Known fondly by advisors as FATCA, this is a piece of legislation which is going to have an impact for some of our clients from January 2015. It is a piece of UK legislation, and comes about because the United States is keener than ever to ensure that US citizens are fully disclosing their worldwide income to the Internal Revenue Service (IRS). FATCA does not create any new US taxes, or mean that anyone has an increased tax liability, it is just about the reporting of income which is paid to US citizens.
For us, FATCA will have an impact on the Trusts we manage, and where we are advising Trustees. This is because some Trusts and Trustees will have an annual obligation to report whether they have made any payments to a US citizen. It is more onerous than it sounds, because if a Trust is caught under the rules, a nil return will be required. So even if the Trust doesn't have any US beneficiaries, it might still be relevant.
The Trusts which are impacted, are those which:
1. Are UK resident. We don't have to report any non-UK Trusts, but that's not to say that they don't have reporting requirements in other jurisdictions.
2. Are not charities. Charities are not affected by this legislation.
3. Has more than 50% of it's income deriving from investments? And…
4. If yes to 3, where the investments are managed by an investment manager under a discretionary mandate?
If the Trust does fall within the legislation, it must either register to report to the IRS (via HMRC), or it must have a Trustee who is registered and can report.
In practical terms, the main issue at present is making sure that our Trusts are set up to comply with the legislation. From 1 January 2015 we then be into the reporting regime. There is going to be an impact on the way Trusts are administered, and we are in the process of getting in touch with all of our Trust clients to discuss how this will impact in each specific case.
For more information, please contact us on the details below.