Fidelity PFIC Restrictions for US-Connected & US Person Clients
Fidelity International has introduced significant restrictions affecting US-connected clients and US persons, preventing them from holding most collective investments on the Fidelity UK platform.
These changes are driven by US PFIC (Passive Foreign Investment Company) tax rules and affect thousands of investors who are:
- US citizens
- Green Card holders
- US tax residents
- “US persons” for IRS purposes
If you are US-connected, this is not a minor platform update — it fundamentally changes what you can and cannot hold on Fidelity.
What Is the Fidelity PFIC Ban?
Fidelity now prohibits US-connected and US person clients from holding:
- UK OEICs
- Unit trusts
- UK- or EU-domiciled ETFs
- Most pooled or collective investment funds outside the US
These investments are treated as PFICs under US tax law.
What You Can Still Hold on Fidelity
US-connected clients may generally continue to hold:
- Individual equities (UK or US listed shares)
- Cash and cash-like instruments
- Certain bonds or gilts
However, the core issue is diversification: most diversified portfolios rely on collective funds — exactly what PFIC rules target.
Why Fidelity Restricts US Persons (PFIC Explained)
What Is a PFIC?
Under US tax rules, a PFIC (Passive Foreign Investment Company) is typically:
- Any non-US investment fund or ETF, With mainly passive income or assets
This captures almost all UK and EU funds, including those commonly used in UK ISAs, SIPPs, and general investment accounts.
Why PFICs Are a Problem for US Persons
For US taxpayers, PFICs trigger:
- Punitive US tax treatment
- Complex annual IRS reporting (Form 8621)
- Potential retroactive tax and interest charges
- Loss of capital gains tax treatment
Most UK fund providers do not provide PFIC reporting statements, making compliance almost impossible.
Fidelity’s solution is simple: block the investments entirely.
Who Is Affected by Fidelity’s US-Connected Rules?
You are affected if you are considered US-connected or a US person, including:
- US citizens living in the UK, EU, or elsewhere
- Dual nationals (even if non-US resident)
- Green Card holders
- Anyone meeting US “substantial presence” tests
Importantly, Fidelity looks at tax status — not nationality alone.
What Happens to Existing Fidelity PFIC Holdings?
If you already hold collective investments on Fidelity and are US-connected:
- You may be required to sell affected investments
- You may be restricted from making further purchases
- Historic PFIC reporting does not disappear
Even if investments are sold, past US tax liabilities may still exist.
This is where many investors get caught out — the platform restriction does not resolve prior PFIC exposure.
Fidelity US Person Investing – What Are Your Options?
Option 1: Stay on Fidelity (With Limitations)
You may remain on Fidelity using:
- Direct equities
- Cash-based strategies
This is often sub-optimal for long-term planning, especially for pensions.
Option 2: Use US-Compliant Investment Structures
US-connected investors typically need:
- US-domiciled ETFs or securities
- PFIC-free portfolio construction
- SEC-authorised oversight
However, UK/EU residents face MiFID II restrictions on accessing US ETFs without appropriate advice structures.
Option 3: Specialist Cross-Border Advice
This is where most “normal” advisers fail.
You need advisers who understand simultaneously:
- US tax law (PFIC, FATCA, IRS reporting)
- UK/EU investment regulation
- Platform limitations like Fidelity’s US-connected rules
- Pension wrappers such as SIPPs, QROPS, and offshore schemes
Without this, investors are often left holding non-compliant assets with no exit strategy.
Why Fidelity’s PFIC Ban Is an Industry Trend
Fidelity is not alone.
Most major UK platforms have either:
- Already restricted US persons, or
- Quietly blocked collective investments for US-connected clients
The difference is that Fidelity’s position has changed, and is now explicit and enforceable.
This trend is accelerating — not reversing. Interactive Investors (ii) have done the same.
Key Takeaways for Fidelity US-Connected Clients
- “Fidelity PFIC” is not a theoretical issue — it directly limits what you can invest in
- US persons cannot rely on UK platforms alone
- Selling PFICs does not erase historic IRS exposure
- Generic UK advice is often non-compliant for US-connected investors
How Cameron James Helps Fidelity US Persons
Cameron James specialises in US-connected and cross-border investors, including those affected by:
- Fidelity PFIC restrictions
- US person investment bans
- UK pension and SIPP planning for US taxpayers
- Historic PFIC exposure and restructuring
Our approach is holistic, fee-only, and compliance-first — designed for people who need real solutions, not platform workarounds.
FAQ
Is Fidelity allowed to restrict US persons?
Yes. Platforms are permitted to limit services where compliance risk is excessive — PFIC exposure is a prime example.
Does this affect Fidelity SIPPs?
No. Whilst PFIC rules apply inside and outside most pension wrappers for US taxpayers, the UK is an exception.
Can a UK adviser still help a US-connected Fidelity client?
Only if they understand US tax law and are correctly authorised and insured. They will need to likely use the services of an SEC Authorised Investment Manager though, if not SEC authorised themselves.
Does selling PFIC funds fix the problem?
No. Past PFIC reporting will likely still be required.
