What is ‘FATCA’?

This odd sounding acronym stands for the Foreign Account Tax Compliance ACT (FATCA). The legislative act, FATCA has been implemented since 2010, but has been adopted by more overseas territories since. The legislation covers the reporting by US taxpayers of certain foreign financial accounts and offshore assets. It also relates to the reporting by financial institutions on financial accounts held by US taxpayers.

Why was ‘FATCA’ introduced?

FATCA was initially introduced by the US Government to attempt to attempt to regain annually lost revenue. This missing money is primarily in unpaid taxes on assets outside of the US. However, despite FATCAs’ original purpose, now that the system is up and running, British expatriates based in the US are also finding themselves affected by it and in danger of paying additional taxes and penalties on their investments back home.

How does it affect overseas assets left in the UK or offshore?

 You might not consider yourself to be evading tax. As you know you’re paying the correct amount on any income in the US and UK. But there may still be an issue if you have left accounts or investments behind. This is because FATCA looks at the underlying structure of an account or investment. If an account or investment is found to be non-compliant, the holder could be legible for additional taxes.

Banks and other financial institutions must now disclose information about US connected customers. This is in terms of retirement savings, investments (including ISAs) and divorce settlements. There is some relief from double taxation. But, despite this  the complex reporting requirements of FATCA and the severe penalties for non-compliance are hitting customers hard. The IRS now has access to a vast amount of data on its taxpayers. This means banks are obligated to report the existence of UK bank account holders, investment ISA holders, and on-shore capital investment bond holders, to the US authorities.

Who is Affected?

The original purpose of the law was to target wealthy individuals using offshore accounts to protect their assets. However, FATCA can now affect any US connected individual or British expat in the US.

Of course, British expats in the US may choose to keep assets outside of the UK in GBP for exchange rate reasons or other legitimate reasons. Yet these are now likely to fall foul of IRS compliance, so you do need to carefully select the right investment options and ensure that you are reporting them correctly.

At Cross Border Financial Planning UK, we specialise in providing advice on FATCA/IRS compliant investment solutions for assets left behind in the UK.  If you are a US connected individual or a UK expat, and this is an issue that affects you, please get in touch.