Vestra Wealth has established a US subsidiary to help people deal with the complex regulatory and tax issues of investors with a “transatlantic footprint”
Since the US brought in the Foreign Account Tax Compliance Act, a record 3,415 people renounced their US citizenship during 2014 to avoid it - up from 482 on average during the George W. Bush years according to the US Treasury Department.
However, Vestra US Wealth Management’s director Paul Nixon, argued that people do not have to do so in order to avoid the “potentially ruinous” penalties for not paying US taxes while living abroad.
“Despite the feeling that there are ever more complex rules, I do not believe that tax should be the sole determinant of domicile.
“Despite the requirement to provide both UK and US reporting, if ones affairs are structured correctly, you can avoid dual taxation and ensure your affairs are correctly managed.”
Vestra US was established to specifically address these problems, after the UK parent firm saw a significant number of cases where clients did not realise they were classified as a US citizen by the Internal Revenue Service.
These include those who left the US a long time ago, children born to US parents or simply those who haven’t relinquished their Green Card and are still, unknowingly, bound by it.
This often means their investments are not correctly structured and they have, unintentionally, reported their income incorrectly, Mr Nixon said.
A range of commonly held tax-incentivised savings wrappers are not recognised by the US, which has led to many clients coming to Vestra US with tax inefficient portfolios.
The most common errors are holding UK or offshore collectives - for instance Isas are liable to US taxation, many clients hold US mutual funds, which are not tax efficient in the UK, UK-domiciled traditional unit trusts and collectives are subject to tax, and the US does not recognise offshore bonds as a life policy.
Last October, law firm Clarke Willmott’s tax specialist Carol Cummins told Financial Adviser that FATCA could apply to the estimated 250,000 private family trusts established in the UK.
She explained that language differences between the US and UK could mean most lay trustees and advisers may be “blissfully unaware” that under the guidelines, their clients “could be investigated as vehicles for wealth investment, regardless of whether there are any US connections”.
The tax on unreported gains can be up to 100 per cent, so Vestra US warned it is “critical” to get planning right and ensure clients do not end up paying unnecessary and exceedingly high levels of taxation.
Dual reporting means some clients will have worldwide reporting requirements to both the US and UK tax authorities.
For example, if a US citizen has been resident in the UK for over seven years, and does not pay tax on a remittance basis, they will have to report worldwide income and gains to both jurisdictions.
peter.walker@ft.com
