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The American

ACA Finance Panel A

merican Citizens Abroad are holding a Town Hall meeting in London December 2nd with a panel of experts who can answer your questions about expat finance. We spoke to Dan Hyde of Westleton Drake, Maseco’s James Sellon, and Brad Westerfield of Butler Snow about some of the most common topics that come up in their work: The American: Things are getting ever harder, we recently heard that Fidelity and a few other US mutual fund managers are restricting access to their funds for US persons living abroad. Is this due to FATCA or some other legislation? James Sellon: These new restrictions are actually the result of an EU legislation called AIFMD (Alternative Investment Fund Managers Directive). Among other things, AIFMD was put in place to create a regulatory framework for the marketing of all investment funds within the EU. As it applies to all US asset managers who market to investors living within the EU, many US asset managers are choosing to restrict ownership. Most asset managers are not forcing people to sell out of existing positions, but instead restricting new purchases and dividend reinvestment going forward. Brad Westerfield: FATCA has indeed dominated the headlines

24 December 2014

since it was enacted in 2010, and it has now gone live with formal reporting of US account holders starting in 2015. On the other hand, AIFMD, which was enacted around the same time but only recently started to make waves, has suddenly surfaced and caught both US and non-US individuals living in the EU by surprise. What about other investments? It seems Americans in London are increasingly restricted in terms of how they can efficiently invest their capital? JS: Investing is certainly more complicated for Americans living in the UK. There is the challenge to find a financial institution to hold accounts and there are complexities with respect to the tax efficiency of investment options. However, there are still solutions for investing in a tax efficient manner. For individuals who seek greater portfolio diversification, one can invest in US mutual funds or ETFs (Exchange Traded Funds) that have UK reporting status. Individuals can also choose to invest in individual securities, such as shares or bonds. Dan Hyde: It is without question that the investment landscape for Americans living abroad is challenging. US persons need to avoid non-US collectives which are taxed as PFICs but the solution isn’t so straightforward as to simply invest in US products. Non-UK products

which don’t have ‘reporting status’ for UK tax purposes attract ordinary income tax rates on gains, without the offset of corresponding losses. There is a path through all this but it needs both investment managers and tax advisors who know how to navigate the issues. It seems selling one’s main home is a serious problem now given where the UK market has gone, especially in London. What is the situation there? BW: While having your property value increase is usually a good thing, the realisation of that gain can become a problem for a US individual. Unlike non-US individuals who can generally sell their UK home without triggering an income or capital gains tax, US individuals (including green card holders) are subject to income tax if the gain exceeds the applicable US principal residence exclusion, which is $250,000 for individuals and $500,000 for joint filers provided an ownership and use test is met. With high UK property values, a strong Pound and an effective US long-term capital gains rate of up to 23.8%, the US income tax on the gain from the sale of a UK home can be a significant cost. DH: This is a major source of angst and anger for our clients, especially those who still believe gains can be rolled into a new property as was the case almost

The American December 2014 Issue 739  

The American has been published for Americans in Britain since 1976. It's also for Brits who like American culture.

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