We have a detailed explanation of why UK ISAs and funds are treated as PFICs for US tax purposes. This guide is the practical companion: what you can actually do about it, and how to invest tax-efficiently as a US person while living in the UK.
The short answer
Most UK-domiciled funds are PFICs and carry punitive US tax treatment. US-domiciled index funds and ETFs are not — and for most Americans in the UK they are the cleaner long-term choice. The time to get the structure right is before you invest, not after years of PFIC growth have accumulated.
The practical solution: US-domiciled funds
US-listed index funds and ETFs — issued by Vanguard, iShares (US), Fidelity, or Schwab and listed on a US exchange — are not PFICs. Gains are long-term capital gains at preferential rates. Dividends are qualified dividends. Reporting is via Schedule D, the same as for US-based investors. There is no Form 8621, no excess-distribution calculation, no interest charge.
The limitation is access. UK PRIIPS regulations require a Key Information Document for packaged investments sold to retail clients — US ETFs do not provide one, so many mainstream UK brokers block retail access. Americans in the UK who want US-listed funds typically use platforms serving self-certified sophisticated investors, specialist cross-border brokers, or US-held accounts maintained from the UK.
Dealing with existing UK fund holdings
If you already hold UK-domiciled funds the question is whether and when to exit. Exiting a PFIC triggers the default PFIC regime on any gain unless a QEF or mark-to-market election is in place — elections that typically require annual information from fund providers that most UK providers do not supply.
An exit may still be right where the ongoing complexity outweighs the immediate cost, but the numbers should be modelled first. For short-term holdings with small gains, a clean exit is often straightforward. For long-term holdings with significant accumulated gain, more care is needed.
Individual UK shares
UK shares listed on the London Stock Exchange are direct equity investments, not PFICs. Gains are capital gains on Schedule D of Form 1040, with the cost basis in US dollars at the purchase date.
Currency movement creates a separate US gain or loss from the sterling position. A sterling gain can produce a smaller US gain — or even a US loss — if the pound has weakened since purchase. This needs to be tracked and reported correctly. For property disposals, the comparison between UK and US CGT is more involved — see our UK vs US capital gains tax guide.
Reporting requirements
FBAR: File if aggregate foreign financial accounts exceed $10,000 at any point in the year. UK ISAs, brokerage accounts, and savings accounts all count. Filed with FinCEN separately from the tax return.
Form 8938: Specified foreign financial assets above FATCA thresholds — higher for those living abroad. Filed with Form 1040.
Form 8621: A separate form per PFIC held. Ten UK funds means ten Form 8621s. Penalties for non-filing start at $10,000 per violation, regardless of whether any US tax is owed.
Timing matters
Restructuring an investment portfolio that is already PFIC-heavy is more complex and expensive than building a clean structure from the outset. For someone arriving in the UK, investing for the first time, or planning a move to the US, the right time to address this is before action — not after.
A note on this guide
This guide covers the general framework. The right approach for your specific portfolio, tax profile, and time horizon depends on individual facts.