Fidelity’s New Restrictions for US-Connected Clients
Fidelity International (Fidelity Personal Investing UK) has confirmed that it can no longer support US citizens or taxpayers holding collective investments such as UK-domiciled OEICs, unit trusts, or ETFs.
This change impacts any client with a US tax connection, including American citizens, Green Card holders, and those meeting US tax residency rules.
It follows a growing industry trend: many UK platforms have already offboarded or restricted US-connected clients to reduce exposure under FATCA and PFIC (Passive Foreign Investment Company) legislation.
Until now, Fidelity and Transact were among the few remaining UK platforms still accepting such clients. That era has now ended.
Why Fidelity Is Taking This Action
Under US tax law, most non-US funds qualify as PFICs (Passive Foreign Investment Companies). These are subject to complex and punitive tax treatment under the US Internal Revenue Code.
While UK pensions (like SIPPs) may receive limited exemptions, taxable accounts such as ISAs, GIAs, or offshore bonds do not. The IRS applies extremely harsh rules:
- Gains can be taxed annually at the highest marginal rate, even if unrealised.
- Each fund requires a separate Form 8621 filing every year.
- Deferred gains attract retroactive interest and penalties.
Fidelity’s platform is not designed to classify, track, or report PFICs to the IRS. Rather than risk misreporting or client tax exposure, Fidelity has decided to restrict all collective fund investments for US-connected clients.Under US tax law, most non-US funds are classified as Passive Foreign Investment Companies (PFICs).
What This Means for Existing Fidelity Clients
1️⃣ Sale or Liquidation of Existing Funds
US-connected clients may be required to sell or transfer any non-US collective holdings by a given cut-off date. Fidelity may permit you to retain:
✅ Cash
✅ Direct equities (UK or US listed)
✅ Fixed-term deposits or money market instruments
But not:
🚫 UK OEICs, unit trusts, or investment trusts
🚫 UK/EU-domiciled ETFs
🚫 Offshore insurance-wrapped collectives
2️⃣ Historic PFIC Exposure
Even if you sell now, previous PFIC holdings likely have already triggered IRS reporting obligations. PFIC taxation applies retroactively, and you may need to amend prior US tax returns.
At Cameron James, we collaborate with independent specialist US/UK tax advisers to help clients identify, quantify, and correct any historical PFIC exposure efficiently and accurately.
PFIC Rules Explained Simply
A PFIC is any non-US company earning at least 75% passive income or holding 50% passive assets, meaning almost all UK and EU funds qualify.
The IRS recognises three treatment methods:
| PFIC Treatment | Description | Typical Issue |
| Default (Excess Distribution) | Harsh tax, backdated interest | Default for UK funds |
| QEF Election | Requires US-compliant statements | Rarely available |
| Mark-to-Market | Annual tax on unrealised gains | Complex, not always permitted |
The key issue: UK and European funds rarely issue the US tax statements needed for the QEF option, leaving most investors trapped using the Mark to Market election, which is very time intensive, or remain in the default regime.
Options for US-Connected Fidelity Clients
1️⃣ Retain Fidelity account with Direct Investments
You can keep your account but switch to direct equities, gilts, or cash.
However, diversification may be limited, and PFIC compliance for historic holdings will still be required. Fidelity may also restrict you further in the future
2️⃣ Transfer to a US-Compliant Platform
US-connected investors may move to a platform offering:
- US-domiciled ETFs or mutual funds (registered under the 1940 Act)
- IRS Form 1099 reporting
- Integration with dual-regulated advisers (FCA + SEC), such as Cameron James
⚠️ Note: UK or EEA residents must still comply with MiFID II, meaning they generally cannot buy US-listed ETFs unless they qualify as professional clients or receive advice from an SEC authorised adviser.
3️⃣ Use a UK Platform with SEC-Authorised Investment Management
Certain UK custodians now host PFIC-compliant discretionary portfolios managed by SEC-authorised investment managers.
This hybrid structure offers IRS-safe exposure, FCA protection, and continued access to UK-based advisers, without triggering PFIC risks.
4️⃣ Review Prior PFIC Exposure
A US-qualified CPA can:
- Identify prior PFIC holdings and quantify liability
- Choose the most suitable filing method (Protective, Late, or Amnesty)
- Elect QEF or Mark-to-Market treatment where available
Our advisory team can coordinate the entire process alongside your tax specialist.
How Cameron James Can Help
At Cameron James, we help US citizens and Green Card holders invest confidently across the UK, EU, and beyond, without breaching PFIC or FATCA compliance.
Our dual-regulated team (FCA & SEC) can:
- Build PFIC-compliant portfolios across multiple jurisdictions
- Manage transfers from Fidelity or other non-compliant UK platforms
- Work with US-qualified CPAs to resolve historic filings
- Align your investment strategy with cross-border tax planning
“Our mission has always been to make cross-border investing compliant, transparent, and accessible, not a maze of tax traps.”
— Jonathan Laws, Senior Adviser of Cameron James
📞 Book your free consultation today to review your Fidelity holdings and establish a fully compliant investment plan.
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Key Takeaways
| Issue | Impact for US-Connected Clients | Recommended Action |
| Fidelity ban on collectives | Cannot hold UK/EU funds | Review and rebalance |
| Historic PFIC exposure | Likely IRS filings due | Engage US tax adviser |
| Future investing | Must use PFIC-compliant portfolios | Work with dual-regulated adviser |
| Regulation | FCA only is insufficient | Use FCA + SEC regulated advice |
FAQs
🔹 Can I keep my Fidelity account as a US resident?
Yes, but only with non-collective holdings (shares, gilts, cash). UK or EU funds will be blocked.
🔹 Why wasn’t I warned about PFICs earlier?
Most UK-only advisers lack PFIC awareness. PFIC classification is a niche cross-border issue requiring US tax expertise.
🔹 Will this affect all platforms?
Yes, nearly all UK platforms (HL, AJ Bell, ii, Transact, Quilter, etc.) have introduced similar restrictions and did so many years ago.
🔹 Can I invest in US ETFs directly?
Only if you are classified as a professional investor under MiFID II and/or obtain advice from SEC authorised adviser/investment manager.