Rich Americans can no longer find financial sanctuary with British wealth managers, who are turning them away because of new tax laws.
The Foreign Account Tax Compliance Act (FATCA) is at the root of the problem.
The new tax law that really begins to bite from January 2014 requires all American citizens to report foreign income and interest on investments above $50,000 a year to the US Internal Revenue Service (IRS).
However, the law goes one step further and demands foreign financial institutions with American customers should also tell the IRS about their accounts and income.
The onerous requirement of identifying and reporting American customers is deemed too expensive and time-consuming for many small financial firms and banks, so they are simply showing their American customers the door.
Banks say no
“FATCA has really cut the number of financial firms willing to deal with Americans,” said a bank spokesman. “Many are receiving letters from their banks saying no thanks to their business and that their accounts are closing.”
The latest official figures show around 126,000 Americans live in Britain, with 40% living in London and the South East. Many are high earners with investments and good credit ratings.
“They really need financial and tax advice the most,” said one City wealth manager. “They are caught between two stools because in some cases they have had bad advice in Britain which causes them financial difficulties back home.”
One example is capital gains tax on a main home. In Britain, the property is exempt from CGT, but in America, tax is due.
British/US tax anomalies
Similarly, British investments that give tax-free returns, like ISAs have returns that are taxable in the US.
The US tax system is different from almost every other country except tiny Eritrea, on the horn of Africa, in that an American must declare and pay tax on their offshore income even if they live permanently outside the USA.
Another City wealth manager explained managing US clients does not work for British financial advisers.
“A few private banks will work with Americans, but typically they cherry pick the nest clients by not dealing with an American who cannot deposit at least $2 million with them. That leaves a lot of well-off customers who have cash and investments but can’t meet that sort of demand,” he said.