Investing as an American in the UK: What You Can Actually Buy

Investing as an American in the UK works best with holdings that both tax systems treat normally: individual shares, gilts and, inside a pension, almost anything. UK funds and investment trusts are usually PFICs for the IRS, while US ETFs can be taxed as income by HMRC. The trick is choosing assets that survive both returns, not just one.

A US citizen or green card holder living in Britain files a US return on worldwide income every year and, as a UK resident, a UK Self Assessment return too. Each system has its own list of investments it dislikes, and the two lists barely overlap. Our existing guides explain the ISA and PFIC problem and the cross-border investor reporting forms in depth. This guide is the practical companion: holding by holding, what can you actually buy, and what does each choice cost on each return? It describes tax treatment only; it is not a recommendation to buy or sell any investment.

Why is investing as an American in the UK so complicated?

Investing as an American in the UK is complicated because two sets of anti-avoidance rules point at the same portfolio from opposite directions. The US targets non-US pooled funds through the PFIC regime; the UK targets non-UK pooled funds through the offshore fund rules. A fund that is "local" and friendly in one country is "foreign" and penalised in the other.

The US rule: PFICs

The IRS defines a passive foreign investment company (PFIC) as a non-US corporation where 75% or more of gross income is passive, or at least 50% of its assets produce passive income. Those tests are set out in the current Instructions for Form 8621 (revised December 2025). A pooled investment fund meets them almost by definition. Without an election, gains and large distributions are treated as "excess distributions": spread back over the holding period, taxed at the top ordinary rate for each year and charged interest. The instructions also say a separate Form 8621 must be filed for each PFIC, which is where the compliance cost comes from.

The UK rule: offshore funds

HMRC's offshore fund rules apply to mutual funds constituted outside the UK, as defined in section 355 of the Taxation (International and Other Provisions) Act 2010. HMRC's HS265 helpsheet (2026 version) explains the consequence: a gain on a fund without reporting fund status is normally an "offshore income gain", charged to Income Tax rather than Capital Gains Tax. A fund with reporting status gets capital gains treatment on sale, but investors are taxed each year on their share of its reported income, whether or not it is paid out. HMRC publishes the approved offshore reporting funds list, updated monthly.

The decision table: investment, US treatment, UK treatment

The table summarises how each common holding is treated for a US citizen who is UK resident. "Verdict" describes the tax friction, not the merits of the investment.

Investment	US treatment	UK treatment	Tax verdict
Individual UK or US company shares (taxable account)	Ordinary dividends and capital gains; not a PFIC	Dividend tax and Capital Gains Tax	Simplest for both systems
UK unit trusts, OEICs, UK-listed ETFs	Usually PFICs; Form 8621 per fund	UK funds: normal dividend and capital gains treatment	Heavy US cost
Irish or Luxembourg-domiciled ETFs sold on UK platforms	Usually PFICs; Form 8621 per fund	Offshore funds; reporting status needed for CGT treatment	Heavy US cost
UK investment trusts	Usually PFICs (UK companies meeting the passive tests)	UK companies, so Capital Gains Tax on sale	Heavy US cost
US-domiciled ETFs and mutual funds	Ordinary US treatment; not PFICs	Offshore funds; gains taxed as income unless the fund has UK reporting status	Workable if reporting status exists; access limited
Stocks and shares ISA	Wrapper ignored; everything inside taxable	Tax-free	Depends entirely on what it holds
UK pension or SIPP	Inside growth deferred under treaty Article 18(1)	Tax relief on contributions; tax on withdrawals	Strong, with reporting obligations
Gilts held directly	Interest and gains taxable; currency effects tracked	Interest taxable; gains exempt from CGT	Clean, not a PFIC
Premium Bonds	Prizes taxable income	Prizes free of Income Tax and CGT	US tax with no credit

Individual shares: the common ground

Individual company shares are the one asset class both tax systems treat in an ordinary way. A share in an operating company, such as a UK-listed bank or a US-listed manufacturer, is not a PFIC because the company's income comes from its business, not from passive investment. For HMRC, a share is a share wherever it is listed: dividends fall under the normal dividend rules and gains under Capital Gains Tax.

