8621
Per-Fund Filing
A Passive Foreign Investment Company is any foreign corporation where 75% or more of gross income is passive, or 50% or more of assets produce passive income. That definition sounds like it targets offshore shelters. In practice it catches nearly every UK and EU mutual fund, OEIC, investment trust, and ETF, because a pooled fund is by nature a company holding passive assets.
The consequences are severe. Under the default rules, gains and large distributions are taxed at the highest ordinary rates with an interest charge stacked on top, and each fund generally requires its own Form 8621 every year. We find the PFICs in your accounts, run the numbers under each available regime, and chart the cheapest way out.
How we deliver this service.
A rigorous, phase-driven process ensures nothing is missed and every position is defensible.
Portfolio Screening
We review every non-US holding, including funds inside ISAs and general investment accounts, against the 75% income and 50% asset tests.
Regime Determination
For each PFIC we establish which regime applies: the default Section 1291 rules, a QEF election, or mark-to-market under Section 1296.
Historical Reconstruction
We rebuild purchase history, distributions, and holding periods, since Section 1291 allocates gains across every year you owned the fund.
Election Modeling
We calculate the cost of a QEF, mark-to-market, or purging election against staying in the default regime, so the choice is made on numbers.
Form 8621 Preparation
We prepare a separate Form 8621 for each fund, with the excess distribution or mark-to-market computations attached to your return.
Portfolio Restructuring
We map an exit toward US-domiciled ETFs and direct shareholdings, timed to keep the tax cost of unwinding as low as possible.
Fund Identification
Ordinary UK investing creates US tax traps.
Nobody buys a PFIC on purpose. You open a Stocks and Shares ISA, your adviser puts you in a FTSE tracker, your workplace scheme drops you into a default fund, and every one of those holdings is a foreign corporation earning passive income. The ISA wrapper makes it worse: the UK sees a tax-free account, while the US sees a taxable brokerage account full of PFICs, so the shelter you were promised does not exist on the American side.
The screening step matters because fund domicile is not always obvious. A fund listed in London may be Irish or Luxembourg domiciled, and a US-sounding name proves nothing. We work from the fund's legal domicile and structure, not its ticker, and we check whether any UK fund holds HMRC reporting fund status, which affects the UK side of a future disposal.
Identification focus: the 75% income and 50% asset tests, ISA and GIA holdings, pooled workplace investments, and fund domicile verification.
Tailored for every client profile.
Election Strategy
The default regime is designed to hurt.
Under the default Section 1291 rules, any gain on sale and any 'excess distribution' is thrown back across your entire holding period. Each prior year's slice is taxed at that year's top ordinary rate, currently 37%, and then an interest charge accrues on each year's deemed underpayment. Hold a fund for fifteen years and the combined rate can consume most of the gain. Long-term capital gains treatment is simply unavailable.
Two elections can defuse this. A QEF election taxes you annually on your share of the fund's earnings at normal rates, but it requires an annual information statement that most UK funds refuse to produce. Mark-to-market under Section 1296 is usually the practical choice for exchange-traded holdings: you pick up each year's gain as ordinary income and skip the interest charge. For funds already stuck in the default regime, a purging election with a deemed sale can wipe the slate so a better regime applies going forward.
Election focus: Section 1291 throwback and interest computations, QEF availability review, Section 1296 mark-to-market, and deemed sale purging elections.
Clean Portfolio Design
File what the law requires, then stop needing to.
Form 8621 is filed per fund, per year, and the IRS itself estimates the form takes many hours each. There is a narrow reprieve: if you make no election, receive no excess distributions, and your total PFIC holdings stay at or below $25,000 ($50,000 for joint filers), annual filing under Section 1298(f) is generally excused. The underlying tax rules still apply when you eventually sell, so the exception postpones paperwork rather than tax.
The durable fix is to stop holding PFICs at all. US-domiciled ETFs and direct shares of individual companies sit outside the regime entirely, and many of them also hold HMRC reporting fund status or need none, keeping the UK side clean. We sequence disposals to use losses, spread gains across tax years, and rebuild the same market exposure with instruments both countries treat sensibly.
Compliance focus: Form 8621 for every fund, the $25,000 and $50,000 filing exceptions, disposal sequencing, and US-domiciled replacement portfolios.
Holding UK funds on a US passport?
Every year in the default PFIC regime adds to the interest clock. Get the analysis done before the next sale or distribution, not after.
Specific deliverables, precisely documented.
“The PFIC rules were written for tax shelters and land on ordinary savers. We keep you compliant while it matters and get you out of scope for good.”
Technical clarifications.
Answers to the most frequently asked questions about how this service works in practice.
Almost any pooled investment organized outside the US qualifies: UK unit trusts, OEICs, investment trusts, and Irish or Luxembourg domiciled ETFs. The tests are mechanical, 75% passive income or 50% passive assets, and a standard fund meets them by design. Direct shares of an operating company, like BP or Unilever, are not PFICs.
Yes. The ISA wrapper has no meaning in US law, so the IRS looks straight through it to the funds inside. Dividends, fund distributions, and gains inside an ISA are all reportable on your US return, and each fund is tested as a PFIC just as if you held it in an ordinary brokerage account.
Generally yes, one per fund, if you receive distributions, sell shares, or have an election in place. If none of those apply and your total PFIC value stays at or below $25,000 ($50,000 filing jointly), the annual form is usually excused. The tax regime still applies when you eventually sell, so the exception is a deferral of paperwork, not forgiveness.
Often, but not all at once and not before the numbers are run. Selling triggers the Section 1291 throwback on each fund, so we look at purging elections, loss harvesting, and spreading disposals across years first. The goal is a portfolio of US-domiciled ETFs and direct shares that never generates another Form 8621, reached at the lowest possible cost.
Related services.
Two Tax Systems, One Team
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