Overcoming the Challenges of Investing as a US Expat

If you're a US citizen living in the UK, then when it comes to your investments, you’ve probably been left pretty frustrated –  and if you've assets worth less than £1m, you may have found yourself with nowhere to turn.

‘Typical’ UK advisers and providers do not have the specialist skills required for US expatriates, and specialist US/UK firms command a serious premium - leaving the majority of the market frozen out.
 

That’s why we at Aventur have launched our US expatriate investment service!

We know that for many American expats, a common problem is that no UK advice firm seems able to help - leaving them asking the question "Why won't anyone take my money?"

In order to help US expats looking to invest while living in the UK, we take a look at the reasons why this is complex below, as well as offering potential solutions to help get you in the financial shape you want to be.

The FATCA factor?

At the heart of the biggest issue lies the well-known Foreign Account Tax Compliance Act (FATCA).
 

Introduced in 2010, FATCA has dramatically changed the landscape for US citizens investing abroad. Why does this law cause so much trouble?
 

1. Reporting Requirements: FATCA requires foreign financial institutions to report their US clients' accounts to the IRS. But, this isn't just a simple form; it's a complex and time-consuming process that many businesses find burdensome. 
   
   Even having to complete this report for a small number of clients may not be commercially viable for the business.
    
2. Compliance Costs: To meet FATCA requirements, banks and investment firms often need to upgrade their systems and hire additional staff. 
   
   The required staff would also likely need a fairly high salary to make up for their expertise, and so for many firms, the costs far outweigh the benefits of serving US clients.
    
3. Non-Compliance Penalties: The stakes of completing the FATCA report are high. Firms that fail to comply with FATCA can face severe penalties, including a 30% withholding tax on their US-source income.

The PFIC Puzzle

Another major hurdle is the Passive Foreign Investment Company (PFIC) rules.
 

These regulations make it challenging for US citizens to invest in foreign mutual funds and ETFs without facing punitive tax treatment such as:
 

1. Complex Reporting: Investing in a PFIC requires filing the dreaded Form 8621, which is notoriously complex and time-consuming.
   
    
2. Higher Tax Rates: Gains from PFICs are often taxed at the highest marginal rate, regardless of the investor's actual tax bracket.
   
    
3. No Preferential Treatment: Unlike domestic investments, PFICs don't benefit from preferential long-term capital gains rates.

Complex US Regulations
 

Investment providers outside the US are also required to navigate a complex web of regulations:
 

1. SEC Registration: In order to advise US clients on securities, firms generally need to be registered with the SEC - a costly and complex process for non-US companies.
   
    
2. Conflicting Regulations: Activity that is allowed under local laws might not comply with US regulations, putting firms in a difficult position.
   
    
3. Liability Concerns: The litigious nature of the US legal system makes some firms wary of taking on American clients, fearing potential lawsuits.

Solutions for US Expats Looking to Invest

While the situation may initially seem bleak, there are options available for US citizens looking to invest abroad such as:

1. Seeking Specialist Providers: Seek out firms that specifically cater to US expats. Whilst they may be hard to find, they do exist and can help (and if you're reading this - then you're in the right place!)
    
2. Considering US-Based Options: It's important to be aware that some US brokerages do allow clients to maintain accounts while living abroad. 
    
3. Exploring Treaty-Based Solutions: In some countries, local retirement accounts may be recognised under tax treaties, which could provide a compliant investment option.
    
4. Educating Yourself: Understanding these rules, regulations and requirements of both you as an Expat, and the firm you choose to invest with, can help you navigate the system more effectively, and identify more suitable investment opportunities.
    
5. Hiring an Expert: Do your research, speak to and work with professionals who specialise specifically with US Expat matters, as they should be able to provide invaluable guidance tailored to your situation. 
   
   Aventur has a dedicated US Expat team, who can assist with any queries you may have and advise as to the most suitable solution for you based on your circumstances.

Potential Opportunities and Changes for US Expats

As more US citizens choose to live and work abroad, there's a growing awareness of the above challenges.
 

Some financial institutions, such as Aventur, are developing solutions designed specifically to address the concerns of US expats. This is alongside ongoing discussions within the UK government regarding potential regulatory changes to ease the burden.
 

So, while investing as a US expat may be more challenging, it's far from impossible. And with the right approach and guidance you can build a strong financial future, no matter where in the world you call home.
 

If you're a US Expat looking to invest, get in touch with the US team at Aventur to find out how we can help.