For those UK residents who haven’t seen the news today, the Chancellor has announced a package of reforms. Reading into them, one is of particular interest to many UK Bogleheads (especially US citizens in the UK) – an intention to repeal the requirements for a KID/KIID, and quite explicitly to enable access to US ETFs.
The consultation paper is here. Section 5.3 says very clearly that they want to improve retail investor choice, including US-based ETFs.
Now, this isn’t law/regulation yet, but assuming it does happen, this blows a nice hole in the catch-22 between PFIC and KID/KIID rules. If it happens as written, it should be quite straightforward to buy a US ETF inside a UK ISA, thus benefitting from the UK tax advantages without the punishing effects of US PFIC rules. The dividends & capital gains would still be US taxable, but that’s a million times easier than managing a portfolio of individual stocks!
I’ll definitely keep an eye on this over the coming months, as the consultation closes on 03 March. But assuming it does, this moves ISAs from a borderline case to a clear-cut win for US citizens in the UK. Possibly also avoids some SIPP grey area around PFIC rules, if the SIPP is just in US ETFs anyway.
Some good news to come out of HM Treasury 🙂
FIRE Across the Pond 
That’s totally awesome, thanks for spotting that. I’ve read the relevant sections of the document and I’ll definitely be writing in to provide feedback on behalf of our community. As you say, access to US ETFs would be an elegant solution, especially within an ISA or SIPP. Ideally we wouldn’t be limited to HMRC-reporting funds, but if presumably that problem goes away anyway if it’s held in an ISA or SIPP.
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I’ll write in as well, would be a great benefit. Agree on the HMRC-reporting funds part, although basically everything I’d want to own is an HMRC-reporting Vanguard ETF anyway, so wouldn’t be the end of the world if there is a limit there.
Also occurred to me that this would be a modest improvement for Roth IRAs for people who can’t use a US address – would be able to buy US ETFs instead of UCITS ones, at higher expenses. That’s small in comparison, but certainly a nice simplification.
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I’ve sent a response to the consultation. One thing I mentioned was the onerous nature of Excess Reportable Income reporting for HMRC-reporting funds (outside a tax wrapper). I said it would be good if investment platforms could provide any such income in a timely fashion so that they can be reported on our tax return (because trying to do it yourself is virtually impossible). I also mentioned that ISAs cannot currently hold foreign currency, so retail investors may be detracted from buying US-based ETFs if the exchange rates fees remained as high as they are now. I suggested that being able to hold US Dollars in an ISA would solve this issue.
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I just sent my response too, and mentioned both those issues. Threw in the unwillingness of UK brokers to work with US citizens/taxpayers as well – not expecting the UK government to convince the US to repeal FATCA, but may as well hope!
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