Sorting the financial affairs of US citizens living in the UK is not for the fainthearted and has become a specialist advice field.

Uncle Sam’s grip on US citizens’ global tax affairs is as tight as it is unique (and sometimes painful), and wealth manager James Hambro & Partners has launched a new investment service this week for those living in the UK caught between the two regimes.

Complications ensue because the US is one of only two countries in the world that taxes non-resident citizens on their global income. The other distinction goes to Eritrea.

Changes to the US tax code and the introduction of the Foreign Account Tax Compliance Act (Facta) has created a niche market of private client work left by banks and wealth managers unwilling to take on the additional reporting and tax burdens that the Facta rules have imposed.

“It’s incredibly complicated, and there’s no hiding from the rules. Americans living overseas have to file returns, and non-US institutions that hold accounts for Americans have to report their holdings to the IRS," said JH&P investment manager and partner Rosie Bullard, who also said that the service is an extension of its investment process designed for the nuances of US tax reporting and fnding an appropriate investment path.

A large part of this navigation is avoiding interests in Passive Foreign Investment Companies (PFICs), which can incur punitive tax rates. "Unfortunately, most UK collective investment schemes, such as unit trusts, are classified as PFICs, which severely restricts fund choice," Bullard said, and investing in US funds is "rarely an alternative option as many of these do not meet HMRC’s requirements."

The challenge US citizens face then is twofold: “Investing wisely without the help of funds, and reporting on their performance, because few investment managers provide income and capital gains reports that are compliant with both US and UK tax regimes,” she said.

Bullard and partner William Francklin will head up the service, with four specifically focused on ex-pat clients, and work with a range of tax advisors. In September 2017, the firm received authorisation from the US Securities & Exchange Commission to manage investments for American investors.

The Office for National Statistics estimates that around 200,000 Amerians live in the UK, but the numbers inheriting complex financial affairs could be far greater than that as IRS reporting rules can extend to non-US spouses and relatives with joint investments. Finding tax efficient investment opportunities for US citizens in the UK is continually challenging for wealth managers.