What American Clients need to know from their Financial Advisers

investment

For an American investing outside of the US, complications are common. These clients will likely run into a plethora of problems, from additional tax and reporting requirements to restrictions in their investment. Advisers need to be ready to suggest solutions for these potential problems.

Complex rules and regulations impact a surprisingly large amount of people, but most obviously apply to American citizens working and living abroad. These rules, however, can also apply to a less obvious group of people known as “US Persons.” As an example, this group includes those with an American parent.

The US State Department in 2016 estimated there were up to 200,000 “US persons” resident in the UK.

Here are some of the key complications faced by those considered as “US persons” living outside of the US.

Additional reporting requirements, with very few exceptions, apply to Americans living overseas. They are required to file tax returns with the US tax authority and potentially must pay additional tax. People paying taxes in the countries in which they live already are not commonly exempt from this rule.

Americans living overseas also must file a Foreign Bank Account Report, should they have a non-US bank account holding more than a balance of $10,000. Many are unaware of this rule due to its recent implementation and is separate from tax returns.

Investment constraints are likely. The most common being what is known as “passive foreign investment companies, or PFICs for short. These companies are taxed heavily by the IRS and should ideally be avoided by Americans abroad.

This can be complicated however as most collective investments, such as unit trusts or open-ended investment companies, in the UK are deemed PFICs for US purposes. Unsurprisingly, this causes issues for advisers, as it necessitates portfolios to be developed by specialists familiar with US rules.

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