Probably a question for an accountant (rather than the Freetrade community), but you guys are all so knowledgeable…
I am a British citizen living in the UK, but married to an American and we could see ourselves living in the US in the not too distant future (next 3-4 years). At present I have not signed the W-8BEN and only use Freetrade to invest in UK companies. I’m growing to like Freetrade more and more and would like to move some of my ETF investments in a legacy broker across to Freetrade to diversify my individual company holdings a little.
Does anyone have experience of signing a W-8BEN and then moving stateside? Would I need to completely sell out of my Freetrade investments? Could I still be a Freetrade user from the US, or my non-residency and the tax situation make it impossible?
Still a way off, so even some general thoughts here would be helpful - I can seek some professional advice when the time comes
Brit married to an American - speaking from personal experience on one element of your post only. Be aware that the vast majority of UK ETFs are terribly disadvantageous from a US tax perspective should you also become subject to US taxes (even your ISA may no longer safe from the IRS). I highly recommend taking advice from a qualified US investment manager.
We are still in the UK so no experience with the upset of moving stateside (yet).
Part of the W-8BEN declaration is that you are not a “US person” (which means subject to US tax, not related to residency) and you will have to contact your provider to cancel the W-8BEN declaration when you become one.
The whole point is that instead of the usual 30% US income withholding tax, as a UK tax-resident you are allowed a reduction of that withholding tax down to 15%. When this no longer applied, you’ll be subject to the full 30%.
I’d slightly add to what @DNM said, “terribly disadvantageous” doesn’t even begin to describe it. Some UK ETFs conform to US accounting rules, but there’s basically no realistic way of owning any non-US ETFs that don’t if you are a “US person”. It’s fine to own UK stocks, as long as you can find a broker willing to look after your UK account when you’re no longer a UK-tax resident, and any US stocks and ETFs are fine. Having fractional US stocks might well make your Freetrade account (if you’re allowed to keep it) ineligible too if it’s considered an investment wrapper.
If you only have UK stocks, you’re probably OK if Freetrade will allow you to stay. Often that that, it’s probably easier to transfer to something like HL who according to what I’ve read don’t seem to mind if you’re no longer a tax resident (even if you’re in the US) or IG who expressly allow it, but add a monthly surcharge. I think it’d be safer just to transfer all your UK assets into something like this, and then forget about it until you move back to the UK. If you sell anything whilst you are a “US person”, you’ll still be charged US capital gains tax, which is a massively complicated topic in itself.
That said, there are so many cheap trading options in the US, if you’ll be trading US assets you’ll be better off using those instead.
Disclaimer: I’m still in the UK, but read up what I could as I also might be moving to the US in the future. That said, information this way round (UK->US) seems quite hard to find, it’s mostly written for US citizens moving to the UK. TLDR: they’ll tax you any way they can, and there’s no point owning an ISA of any kind if you’re a US citizen as the US tax on all income earned worldwide.