Tax Harvesting in Cross-Border Portfolios: Why Investors Need More Than a Good Strategy

Markets have always rewarded long-term patience, but not without demanding a toll along the way:
volatility, tax complexity, and the need for sound strategic planning. However, one often overlooked
but powerful strategy that can help improve after-tax returns, especially in volatile markets, is tax-
loss harvesting. This can be particularly effective when paired with smart portfolio diversification,
including the selective addition of more volatile asset classes, which tend to experience sharper
drawdowns and recovery opportunities.

For investors with cross-border exposure between the UK and the US, tax harvesting becomes more
complex yet can also bring higher benefits.

What is Tax-Loss Harvesting?
At its core, tax-loss harvesting is the process of selling investments that are currently at a loss to
offset capital gains elsewhere in the portfolio – thereby reducing the overall capital gains tax liability.
In both the US and UK, realised capital losses can also be carried forward indefinitely to offset gains
in future tax years. These losses can also be used (in a small amount) to offset ordinary income in
the US.

Of course, if your ‘income’ is actually realised gains from selling taxable investments (outside a tax-
sheltered wrapper), then capital losses can absolutely be used to offset the gains on those
drawdowns, because they are treated as capital gains for tax purposes.

Understanding the tax landscape: UK vs US

If you are a dual UK/US taxpayer or have investment accounts in both jurisdictions, here’s where it
gets a bit tricky:

Capital Gains Tax (CGT): The UK currently has a £3,000 CGT allowance (dropping from
previous years), whereas the US allows strategic use of losses to offset gains and income. For
higher net worth investors, managing CGT is critical

– Dividends and Interest: UK dividends come with a shrinking dividend allowance (£500 in
2025), while the US taxes qualified dividends at lower rates. Interest is fully taxable in both
jurisdictions unless held in a tax-sheltered wrapper such as:

UK: GIA (taxable), ISA (tax free), SIPP (tax-deferred)

US: Brokerage Account (taxable), Roth IRA (tax free growth), Traditional
IRA/401(k) (tax deferred).

Loss harvesting is only relevant in taxable accounts – GIAs, US brokerages – not in ISAs, SIPPs, Roth
IRAs or 401(k), where gains aren’t taxed.

Why select a manager who works closely with your accountant?

Investing isn’t just about performance. It is about keeping more of what you earn. That’s why having
a tax aware investment advisor really matters. Here’s what to look for:

– Cross border expertise: UK/US tax coordination is nuanced. For example, a loss harvested in
a US brokerage account might not be recognised in the same way under HMRC rules.
– Tax credit optimisation: Foreign tax credit (FTCs) must be carefully managed especially when
dividends or interest are taxed in both jurisdictions.
– Wash sale rule: The US disallows harvested losses if you buy a ‘substantially identical’ asset
30 days before or after the sale. The UK doesn’t have the same rules, but the ‘bed and
breakfasting’ rule is similar over 30 days.
– Software and filing accuracy: A coordinated team ensures that losses are correctly reported
on your US Schedule D and UK Self-Assessment tax return – and carried forward
appropriately.
– Tax credit optimisation: Foreign tax credit (FTCs) must be carefully managed especially when
dividends or interest are taxed in both jurisdictions.
– Wash sale rule: The US disallows harvested losses if you buy a ‘substantially identical’ asset
30 days before or after the sale. The UK doesn’t have the same rules, but the ‘bed and
breakfasting’ rule is similar over 30 days.
– Software and filing accuracy: A coordinated team ensures that losses are correctly reported
on your US Schedule D and UK Self-Assessment tax return – and carried forward
appropriately.

If you are not actively harvesting tax losses – if your investment manager is not coordinating with
your tax advisor – your net (after tax) returns could be severely negatively penalised, and by a
material amount. However, for those clients working with a tax aware investment manager, the
higher market stress potentially means a higher tax alpha, which can be a real boost in returns. We
work with many international clients and benefit from the collaboration with qualified accountants
and tax advisers and we can provide the best care and more tailored service.