Form 8621
IRS, PFIC Shareholder Return
The annual return for US persons holding passive foreign investment companies, which includes most UK funds, unit trusts and ETFs.
What is Form 8621?
Form 8621 reports shares in a passive foreign investment company, or PFIC. Most UK collective investments, including unit trusts, OEICs, investment trusts and UK-listed ETFs, are PFICs for US purposes. For Americans in Britain, the form is often the most time-consuming item on the return.
Why UK funds cause a US problem
A foreign company is a PFIC if most of its income is passive or most of its assets produce passive income.
That describes almost every pooled fund. Individual shares in trading companies are usually not PFICs, although a mostly passive foreign company can be one. Funds held inside an ISA have no US protection, so a stocks and shares ISA invested in UK funds commonly holds PFICs, each needing its own Form 8621.
The default treatment is the excess distribution regime under section 1291. Gains on sale and distributions above a set level are spread back over the holding period, taxed at the highest rate for each year, and charged interest. A qualified electing fund election avoids this but requires an annual information statement from the fund, which UK funds rarely provide. A mark-to-market election is available for marketable shares and taxes unrealised gains each year as ordinary income.
Form 8621 has no standalone monetary penalty. Failing to file it instead keeps the statute of limitations open for the whole return, not just the PFIC items. There is a de minimis exception: where the aggregate value of PFIC shares is $25,000 or less, or $50,000 for joint filers, annual reporting may not be required, provided there were no distributions or disposals and no election applies.
At a glance
- Form 1040, one per PFIC held
- Attached to
- $25,000 aggregate, or $50,000 filing jointly
- De minimis
- No standalone penalty; statute stays open
- Penalty exposure
- Excess distribution rules under section 1291
- Default regime
Figures are for the tax year stated in the official instructions linked below.
How we handle it
- PFIC Reporting
Form 8621 reporting and elections for US persons holding UK funds, investment trusts and non-US ETFs, inside or outside an ISA.
- Foreign Income & FBAR
FBAR and Form 8938 reporting for UK accounts, with the income those accounts produce reported correctly on the US return.
- Individual Tax Returns
US federal returns for Americans living in the UK and British nationals with US income, prepared with the UK figures in view.
- Tax Planning
Forward planning across the US and UK tax systems: timing income, choosing investments, arriving, leaving and organising family finances.
Where people go wrong
The Form 8621 errors we correct most often.
Who files it
- Americans in the UK holding unit trusts, OEICs or UK-listed ETFs
- US persons with a stocks and shares ISA invested in funds
- Dual citizens who inherited UK fund holdings or investment trust shares
- Holders of shares in a foreign company that earns mostly passive income
01
Assuming ISA holdings are sheltered from US tax as they are from UK tax
02
Treating investment trusts or ETFs as ordinary shares rather than PFICs
03
Relying on the de minimis exception in a year with a sale or distribution
04
Making a mark-to-market election without tracking basis adjustments in later years
Why US UK Tax Returns
Every form is prepared against the official instructions, and every position on it is one we can point to in the Code, the treaty or HMRC's guidance.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
Is the index fund in my stocks and shares ISA a PFIC?
If the fund is domiciled outside the US, as most UK-sold funds are, it is very likely a PFIC. The ISA wrapper protects it from UK tax but has no effect for US purposes, so the fund is treated as held directly. Each fund in the ISA is a separate PFIC with its own reporting. The exact position depends on the fund's structure and domicile.
What happens if I have never filed Form 8621?
There is no fixed penalty for the missing form, but the statute of limitations on the whole return stays open until it is filed. Any PFIC gains or distributions in those years may also have been under-taxed. The usual fix is to file the missing forms, often as part of amended returns or a Streamlined submission, with the excess distribution calculations done for each year.
Can I avoid the PFIC rules by choosing different investments?
Many Americans in the UK hold individual shares, or US-domiciled funds where a platform allows, because those are generally not PFICs. US-domiciled funds can be hard to buy as a UK resident because of UK product disclosure rules. Selling existing PFICs triggers the excess distribution calculation, so a switch has a cost. The right approach depends on the size of the holdings and the time horizon.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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Need Form 8621 prepared or reviewed?
Tell us where you live, what you hold and which years are outstanding. We will say what applies and what it involves before any work begins.
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