Form 8621: why your UK funds are a US tax problem.
Nearly every UK-domiciled fund, ETF and investment trust is a passive foreign investment company to the IRS — including most of what sits inside a stocks-and-shares ISA. The PFIC regime is the most punitive corner of US tax an ordinary investor can wander into, and Form 8621 is its paperwork.
Figures relate to tax year 2025 (US) · 2025-26 (UK)
Three regimes, one bad default
The default excess-distribution regime taxes gains and large distributions as if earned evenly over your holding period, at each year's highest ordinary rate, with an interest charge on the deferral. Long-held funds can see effective rates that devour most of the gain.
The alternatives require action: a qualified electing fund election needs information UK funds rarely publish, and mark-to-market is available only for regularly traded holdings — taxing each year's movement as ordinary income.
- Excess-distribution: the punitive default
- QEF election — rarely available for UK retail funds
- Mark-to-market for regularly traded holdings
- One Form 8621 per fund, per year
The fix is structural, not clever
For US persons the durable answer is holding investments that aren't PFICs — US-domiciled funds and direct shares — and unwinding existing positions in a sequenced, costed way rather than all at once.
An ISA wrapper does nothing on the US side: the IRS looks through it to what's inside. We map the portfolio, compute the exposure, and plan the exit.
Primary sources
Official guidance from the IRS, FinCEN and GOV.UK. Thresholds and rates on those pages are updated annually — check the current tax year before relying on a figure.
Questions, Answered.
What clients ask about form 8621 (pfics)
Is my stocks-and-shares ISA a PFIC problem?
The wrapper isn't; the contents usually are. UK-domiciled funds and ETFs inside an ISA are PFICs, and the ISA's UK tax freedom doesn't exist for US purposes. Direct shares inside an ISA are fine.
Do I have to file 8621 for small holdings?
There is a limited exception: broadly, no filing where combined PFIC holdings stay under $25,000 ($50,000 joint), no distributions were received and no elections are in play. The tax regime still applies when you eventually sell — the exception is only from the annual form.
What does unwinding a PFIC position cost?
It depends on gain, holding period and the regime available. Sometimes a purge is cheap because gains are small; sometimes staging disposals across years is materially better. We compute it before anything is sold, so the decision is a number rather than a guess.
What are the penalties for not filing Form 8621?
There's no fixed dollar penalty, but the statute of limitations on your whole return stays open while a required 8621 is missing, and the default tax regime keeps compounding in the background. The real cost is the tax computation itself, which only worsens with time.
Are UK pensions caught by the PFIC rules?
Funds held inside a treaty-qualified UK pension are generally shielded from PFIC treatment while they stay in the wrapper — one of the treaty's most valuable effects. The same funds held in an ISA or general account get no such protection.
Next Step.
Tell us what you hold — the scope and a fixed fee follow in writing.