View more on these topics

Cutting claws of the Fatca

Joanne Ellul reports that trade bodies are trying to pare back the requirements of a new US tax demand

The Investment Management Association and the European Fund and Asset Management Association are lobbying for changes to the US’s foreign account tax compliance act to ease the burden for fund firms, platforms and IFAs.

Fatca is a reporting and withholding tax regime intended to prevent US investors from evading tax by investing in or through foreign entities.

Any US citizens, irrespective of domicile, must submit tax returns to the Internal Revenue Service and pay taxes to the US.

Fatca requires all foreign financial institutions to sign an agreement that they will provide the IRS with information on any US taxpayers they deal with.

The penalty for non-compliance is a 30 per cent withholding tax on income, distributions and proceeds from US-sourced investments. It applies to all mutual funds and investments of $50,000 (£31,320) or higher.

The all encompassing nature of Fatca is being questioned by the financial services industry, with the Investment Management Association and the EFAMA lobbying the IRS and the US treasury to refine Fatca rules.

The IMA is lobbying for funds that have reasonable grounds to believe they have no US investors to be given “deemed compliant” status.

It also wants platforms and other distributors to get the same status if they can certify to the fund manager that they are small, local firms and have no operations outside the UK.

EFAMA is also lobbying to allow distributors that do not deal with US investors to comply with Fatca in a simplified form.

It is also lobbying for funds that prohibit US investors and use distributors that agree not to sell to US investors to be deemed compliant.

IMA head of tax Jorge Morley-Smith says: “Our lobbying has focused on ensuring that the Fatca regulations are workable. For example, funds that have reason-able grounds to believe they have no US investors should be given deemed compliant status.”

Morley-Smith says UK financial advisers, many of whom are highly localised with one or two people serving their local community, would struggle to cope with the demands of Fatca if it is implemented as currently proposed.

He says: “We support EFAMA’s suggestion that platform operators and other local distributors should be given similar deemed compliant status if they can certify to the fund that they meet criteria as to their size and client base.”

But Informed Choice managing director Martin Bamford says it will not be difficult for smaller IFAs to comply with Fatca as they should know their clients well.

He says: “Smaller businesses are more likely to have closer relationships with their clients and know the circumstances of each investor in greater detail. It is the large, transactional advisers who will have difficulty confirming investor liability to US tax.”

Bamford adds that it should be relatively simple to identify investors who need to disclose US tax issues.

He says: “One factor acting in our favour is that most professional indemnity insurers prevent IFAs from acting on behalf of US residents, due to the litigation risk associated with these clients.”

Bamford agrees that deemed compliant status for funds that prohibit US investors is a good idea.

He says: “Compliance with Fatca should really fall on the individual investor or their adviser rather than the fund manager. It is reasonable for a fund manager to assume that a UK- authorised and regulated fund is being used, in the main, by UK-resident investors with no US tax liability. A deemed compliant status would certainly reduce the reporting burden.”

Yellowtail Financial Planning managing director Dennis Hall says IFA firms must start preparing for the introduction of Fatca.

He says: “Having a good awareness of which clients fall under Fatca is essential, as it could have huge implications if the UK financial services industry decides to exclude US investors from services and products in the future.”


Status factors

Plans for a new definition of tax residence cover a combination of connection with time spent in the UK


FSA rejects concerns that legacy ban will create churn

The FSA has rejected the argument that its ban on legacy commission will lead to the churning of products due to providers’ inability to switch off commission generated on top-ups to existing investments. The regulator published its consultation paper on the treatment of legacy assets under the RDR today. It confirmed that trail commission for […]


FSA warns brokers over misuse of bridging

Brokers should not be tempted to use bridging for inappropriate cases in order to shore up their business during difficult times, according to the FSA. At the Mortgage Business Expo in London yesterday, FSA director of conduct policy Sheila Nicoll told delegates: “We understand that the market is difficult for brokers, but one repeated concern […]

The Downsizing Delusion: Why relying exclusively on your home to fund your retirement may end in tears

By Steve Webb, director of policy The British obsession with homeownership can have dangerous consequences. A recent survey by Barings¹ found that up to three million people of working age were planning to rely wholly on the value of their home to fund their retirement. We are not talking about people investing in buy-to-let or […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm