Expats and British taxpayers opening bank accounts will find they are subject to new UK and US Foreign Account Tax Compliance Act (FATCA) rules.
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FATCA started on July 1, 2014 and both countries have agreed to swap tax information about their citizens.
As part of the run up to the US introducing FATCA, the UK agreed similar tax rules with Crown Dependencies and Territories.
These include major offshore financial centres like Jersey, Guernsey, the Isle of Man, Gibraltar, Cayman Islands and the British Virgin Islands.
Banks, investment funds, trusts and other financial institutions have to report identity and tax residence of whoever controls the money in bank accounts or held in investments to HMRC.
No more banking secrecy
If the account holders or investors are American, the information automatically goes to the Internal Revenue Service (IRS), while if they are British, the details go to HMRC for cross-checking against income declared on tax returns.
To comply with the rules, offshore banks are now confirming the identity and tax residence of anyone opening a new account and that of anyone already a customer.
The aim of the new laws is to make tax avoidance harder by removing the veil of secrecy from former offshore tax havens.
The laws mainly affect –
- British expats or taxpayers opening bank accounts or making investments in the USA or a British Crown Dependency or Overseas Territory
- US expats or taxpayers opening bank accounts or making investments in the UK or a British Crown Dependency or Overseas Territory
Savers or investors will have to show their passports, give their national insurance/social security numbers and personal tax references as well as prove their country of residence if they want to keep an offshore account.
Sharing financial information
The tax issue is not if anyone holds an offshore bank account or investments but whether they are declaring any earnings from them on their tax returns in the UK and US.
Financial institutions will not tell customers that their banking information is shared with the US and UK tax authorities – the information will be automatically exchanged.
“Customers should assume their financial information is going to their tax authority and complete their tax returns appropriately, said an HMRC spokesman.
“All financial institutions in the UK, British Overseas Territories and Crown Dependencies will comply and the information will be shared with the IRS, who will reciprocate by sending financial information about British taxpayers to HMRC.”
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