appreciate your help!
jw50
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Re: US expat in UK looking for UK reporting fund investment advice

Post by jw50 »

Londoner123 wrote: Wed Jan 20, 2021 6:01 am Yes, I've been advised by multiple people not to invest in a UK ISA as an American citizen given it will be taxed punitively by the IRS.
As I already pointed out:
-no restriction on pension
-ISA: you can have a collection of individual shares to stay on the right side of IRS; ie build your own portfolio. One possible way to get share diversification is buy some Berkshire. Reminder, no investment trusts!
jfave33
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Re: US expat in UK looking for UK reporting fund investment advice

Post by jfave33 »

Personally I'd keep everything as simple as possible and in any case ignore advisor hunches unless you are a gambling man. So yes vti ,vxus and bnd sound good for the reasons others have given. Good advice about the reporting funds.
halfnine
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Re: US expat in UK looking for UK reporting fund investment advice

Post by halfnine »

Londoner123 wrote: Wed Jan 20, 2021 6:02 am
jw50 wrote: Tue Jan 19, 2021 4:10 pm
Londoner123 wrote: Tue Jan 19, 2021 3:45 pm if I choose BND, VTI and VXUS, would those be an issue? Or you are just saying UK funds in general?
The 3 ETFs are OK with both IRS and HMRC.
Thanks for this! I'm going to start with these 3 because I'm intimidated by the 5-fund model lol. I appreciate your help!
If you are owning BND for diversification purposes away from the GBP or for ultimate retirement in the USA this will work fine. If you are owning it for stability in a portfolio then it will fluctuate with the USD and GBP exchange rate (when using GBP as basis). You might also find that it can't be used effectively for rebalancing as it can throw off gains in one country and at the same time losses in the other (and vice versa).
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Re: US expat in UK looking for UK reporting fund investment advice

Post by TedSwippet »

halfnine wrote: Wed Jan 20, 2021 10:19 am If you are owning BND for diversification purposes away from the GBP or for ultimate retirement in the USA this will work fine. If you are owning it for stability in a portfolio then it will fluctuate with the USD and GBP exchange rate (when using GBP as basis). You might also find that it can't be used effectively for rebalancing as it can throw off gains in one country and at the same time losses in the other (and vice versa).
I think that's valid, but it does raise the question of which US domiciled bond fund a US citizen living in the UK should use? As far as I'm aware, there are no US domiciled UK gilts funds. No US domiciled analogue to VGOV (UK Gilts UCITS ETF), for example.

My guess is that BNDW (Total World Bond ETF) would have perhaps been a reasonable choice, but unfortunately that's not in the list of UK 'reporting status' ETFs. Blending BND with BNDX (Total International Bond ETF) in ratios to match BNDW seems possible, though, and both of these do have UK 'reporting status'.
bluejeansman
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Re: US expat in UK looking for UK reporting fund investment advice

Post by bluejeansman »

Interesting thread. But very little discussion on PRIIP other than one comment by ValueThinker.

I gather that the OP (US expat in UK) is limited to *) US domiciled funds/ETFs due to PFIC and *) within that set limited to those funds/ETFs which are UK HMRC reporting funds. *) Furthermore, OP's broker may not allow OP to buy US domiciled ETF due to PRIIP.

It is not just UK brokers who deny US domiciled ETFs due to PRIIP, even few US brokers are doing the same. ETrade isnt letting me buy VTI, VT, VOO in my Etrade US dollar account that I have from the old days in US. Etrade however allowed me to do the same in Mar 2020. So far Vanguard US is fine. I called up Schwab with whom I dont have an account and they also said I will not be allowed to buy US domiciled ETFS since I am EU resident.

So I am really curious how US citizens in UK/EU are coping. Perhaps US brokers are allowing only US *citizens* to buy US domiciled ETFs even if they live in the UK/EU ? Surely that would be a violation of PRIIP. I would thnk PRIIP was intended to apply to all EU residents, even if they are US citizens.

I guess the only options are
*) Use Vanguard US - have a mutual fund account and brokerage account - set this up before leaving the US.
*) Use the option loophole : But it is too good to last. Loophohes are meant for the Big Boys and Mighty and Powerful not to Joe Schmoe. There are already threads on various forums that this loophole is closed. It seems Interactive brokers is liquidating the position if they see you doing this. You exercise the option and cash appears in your account instead of underlying ETF shares.
*) Buy individual stocks

I am curious what OP finally did. I am not a US citizen but still curious.
StoneFeeler
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Re: US expat in UK looking for UK reporting fund investment advice

Post by StoneFeeler »

Replying just to keep track.
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Re: US expat in UK looking for UK reporting fund investment advice

Post by LadyGeek »

New member Teafor3 has a question which I've moved into a new thread. See: [US ex-pat in UK - Portfolio help requested]
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