US/UK tax traps UK wealth managers keep missing with American clients (PFICs, ISAs, pensions, FATCA) — AMA

Watch the video: https://youtu.be/O3HLZULaylM?si=BgaMTSyWACK5zaq0

Why post this
I’m a dual-qualified UK/US tax adviser working with UK wealth managers who look after American clients. Recent HMRC guidance (INTM163160, Mar 2024) plus PFIC rules are catching people out—especially ISAs and OEICs. Sharing a field guide and happy to answer questions.

The short version

• ISAs aren’t tax-free for US citizens. If they hold UK funds, each fund is a PFIC → Form 8621 per fund, per year.
• HMRC guidance on pension lump sums for US residents tightened in 2024—don’t assume blanket treaty protection.
• FBAR and FATCA thresholds differ; penalties stack fast.
• Using a US broker with US-domiciled ETFs often eliminates 8621 and slashes the admin cost.

Three relatable examples

1. ISA of UK funds: Client had 10 funds, 0 x 8621 for years. We filed Streamlined, phased out PFICs, moved to US ETFs. Effective US tax fell from ~37% default to ~12%.
2. IFA acquisition paused: 60 US clients, no PFIC filings. We regularised, documented non-wilful conduct, trained the team, and the deal closed.
3. US real estate sale (FIRPTA): UK seller stuck behind 15% gross withholding. With 8288-B, ITIN and dual filings mapped, cash released faster and UK CGT handled cleanly.

Typical mistakes

• Treating ISAs as universal shelters.
• Missing FBAR/FATCA (they’re different filings).
• Ignoring currency gains/losses on USD transactions.
• Assuming pensions are simple under Article 17 without testing payment type and residence.

Practical fixes

• Inventory PFICs now; don’t wait for the IRS letter.
• Prefer US ETFs/individual equities via a US broker where possible.
• Align UK tax payments by 31 Dec to maximise US foreign tax credits.
• Build a standard FBAR/8938/8621 checklist.
• For pensions, model periodic vs lump-sum outcomes post-INTM163160.

Ask Me Anything (Friday)
I’ll be here Friday 10:00–13:00 UK time to answer specifics (e.g., “Is investment trust X marketable for MTM?”, “Does my SIPP trigger 3520-A?”, “How do I phase out PFICs without spiking rates?”). Mods—happy to verify credentials if required.

Hashtags
#PFIC, #FATCA, #FBAR, #UKInvesting, #ExpatTax