Foreign Account Tax Compliance Act (FATCA)

FATCA was introduced by the US Government and one of its primary objectives is the reporting of non US domestic financial accounts and offshore assets. The reporting is delivered by the institution that provides the account or the tax jurisdiction where the account sits. All US connected individuals or tax payers that own or are the beneficial owners of these accounts can expect information to be reported back to the US Government.

The driver behind FATCA is for the US Government to get its tax dollar on assets / accounts held outside of the US that have previously been unreported.

Why British expats in the US need to be aware of FATCA

The majority of British Expats in the US believe they are paying the right amount of tax. Assets that are left behind in the UK are often forgotten about or simply reported using a Foreign Bank Account Report (FBAR). The UK is a signatory of FATCA and therefore any financial accounts (apart from UK based pension schemes) will be reported the US Government.

An example of a common problem is an Individual Savings Account (ISA) in the UK. They are great for UK residents who don’t have a reporting requirement in the US. However, if you are a British expat living in the US and own an investment ISA in the UK, the growth is taxable under US taxation rules. FATCA reporting will ensure that the US Government discovers you own this account and could pursue you for unpaid tax and issue tax penalties for non-reporting.

FATCA also looks at the structure of any asset / investment and will deem it to be compliant or non-compliant. Staying with the investment ISA example, if you have collective investment funds within the account (the majority of investment ISAs do contain these), the account would be classed as holding Passive Foreign Investment Companies (PFICs). Holding a PFIC within an account will result in a 30% withholding tax on growth. You can see how quickly a traditionally very tax efficient vehicle for a UK resident turns into something very toxic from a US taxation point of view.

How Cross Border Financial Planning Can Help

A common reason to leave funds behind in the UK is that it is almost impossible to hold Great British Pounds (GBP) in the United States. At the time of writing this page the exchange rate was 1.41 US$ to the Pound. Currencies fluctuate and a British expat may like to wait until the exchange rate improves before moving funds to the United States. They may prefer to keep those funds invested to potentially mitigate currency risk so a US compliant GBP denominated investment strategy could be used.

Cross Border Financial Planning can provide FATCA compliant GBP or US$ denominated investment solutions for British expats in the US and American expats in the UK. Our solutions will allow you to mitigate currency risk and switch to US$ (or back again to GBP) when advantageous for you.

Don’t let FATCA catch you out. Be proactive and speak with Cross Border Financial Planning to see how we can help you.