I’ve lumped US and UK taxable brokerage accounts together because they’re conceptually very similar. There are slightly different challenges, based on the available investments, but I’ll call out where they differ. For most Americans in the UK, you’re best off with a US account, if you can get somebody to let you have one!
Synopsis
There are no tax advantages in either the US or UK, and no limits on contributions. If you use index funds, you need to make sure they aren’t a PFIC to the US and are HMRC reporting to the UK. Jumping through both of those hoops can be difficult – the other option is individual stocks.
Priority
Taxable brokerage accounts are the last “general purpose” account for most people. Once you’ve filled up your fully or partially tax advantaged accounts (pension, IRA, ISA), this is pretty much what’s leftover.
The US brokerage is, to me, a higher priority than a UK one just because it’s easier to do index investing, as long as you can use a US address for it. If you don’t have or want to use a US address, even if you can get a US broker to open you an account, buying index funds will likely be a challenge due to UK/EU regulations. In that case, you may wind up stuck with individual stocks – whether you want to hold those in a US or UK brokerage is mostly up to you.
Eligibility
Pretty much anybody, but you may find it challenging to find US brokerages that want to deal with Americans abroad (especially in the UK/EU) and to find UK brokerages that want to deal with US citizens. I’d like to put a good list together – very much open to suggestions!
Suggestions I’ve heard previously are Charles Schwab and Interactive Brokers for the US, with Hargreaves Lansdown for the UK, but there probably more options out there.
Investment Options
You’re able to buy anything you like, but you want to keep PFIC and HMRC reporting in mind. As a quick summary:
- PFIC: You don’t want mutual funds or ETFs that are located outside the US. Non-US individual stocks and bonds are fine.
- HMRC reporting: You want mutual funds/ETFs that do report to the HMRC and are on their list. Or you want individual stocks and bonds.
Risk & Return
Totally depends on what you invest in. If you limit it to index funds vs individual stocks, you’ll have more risk in individual funds. Either way, though, nothing is guaranteed and you could lose money.
Withdrawal Options
Withdraw contributions and earnings at any time with no penalty. However, selling investments that have appreciated results in a capital gain, which is potentially taxable in both the US and UK (although you shouldn’t be double taxed – more details below).
Contribution Limit
None – invest as much as you want or have.
Fees
Depends massively on the broker. In the UK, they tend to charge both a platform fee and a dealing (transaction fee), while the US is more on transaction fees (and some transactions may be free, like buying funds from the same brokerage you have your account with). On the whole, US fees tend to be lower, but it varies.
UK Tax Treatment – Contributions
All contributions are from post-tax money, no tax impact.
UK Tax Treatment – Withdrawals
Any capital gains are taxable, although the UK has a relatively generous capital gains allowance of £12,300 per year – stay under this allowance, and there’s no UK capital gains tax.
You can also be taxed on any dividends or interest when they’re paid, not just when you take them out of the account. These also have UK allowances: the Personal Savings Allowance for interest (ranges from £1,000 for a basic rate taxpayer, £500 for a higher rate, and £0 for an additional rate) and the dividend allowance of £2,000.
If you make a loss, you can also use that to offset gains – gets complicated, I’ll explore it more in a future post because it can be useful, even selling at a loss on purpose, called “tax loss harvesting.” For now, just be aware it’s a possibility.
US Tax Treatment – Contributions.
All contributions are from post-tax money, no tax impact.
US Tax Treatment – Withdrawals
Similar to the UK, capital gains, dividends, and interest are all taxable. In general, for most Americans in the UK, the UK will get first dibs on these, and then you can take a credit against your US taxes for any taxes you pay to the UK. But because all of these have some UK allowances, it’s possible to not owe any UK tax but wind up owing US tax.
The US doesn’t have any similar allowances for capital gains, dividends, or interest. There are two caveats that can reduce your tax – these get a bit complicated, but at a very high level:
- Long vs short term capital gains: hold your investments for more than a year and your gains get taxed at the lower capital gains rate. Held for less than a year, they get taxed at your higher marginal income rate.
- Ordinary vs qualified dividends: hold your investments for 2 months before and 2 months after the dividend is paid, and they get treated at the same rate as long term capital gains (qualified dividends). If not, these ordinary dividends get taxed at your higher marginal income rate.
- Dividends from PFICs can’t be qualified!
Buy and hold! It saves you money on taxes and on transaction fees, and keeps you from making silly decisions 🙂
Tax loss harvesting is possible for the US as well – more to come in a future post.
FIRE Across the Pond 
Very good info. Lucky me I discovered your website by accident (stumbleupon). I’ve bookmarked it for later!
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Thanks for this brilliant resource! I just wanted to note a potential typo in paragraph 4: “The US brokerage is, to me, a higher priority than a US one just because it’s easier to do index investing.” I think you meant “US brokerage is, to me, a higher priority than a US…”?
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Thanks, fixed!
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Thank you so much. I just found this website and it has been a wealth of information. I was looking for specific information on stocks that one owns in the USA prior to moving to the UK. It seems that it may be complicated to engage with those stocks (i.e. sell/buy) once one lives in the UK. Can you clarify whether I have understood correctly that it is best to buy/sell in individual stocks within the US? Or is one able to go to a brokerage company that engages with US citizens like Interactive Brokers and sell the shares and buy EFCs that way?
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Individual stocks are generally pretty ok. The only real snag would be if your current US brokerage decides to freeze or close your account based on them learning that you’ve moved to the UK. Even in that case, Interactive Brokers will take you as a customer, and probably do a transfer in specie to avoid taxable events (assuming a taxable account). Schwab International is another option, or moving cash proceeds to a UK broker that will work with US citizens (although UK brokers are typically more expensive, so no big advantage there).
Individual stocks are not PFICs (with rare exceptions for non-US companies that have primarily passive income and/or assets), so you avoid that concern. HMRC reporting isn’t a consideration, neither is MiFiD/PRIIPS/KID.
Of course, in a taxable account, you do need to consider capital gains and dividends tax, on the UK and US sides, but that’s all manageable.
Being willing to work with individual stocks opens the door to using an ISA, too. And if you’re using IBKR for taxable investments, makes sense to use them for your ISA, too – if you’re going to do individual stocks, you might as well put them in an ISA and shield them from UK tax.
Wildcard consideration: if you have significant existing taxable investments in the US and were to only plan on remaining in the UK a limited time, you may want to consider remittance basis for your UK tax. Not something I’m educated enough about to speak in any detail, beyond mentioning it exists and you may want to look into it.
Not sure I understand the question on EFCs – is that a typo?
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Yes, I meant an ETF
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Got it – ETFs are much more challenging than individual stocks to invest in (although I’d absolutely rather have an index ETF than individual stocks). The combination of MiFiD rules preventing marketing US ETFs to UK citizens, plus PFIC rules meaning US citizens don’t want to own a non-US fund (at least, not outside a US-recognized tax shelter like a pension or IRA) means that suitable ETFs are tough to buy, unless you can keep using a US address.
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