My main concern with bonds is that all of my options seem to be poor.Would it though? Would that solve your US tax problem? (I don't know - I am not a US taxpayer).
1. BNDX, which is USD-hedged, exposes me to significant currency risk
2. Any GBP hedged fund exposes me to PFIC regulations, since none of them (that I've found) are USD-domiciled
3. Gilts expose me to risks associated with a lack of diversification (though perhaps I've overblown this and it would be fine?)
Annuities would be taxed as income I expect, but I don't think they would be considered PFICs since they're just an insurance product, and there is something attractive about the simplicity of guaranteed income, even if it costs a premium. Moreover, my UK income tax is sufficiently higher than my US income tax that I expect I wouldn't actually be exposed to US taxes on the annuities.
That's fair, I would not be able to gain the benefits of rebalancing with this strategy. On the other hand, I would be a bit scared of actually rebalancing my existing holdings in a taxable account due to fears of running into some sort of tax nightmare I haven't heard of yet (as well as the difficulty and lack of granularity associated with actually buying the ETFs in the first place using options) so I would likely just "rebalance" by allocating my contributions appropriately, which I can do with annuities as well.The idea of bonds is to be able to rebalance.
Cash might be the most straightforward way to go about it and would allow me to retain the principal. Perhaps you're right and I should just accept a portfolio of VT and cash. This would also simplify things with the ISA situation, allowing me to go 100% VT in the GIA and 100% cash in the ISA.I think you would be better off using the sort of fixed term deposits that Banks offer. Stay within FSCS limits (£85k per institution). I gather you would still pay US tax on foreign exchange gains? But relatively simple and flexible.
Although now that you bring it up, I'm not sure how holding "foreign" currency is treated by the US. I know that paying off "foreign" debt will incur a phantom currency gain tax, but I haven't heard of something like that simply for holding cash. I've come up empty-handed with a cursory search. My assumption would be that they would only tax you if you actually make a currency conversion, and not just for holding the currency. Since I don't plan on ever converting to USD (aside from when buying VT I suppose), hopefully this won't be a concern.
Statistics: Posted by quicksong — Sun Jun 23, 2024 7:10 am — Replies 7 — Views 746
