Following numerous global tax avoidance scandals, as well as the recent financial crisis, governments all over the world are trying to boost their tax revenues. This is great news for public finances, but for UK expats living in the USA recent changes to tax laws in the US could mean forced closure of their UK bank accounts.
The Thinking Behind the Law
The New York Times has described the Foreign Account Tax Compliance Act (FATCA) as ‘an American tax nightmare.’ Primarily FATCA was set up in a bid to stop US citizens hiding their assets in overseas bank accounts, and avoiding paying tax in the USA. However, the Act also applies to those who hold a green card and are living and working in the USA but keep their UK bank accounts for whatever reason. According to an article in The Daily Telegraph any Brits who retain their UK bank accounts must submit details to the American tax authority, the Internal Revenue Service (IRS). The Act also demands that anyone who has moved to the USA will have to send proof of their identity to their UK bank to satisfy the new compliance regime. Failure to do so means that their UK bank will shut down their account.
The Long Arm of the Law
One of the reasons that so many overseas banks are eager to comply with an American tax law is that financial organisations that don’t adhere to FATCA won’t be allowed to trade in US money markets. An article in the influential Forbes magazine reveals that, to date, over 80 countries have signed up to comply with this extraordinary law. This includes Russia and China. No bank is going to risk the wrath of the IRS and face financial penalties as well as a ban on Wall Street trading.
As Britain is a signatory of the ‘US-UK Intergovernmental Agreement to Improve International Tax Compliance,’ this law will affect every UK citizen living and working in the USA. Therefore, for example, if you’ve let your house in the UK and have retained a bank account for rental income and expenses, you must contact your UK bank, prove who you are and then send the relevant forms to the IRS.
Anyone who has savings of over £6,400 in a UK financial institution and doesn’t declare this, will face a fine of £64,000 or half of their savings account will be confiscated dependent on the sum in that account.
If you are thinking of moving to the USA or are at all unsure about your financial and legal situation you should contact your accountants or speak to your bank, in order to remain FATCA compliant.