FULL ISA GUIDE (UK) – Save without paying tax is similar to Canada’s Registered Tax Free Savings Account (TFSA). Neither come with a warning sticker for investors who may be (or may not be) *US Persons* as to whom and how the US considers the ISA and the TFSA *foreign trusts*.
Both the UK/US Intergovernmental Agreement (IGA) and the Canada/US Intergovernmental Agreement (IGA) set out exemptions for the UK ISA and the Canadian TFSA.
Now, even with the UK IGA exempting the ISA, some investment brokers are refusing to open accounts for British savers who have US citizenship, as a result of draconian laws introduced by US tax authorities.
The legislation, called Foreign Account Tax Compliant Act (or “Fatca”), requires banks, brokers and other finance firms to report the names and financial details of US customers to America’s Internal Revenue Service.
This is costly and some organisations, including National Savings & Investments, have decided not to comply. Instead they have closed the accounts of US nationals, or refused applications for new accounts.
It has emerged that a number of DIY brokers have decided to take similar action, updating their terms and conditions to bar US citizens even if they are British residents and taxpayers.
…“We had not previously requested details regarding client nationalities as prior to last year there was no requirement to do so. When we become aware that a client has US links we explain any decision regarding the closure of the account to the client and what their options are.”
Other brokers to halt the opening of new accounts for US citizens include Interactive Investor, the Share Centre and Alliance Trust Savings.
The Share Centre’s current terms and conditions state: “In the future, should you become an American citizen, you agree to inform us immediately and consent to the automatic closure of your account.”
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Which other countries will follow suit / copy cat to protect themselves, even for such accounts *IGA exempted from FATCA reporting*?
I had recently learned that TFSAs are likely *not* considered foreign trusts and that most likely no special reporting is necessary, as a TFSA is not an entity separate from its owner, a key requirement to be considered a trust under US Law [1]. Alternatively, it may be considered a “disregarded entity” and a different form (Form 8858) should be filed. I had been filing forms 3520/3520-A for my wife’s TFSA in the past. However, this year I plan to take the suggestion from [1] and submit a note instead explaining the nature of a TFSA and asking for clarification. The IRS has yet to respond to any such requests, but writing the note puts the ball in their court and relieves me of having to file these (quite complex) forms until such time that they take a position on this issue.
[1] http://www.skltax.com/tfsa-us-tax-classification/
If you meet a compliance condor who seriously thinks you should file Form 8858 for a TFSA, run the other way and don’t look back. There is no point for a minnow to take an aggressive reporting position which results in 53 extra hours of form-filling, zero tax savings, and zero certainty that they’ve actually made the proper obeisance to the paperwork gods.
This reminded me of this post from 2013: http://hodgen.com/is-an-isa-a-foreign-trust/
ISAs as foreign trusts is a gray area. When I had Greenback Taxes fill out my taxes last year, they didn’t treat my cash ISAs as foreign trusts, but I remember Neill saying that he was harshly treated in the OVDP program.
There is a big problem with putting any kind of a collective investment in an ISA because you can’t put a U.S.-registered, HMRC-reporting exchange traded fund in it, the one fund that both governments are o.k. with. The only funds that you can put into an ISA are ones the U.S. will treat as passive-foreign investment companies. You can hold shares through an ISA, but that is going to result in people having too many eggs in one basket and startups in particular can be PFICs. For people who are not renouncing for whatever reason, my understanding is that U.S.-registered ETFs in SIPPs are the best option. What I am finding is that it is hard to open up accounts that aren’t covered by the IGA.
@Publius,
We tried to get my revenue agent to accept the ISA was a foreign pension. We didn’t expect them to buy it and they didn’t. It’s worth a lot of money for them not to be pensions for the IRS. They well fell into PFIC. They didn’t try to claim the ISA was a foreign trust or anything like that.
They just wanted the hundreds of 8621’s and the cash.
@Calgary, “Now, even with the UK IGA exempting the ISA, some investment brokers are refusing to open accounts for British savers who have US citizenship, as a result of draconian laws introduced by US tax authorities.”
Let me correct what you wrote…slightly….
Now, even with the UK IGA exempting the ISA, some investment brokers are refusing to open accounts for British Citizen savers who are deemed to have US citizenship, as a result of draconian foreign laws introduced by foreign (US) tax authorities.
Thanks, George — much better. Fixed.
Exemption from FATCA reporting does not mean ISA providers will willingly accept ISA accounts for US persons. What complications then are they concerned about?
Isa providers refuse to open accounts for British-Americans
http://www.telegraph.co.uk/finance/personalfinance/investing/isas/11634040/Isa-providers-refuse-to-open-accounts-for-British-Americans.html
This kind of proves that Same Country Exception/Safe Harbor/Same Country Safe Harbor/Same S#!& Different Day (or whatever they’re calling it this week) isn’t much of a cure for account denials, doesn’t it?
I just hide my money under the mattress, as Peter Dunn said. It is really hidden in the value of my Vancouver house. No accounts over 10K. No Fuck bars to report.
Any anti-FATCA EU lawsuits will probably including suing a FFI as well. It’s debatable whether clauses such as above would survive a legal challenge. What’s worse is the clause in HSBC’s stating that you sign away all your data protection rights, agree to have data sent to any tax authority in the world, and you can’t sue them for damages in the event the passing of that data results in a tax bill.
All resident UK and EU citizens should have the same financial rights and opportunities. Eventually this will be challenged.
I wrote to a Irish Senator who is American born. After just over a week I’m still waiting for a response. It looks like politician’s silence also extends to Ireland at the moment. She was appointed by the current Taoiseach, Enda Kenny, and probably a member of Fine Gael. That could explain her silence thus far.
Yes, foo, the motivation for closing US accounts does not diminish with “Same Country Exception/Safe Harbor/Same Country Safe Harbor/Same S#!& Different Day”, in fact just adds another couple layers of scrutiny. FFI’s will be tasked with determining who’s resident and US tax compliant. The devil’s always in the details, isn’t it?
There are enough ex pat Americans, dual nationals and other accidentals to start a whole country.
Yes, a far fetched and stupid thought. Best keep it real.
Then again, the reality of FATCA and CBT is pretty sureal and kafkaesque. So perhaps that is the solution. Start our own country.
@ foo
“… Same S#!& Different Day” — LOL!
@ Salamander
Well it’s either build our own country or build our own bank … or maybe both. I’d like somewhere without snow (except on the mountain peaks), a bank with rates above 0% and an attitiude that cash is normal, not suspicious.
@ EmBee
Hahawi? OK, American territory but if we all went on holiday there at the same time I think we could take the place over.
What ever we do, best not a place with oil. America likes to invade places with oil.
@ Salamander
How about coconut oil? I’ve heard it is amazingly healthy.
@JC
I have no idea what is up with the Post Office. I had no problem opening up a fixed-interest rate cash ISA with a small bank recently. It seems like a very poor business decision on the Post Office’s part.
@George
There is a provision in the rules governing ISAs that they can only be opened by people who are tax resident in the U.K. and are only free of U.K. tax if the person remains tax resident. I wonder if the Post Office is assuming that people whom the U.S. considers to be taxpayers are not the British tax residents. Being a tax resident in one country would be nice.
@Neill
Thanks for clarifying that. That is a load off my mind. I have heard the occasional tax accountant say that ISAs are foreign trusts,but then again, you can find tax accountants who will charge you $1,000 for an FBAR and money managers who will charge you a lot just to help you buy a U.S.-domiciled ETF.
@Kermtizii
Don’t forget credit unions!