Originally Posted by Alan
I second that
Also for US taxpayers holding stocks in a foreign country in the foreign currency it also complicates the taxes greatly. It could well be the same for UK taxpayers holding US equities.
It's not quite as bad as PFIC for US citizens, but it isn't nice either. If a non-UK based fund is not a "distributor fund" in HMRC's books then the capital gains for someone resident and domiciled in the UK will be taxed as ordinary income. 99.999% of US funds don't go through the paperwork to show they comply with HMRC's rules. It's ok for a UK tax resident to be in US funds if they are in tax deferred retirement accounts because withdrawals are classed as income anyway.
As a UK and US citizen if I move back to the UK and become resident I'll be in a catch 22 situation wrt taxation of mutual funds in after tax accounts. I'll probably just keep a fair amount in cash and what after tax equity funds I have I'll keep in the US and just keep my UK tax bracket low. Alternatively I could invest in shares as there's no tax issues doing that.
FYI withdrawals from US ROTHS are also tax free in the UK.....thanks to the tax treaty.