On the UK side, GOV.UK's tax on dividends page sets the dividend allowance at £500, with rates of 10.75% (basic), 35.75% (higher) and 39.35% (additional) for 2026/27. The Capital Gains Tax annual exempt amount is £3,000 for individuals for 2026/27. On the US side, the same dividends and gains go on Form 1040, computed in US dollars. That last point matters: a UK share bought and sold in sterling can show a dollar gain when the sterling price barely moved, or the reverse, because the cost and the proceeds are converted at different exchange rates. UK tax paid on the same income is usually creditable on the US return; our guide to double taxation relief between the US and UK explains how the credits line up.

The drawback of individual shares is concentration. Building a diversified portfolio share by share takes more capital and more transactions than buying a single fund, which is exactly why most Americans in Britain end up asking about funds.

Why are UK funds and investment trusts a problem for Americans?

UK funds and investment trusts are a problem for Americans because the IRS almost always classifies them as PFICs. A UK unit trust or OEIC (open-ended investment company) is a non-US entity whose income is passive. A UK-listed ETF is usually domiciled in Ireland or Luxembourg and is just as foreign to the IRS. HMRC reporting fund status, UCITS labels and ISA eligibility make no difference to the US analysis.

Investment trusts deserve their own note because people often assume a listed company escapes the rules. A UK investment trust is a UK public company whose business is holding a portfolio of investments, so it will normally meet the passive income or passive asset test and be a PFIC. The IRS applies the tests company by company, so a trust that runs an operating business, or holds certain property, may need a closer look before you assume either answer. For HMRC the picture is the reverse of an offshore fund: an investment trust is a UK-resident company, so it falls outside section 355 and gains are within Capital Gains Tax.

The Form 8621 instructions contain a limited filing exception for section 1291 funds where the total value of PFIC stock is $25,000 or less ($50,000 on a joint return) at the end of the tax year and there is no excess distribution or gain to report. That exception reduces paperwork for a small holding; it does not change how a gain is taxed when the fund is sold. For larger holdings, our PFIC reporting service prepares the forms and models the elections that might help.

US-domiciled ETFs and the UK access problem

US-domiciled ETFs and mutual funds solve the US problem: they are US corporations or trusts, not PFICs, and qualify for normal US capital gains treatment. They create a UK problem instead. For HMRC a US fund is an offshore fund, so unless that specific fund holds UK reporting fund status, a gain on sale is an offshore income gain taxed at Income Tax rates. Many large US ETF families do hold reporting status for some funds, so the approved list is the first place to check.

There is also an access problem. UK platforms have generally not offered US-domiciled ETFs to retail customers because the funds did not produce the UK retail disclosure document (historically the PRIIPs key information document). From 6 April 2026 the FCA's Consumer Composite Investments regime replaced the UK PRIIPs rules, with a transition period for firms. How individual platforms respond is their decision, and we cover that change in a separate guide. For tax purposes the point is unchanged: a US fund is fine on the US return and needs reporting status to be fine on the UK return.

Some Americans keep a US brokerage account after moving. Some US brokers restrict or close accounts once the holder's address moves abroad, and the policies change, so check before you move rather than after. A US brokerage account is not a foreign account, so it does not go on the FBAR, but every UK account you hold does; our comparison of the FBAR and Form 8938 sets out which form catches what.

Stocks and shares ISA or General Investment Account for a US person?

For a US person, a stocks and shares ISA is worth having only if its contents are acceptable on the US return. The ISA allowance is £20,000 for 2026/27, per GOV.UK's ISA guidance, and income and gains inside the ISA are free of UK tax. The IRS does not recognise the ISA wrapper, so the same income and gains are fully taxable on the Form 1040, with no UK tax to credit against them.

A General Investment Account (GIA, a standard taxable brokerage account) is taxed by both countries, but UK tax paid there is generally creditable against the US tax on the same income. That produces a slightly counter-intuitive result for some higher earners: the ISA saves UK tax that would otherwise have been offset against US tax anyway, while the GIA lets the two systems share the bill. The comparison depends on your UK rate, your US rate and what you hold.

