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FATCA WOES CONTINUE FOR US PERSONS RESIDING IN THE UK

Updated: Oct 5, 2022

US persons (US citizens and green card holders) living in the UK, are left scrambling to find a new financial advisor as another UK tax advisor notified their existing US clients that they will no longer be able to support US citizens with their investment portfolio.


ARTICLE REFERENCE (via This Is Money)


US persons living overseas are subject to the same income tax regime as would apply if they were still living in the US. The US is the only other country in the world (the other being Eritrea) that taxes on the basis of citizenship rather than on residency.


If you are a US citizen or green card holder, notwithstanding the fact that you may have lived in another country for 30 years, you are required to file a US tax return each year and you may potentially be liable for US taxes.


Foreign Account Tax Compliance Act (FATCA), Foreign Bank Account Report (FBAR) and other tax reporting issues for US expats living in the UK


The FATCA was signed into law by President Obama in 2010. It came into force in 2014 (fully). Under FATCA and under the inter-governmental agreements (IGA) signed by the governments of the jurisdictions in which the financial institutions are located, non-US banks and other foreign financial institutions (FFI) are obliged to report the assets held by their American clients to the IRS.


FFIs that fail to do this face potentially significant penalties, which is why some of these institutions have decided that it would be more cost-efficient for them to avoid having any US citizen clients altogether, rather than going through the onerous compliance process under the FATCA regulations.


Foreign Bank Account Report (FBAR) – FinCEN Form 114 is a separate disclosure that is also required in addition to an annual US income tax return, and for this reason many Americans living abroad weren’t aware it was required – in some cases only finding out when they were told that they needed to pay a penalty as well as tax deemed to be owing on their non-US holdings, as a result of their failure to file FBARs. If the aggregate total in all foreign accounts including retirement accounts (SIPPs) and other investment accounts such as ISAs that are held by the US individual (jointly or severally) exceeds US$10,000, a Form FinCEN 114, FBAR must be filed.


There are additional other reporting/disclosure forms such as holdings within a Passive Foreign Investment Corporation (PFIC), Controlled Foreign Corporation (CFC) reporting and many other disclosures that may be required for US persons depending on their situation.


In Summary

An essential step towards finding a solution is obtaining the right advice for all your compliance needs. This usually means engaging an accountant who will help you navigate the complexities of the US tax system. At Trowbridge, our team of professionals are happy to provide advice on the most appropriate way to become and remain compliant.

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