What US expats in the UK can and can’t invest in
Laurence Leigh, Senior Investment Manager, explains which UK assets are off limits to American expats, which US-friendly options remain available and why specialist guidance is essential to avoid punitive tax treatment.
Investment Manager
5 Mar 2026
|Quick summary: Investment restrictions for US expats
1. Investing across two tax systems
Why dual US - UK taxation makes mainstream UK investment products difficult for American citizens.
2. Financial and tax regulations to look out for as a US expat
How FATCA and PFIC rules (explained below in the article) lead to restricted access and punitive tax treatment.
3. Investments US expats should avoid and the ones that are still suitable
Which UK funds typically cause problems and which assets remain viable.
4. FAQs on compliant investing for US expats
Answers to questions we’re frequently asked by American investors in the UK.
The unique challenges faced by US citizens living in the UK
Investing as a US citizen living in the UK comes with unique challenges. The US taxes based on citizenship and the UK taxes based on residency. You must ensure every investment is compliant in both jurisdictions.
Many mainstream UK investment products are off limits for US expats and can trigger punitive US tax treatment, unexpected bills and complex reporting obligations.
Why US expats face restriction
Following the 2009 Great Financial Crisis, the US introduced tighter reporting and enforcement measures, including Foreign Account Tax Compliance Act (FATCA). This requires non-US financial institutions to report on US clients, prompting many to restrict or withdraw services entirely.
At the same time, the US treats most non-US pooled funds as PFICs (Passive Foreign Investment Companies), resulting in harsh tax penalties, meaning many popular UK investments simply aren’t viable for Americans.
Investments that US expats in the UK must avoid
UK-domiciled funds of all types
This includes:
- UK ETFs
- OEICs
- Unit trusts
- Investment trusts (UK-domiciled)
- Most UCITS funds
These are typically classified as PFICs by the IRS, resulting in:
- Income and capital gains taxed at the highest US income tax rate
- Interest charges applied to PFIC taxes retroactively back to the date of purchase
- Complex annual reporting requirements.
Most US mutual funds
Although US-domiciled, many are not recognised by HMRC for UK reporting, meaning gains may be subject to income tax rather than capital gains tax in the UK.
What US expats can invest in
Direct equities
US expats can purchase shares in listed operating companies in the US, UK or globally.
Note: direct equity investing may carry higher risk and requires portfolio construction expertise.
Corporate and government bonds
Bonds in most currencies are generally acceptable.
US ETFs and closed-ended funds with UK reporting status
Some US-domiciled ETFs and closed-ended funds do meet UK reporting requirements. However, this area is extremely nuanced - professional oversight is essential.
Select UK pensions such as SIPPs
While many practitioners view SIPPs as recognised pensions under the US–UK tax treaty, the tax treatment can vary depending on individual circumstances.
The impact of currency fluctuations
Currency is often overlooked by US expats. A 5% movement in GBP/USD can materially alter the value of a USD-denominated portfolio when assessed in sterling. Strategic multi-currency planning is therefore essential.
Why specialist advice is essential
From PFIC classification to cross-border reporting, this is a highly specialist area. A UK-based investment manager experienced in advising US clients can help you avoid common pitfalls and select a compliant and efficient portfolio.
Speak to a specialist investment manager
If you need tailored support in navigating US/UK investment rules, please get in touch.
FAQs on compliant investments for US citizens
Because the US taxes based on citizenship, not residency and enforces strict reporting obligations worldwide. Most countries tax only their residents, which means US expats face a unique layer of rules that prevent them from accessing many standard investment products available in the UK.
Under US tax law, the IRS classifies most non-US pooled investment vehicles - such as UK ETFs, OEICs, unit trusts and investment trusts - as Passive Foreign Investment Companies (PFICs). PFICs attract punitive tax rates and highly complex annual reporting requirements, making them unsuitable for almost all US expat investors.
No they’re not. UK-domiciled ETFs and mutual funds will trigger PFIC treatment.
Generally, no. Even though they trade on the London Stock Exchange, UK investment trusts are generally UK-domiciled and therefore fall under PFIC rules. This means they are usually prohibited for US expats unless specific structuring or something called a tax election applies - but these are rare and must be assessed on a case-by-case basis.
HMRC publishes a list of funds with approved UK reporting status. However, a fund having UK reporting status does not automatically mean it is suitable for US expats. It must also be:
- US-domiciled
- Not classified as a PFIC.
A specialist investment manager can verify this across both jurisdictions.
No. Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS) and the Seed EIS (SEIS) are almost always unsuitable for US expats. They typically trigger PFIC classification and the UK tax advantages they offer do not apply under US tax law.
Usually, yes. Direct ownership of individual shares in operating companies, whether US, UK or global, is generally permissible. The key exception is listed fund vehicles such as investment trusts or ETFs that may appear like equities but are still treated as funds for tax purposes.
Accidental PFIC ownership can lead to:
- US tax charged at the highest marginal rate
- Interest charges on ‘excess distributions’
- Compulsory filing of IRS Form 8621 for each PFIC every year
- Significant administrative burden and potential penalties.
Once acquired, PFICs can be difficult and expensive to unwind, making early specialist advice critical.
Yes - cryptocurrency itself is not classified as a PFIC. However, the platform, wrapper, or crypto fund you use may be problematic.
For example, crypto ETFs domiciled outside the US are typically PFICs. Direct ownership of coins may be acceptable, but tax reporting for both the US and the UK can be complex and should be reviewed carefully.
Generally, yes, but with caveats:
- Directly held bonds are usually acceptable for US taxpayers
- Bond funds must be US-domiciled and have UK reporting status
- Some structured notes or complex debt products may have additional reporting requirements.