1. Decide what the account will hold first. Individual shares and gilts are acceptable to the IRS in either wrapper; UK funds and UK-listed ETFs are PFICs in either wrapper.
2. Compare the two rates. If your UK rate on dividends and gains is higher than your US rate, an ISA removes UK tax that a credit would not fully cover. If your US rate is higher, the US tax is due either way.
3. Count the reporting. Both ISA and GIA accounts are foreign financial accounts for the FBAR and, above the thresholds, Form 8938.
4. Avoid selling in a hurry. An existing ISA full of UK funds needs an exit plan; selling inside the ISA is free of UK tax, but the US result depends on how long each fund has been held.

Can a SIPP or UK pension hold UK funds safely?

A UK pension, including a SIPP (self-invested personal pension), is the one place where UK funds are generally workable for an American. Article 18(1) of the US/UK Double Taxation Convention says income earned by a pension scheme established in one country may be taxed as the member's income in the other country only when, and to the extent that, it is paid out. Article 1(5)(a) lists Article 18(1) among the benefits the saving clause does not override, so the deferral applies to US citizens.

The Form 8621 instructions also refer to members of an arrangement treated as a foreign pension fund under a US income tax treaty in their exceptions, which is why PFICs held inside a qualifying UK pension are normally not reported fund by fund. The scheme still has to fall within the treaty's definition of a pension scheme, the account is still a foreign financial account for FBAR and Form 8938 purposes, and contributions and withdrawals have their own US rules. Our guide to SIPP US tax reporting covers those details.

Illustrative example: an American living in Manchester has a workplace pension, a SIPP and £30,000 of savings to invest. Inside the SIPP, a global index fund domiciled in Ireland is covered by the treaty deferral, so the growth is not taxed in the US until withdrawal. Outside the pension, the same fund would be a PFIC in either an ISA or a GIA. The taxable savings could instead go into individual shares or gilts, which both returns treat in an ordinary way. The figures are illustrative, not a recommendation of any investment.

Gilts and Premium Bonds: what about the safe options?

Gilts

A gilt is a bond issued directly by the UK government. It is not a fund, so it is not a PFIC. GOV.UK's Capital Gains Tax guidance lists UK government gilts among the assets you do not pay Capital Gains Tax on, although the interest (the coupon) is taxable UK income. The US taxes both the coupon and any gain or discount, and because the gilt is denominated in sterling, currency movements can produce a separate US gain or loss on top of the bond's own price change. Gilts bought through a gilt fund or ETF lose the direct-holding advantage: the fund is a PFIC.

Premium Bonds

Premium Bonds, issued by NS&I, pay prizes instead of interest, and those prizes are free of UK Income Tax and Capital Gains Tax. GOV.UK lists Premium Bonds alongside gilts as exempt from Capital Gains Tax. The US has no equivalent exemption: IRS Publication 525 says prizes from drawings are included in income. With no UK tax paid, there is nothing to credit, so every prize is fully taxable on the US return.

What do Americans in the UK most often get wrong?

• Assuming "tax-free" means tax-free everywhere. ISAs, Premium Bonds and gilt gains are UK concepts. The US taxes all of them.
• Treating an investment trust as a safe listed share. Being a listed UK company does not stop it being a PFIC.
• Buying a US ETF without checking UK reporting status. The fund solves the US side and can create an Income Tax charge on the UK side.
• Leaving PFICs off the return because the account is small. The $25,000 exception relieves some reporting; it does not apply when there is a gain or excess distribution to report.
• Selling everything at once to "clean up". The order and timing of disposals can change the US result substantially.

If you are reviewing a portfolio, our page on investing as an American in UK markets explains how we approach it. US/UK Cross Border Tax is US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco, so both returns are prepared from the same analysis. Americans who are new to the UK may also find our overview for Americans in the UK useful, and you can contact us for a fixed-fee quote.