For a US citizen living in the UK, US ETFs and UK reporting fund status decide whether a gain is taxed as capital or as income. HMRC treats US-domiciled ETFs and mutual funds as offshore funds. If a fund lacks UK reporting fund status, the gain on sale is an "offshore income gain" taxed at Income Tax rates of up to 45%, not Capital Gains Tax. Funds on HMRC's reporting fund list keep CGT treatment.
This creates a double trap. US tax rules push Americans away from UK and European funds, which are passive foreign investment companies (PFICs) with punitive US treatment. UK tax rules then penalise the US funds they buy instead. This guide explains how the two regimes collide and how to invest without falling into either. It focuses on funds, not on individual shares, which are unaffected.
Why Americans in the UK hold US funds
A US person who owns a UK unit trust, OEIC or UCITS ETF holds a PFIC. Each PFIC must be reported annually on IRS Form 8621. Without an election, gains and certain distributions are taxed at the highest ordinary rate plus an interest charge, as the IRS explains in its Form 8621 guidance. Consequently, most US advisers tell Americans abroad to hold US-domiciled funds through a US brokerage. That solves the US problem but creates a UK one.
How HMRC taxes US ETFs without UK reporting fund status
Under the Offshore Funds (Tax) Regulations 2009, any fund established outside the UK is an offshore fund for UK tax. US ETFs and mutual funds fall squarely within that definition.
Reporting funds
A fund with reporting fund status reports its income to HMRC and to investors each year. You pay Income Tax on your share of the reported income, whether or not it is distributed. When you sell, the gain is a capital gain taxed at Capital Gains Tax rates of 18% or 24% for 2026/27, after the annual exempt amount (GOV.UK Capital Gains Tax rates).
Non-reporting funds
A fund without reporting status is a non-reporting fund. When you sell, the whole gain is an offshore income gain, taxed as miscellaneous income at 20%, 40% or 45%. The CGT annual exempt amount does not apply, and capital losses elsewhere cannot be set against an offshore income gain. For a higher-rate taxpayer, that roughly doubles the tax on a long-held ETF.
| Feature | UK reporting fund | UK non-reporting fund |
|---|---|---|
| Tax on annual income | Income Tax on reported income, distributed or not | Income Tax on distributions received |
| Tax on sale | Capital Gains Tax, 18% / 24% (2026/27) | Income Tax, 20% / 40% / 45% |
| CGT annual exempt amount | Available | Not available |
| Typical examples | US ETFs on HMRC's list | Most US mutual funds, many US ETFs |
How to check a US ETF.s UK reporting fund status
HMRC publishes the official list of reporting funds. You can search by fund name or ISIN. If a fund is not on the list for the period you held it, assume it is a non-reporting fund. Status can begin or end at a specific date, so check the effective dates, not just the current entry.
What the list shows for US ETFs
Several large US ETF families have obtained UK reporting status for many of their US-domiciled ETFs. However, coverage varies by fund, and most US mutual funds do not have it. Therefore, never assume a fund qualifies because its sister fund does. Check each ISIN.
Reporting income each year
Reporting funds publish an annual "excess reportable income" figure per share. You must include your share on your UK Self Assessment return, even though you received no cash. Many Americans miss this, because US brokerages do not provide the figure on Form 1099. Keep a record, because it also increases your UK base cost and reduces the eventual gain.
The narrow path: funds that work in both countries
A US-domiciled ETF with UK reporting status solves both problems at once. It is not a PFIC for the US, and its gains are capital gains for the UK. In our experience, a portfolio built only from such funds, held at a US broker that accepts UK residents, is the cleanest structure for most Americans in Britain.
Individual shares
Individual US or UK company shares are not funds. They are neither PFICs nor offshore funds, so they avoid both regimes. Some clients hold a core of reporting-status ETFs plus individual shares for this reason.
Pensions
Funds held inside a UK pension, such as a SIPP, are outside the offshore fund rules while in the pension. For US purposes, the UK-US Income Tax Treaty generally defers tax on pension growth. Our guide to ISA tax for US citizens explains why ISAs, by contrast, solve neither problem.
Newcomers: the FIG regime
From 6 April 2025, individuals arriving in the UK after ten consecutive years of non-residence can claim the four-year foreign income and gains (FIG) regime. A valid claim exempts foreign income and gains, including offshore fund gains, from UK tax for those years. A US citizen still pays US tax on the same income. Our guide to the FIG regime covers the claim and its costs.
An illustrative case
Consider an illustrative American in Cambridge who bought a US-domiciled S&P 500 mutual fund before moving to the UK and sells it in 2026/27 with a £60,000 gain. The figures are illustrative. If the fund has no reporting status, the whole £60,000 is an offshore income gain taxed at 40%. Had the same exposure been held in a reporting-status US ETF, the gain would have been taxed as a capital gain at 24% after the annual exempt amount. On the US side, the gain is a long-term capital gain either way, and the UK tax is creditable on Form 1116, as our foreign tax credit and double taxation page explains.
If you hold US funds while living in the UK, book a consultation with our US-UK investment tax team. We check each fund's status and restructure the portfolio so both countries tax it fairly.
Frequently Asked Questions
What is UK reporting fund status?
UK reporting fund status is an HMRC regime for offshore funds. A fund with the status reports its income to HMRC and investors annually, and UK investors pay Capital Gains Tax rather than Income Tax when they sell. HMRC publishes the official list of reporting funds on GOV.UK.
Are US ETFs reporting funds for UK tax?
Some are. Several US ETF providers have obtained UK reporting fund status for many of their US-domiciled ETFs, but coverage varies fund by fund. Most US mutual funds are non-reporting funds. Check each fund's ISIN on HMRC's list of reporting funds.
How are non-reporting fund gains taxed in the UK?
Gains on a non-reporting offshore fund are offshore income gains, taxed as miscellaneous income at 20%, 40% or 45% rather than at Capital Gains Tax rates. The CGT annual exempt amount does not apply to them.
Why can't Americans in the UK just buy UK funds?
UK unit trusts, OEICs and UCITS ETFs are passive foreign investment companies (PFICs) for US tax. Each requires annual Form 8621 reporting, and without an election gains are taxed at the highest US ordinary rate plus an interest charge. US-domiciled funds avoid the PFIC rules.
Do individual US shares face the offshore fund rules?
No. Shares in individual companies are not offshore funds for UK tax and not PFICs for US tax. Gains on them are capital gains in both countries, with UK tax creditable against US tax.
Do I report excess reportable income from a US ETF?
Yes. If you hold a reporting fund, you must include your share of its excess reportable income on your UK Self Assessment return each year, even if nothing was paid out. The amount also increases your UK base cost for calculating the later gain.
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