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The Foreign Account Tax Compliance Act provisions (commonly known as ‘FATCA’) form part of US legislation aimed at reducing tax evasion by US citizens. FATCA requires Financial Institutions outside the US to pass information about their US customers to the US tax authorities.
In September 2012 the UK and the US signed a Treaty to implement FATCA in the UK. Under the terms of the agreement and the resulting UK legislation introduced to enact it, UK Financial Institutions will provide HMRC with the required information. HMRC will forward this information to the US Internal Revenue Service (‘IRS’).
All UK trusts* are foreign entities under the legislation and therefore trustees have a requirement to consider a trust’s status under FATCA. The trust will either be classified as a Financial Institution (‘FI’) or a Non-Financial Foreign Entity (‘NFFE’). UK trusts will have to declare their status to any bank etc. with which they have dealings, and in certain circumstances Trustees may need to register with the IRS.
Whether a trust is an FI depends on a number of factors. It is important to note that classification does not depend on the US connections of the settlor or beneficiaries, nor on the ownership of any US assets by the trust. Even if there is no ultimate reporting requirement, a record of the classification should be kept on file, together with a note to review the FATCA status of the trust when circumstances change.
The rules form part of UK law. HMRC can charge penalties for non-compliance and late filing, therefore trustees should ensure that they are compliant.
*It may not always be obvious when a trust exists. For example, a trust of land arises where ownership of land is by more than one person, and the owners will need to consider their status under the regime. The rules may also apply to unapproved retirement benefit schemes eg FURBS.
A trust will have a reporting requirement if it falls to be classified as a Reporting Financial Institution under the legislation.
Only UK tax resident trusts fall within the UK/US agreement. If the trust is not UK tax resident, it will not be subject to UK reporting, but may be subject to reporting under US FATCA regulations or under another country’s agreement with the US.
If the trust is a charitable trust, it does not need to register or report under FATCA, it will be classed as a Non-Reporting Financial Institution. Trustees who believe the trust falls within this category should check that the trust satisfies the definition of a charity for the purpose of the legislation (for example, it is registered as a charity with the Charities Commission of England and Wales or it is registered with HMRC for charitable tax purposes).
If a trust has a Reporting Financial Institution as trustee (eg typically a corporate trustee), the trust will be considered a Trustee Documented Trust. The corporate trustee will register as an FI in its own right, and carry out all reporting requirements in respect of its appointments. The individual trust itself therefore has no registration or reporting requirement.
If you have a UK Trust (or think you might have one) that may be affected by any of teh issues discussed above please contact our team on 0845 177 5500 or use our on-line contact form now.