A Beginners Guide to FATCA and How it Affects US Expats

A Beginners Guide to FATCA and How it Affects US Expats

It occurred to us recently that we, as financial advisors, have become complacent about FATCA. When the legislation was first announced in 2010 it introduced a host of new IRS reporting requirements for US expats and the banks that work with them, and over the last ten years it has changed the way that expats access banking and investments. Despite this, we realised that we had become so familiar with the Act that we expected other US expats to understand the implications as well. As a result, we thought we could help our fellow US citizens in the UK get a better handle on FATCA and its impact on all of us.

Background

FATCA: the Foreign Account Tax Compliance Act was (at the time) a little known act within a wider piece of legislation – The Hiring Incentives to Restore Employment (HIRE) Act of 2010.  The HIRE Act was the Obama administration’s response to economic depression that followed the credit crisis of 2008.  Generally the HIRE Act was intended as a stimulus to the US economy; however FATCA was tucked into the wide-ranging Act, despite having little to do with stimulating the domestic economy.

As the name suggests, FATCA is concerned with foreign accounts owned by American citizens and the tax compliance of those accounts. This interest has been driven by the simple fact that the State Department estimates there are over 9 million Americans living abroad[1] and yet the IRS receives a fraction of that number in tax returns. FATCA was enacted to close the tax collection gap (as perceived by the US Government).

Who is Affected?

Squarely aimed at global financial institutions, FATCA legislation requires non-US financial institutions to report clients who are US citizens to the IRS. Failure to do so will result in a 30% withholding being applied to any US transactions by that institution.  This high penalty for non-compliance has led bank and insurance companies, fund and investment managers, and many financial advisors to do a wholesale review of their client bases.  As you can imagine, for large institutions identifying who is an American is an expensive and onerous requirement before taking into account the creation of systems to monitor existing and new clients. Many companies decided that the easiest solution was to simply eject US citizens from their business and file a “zero” return to the IRS. Others have introduced complex systems to ensure that they can accurately report who is American.  It is estimated that UK institutions alone have spent over £1.6bn[2] on implementing FATCA and this begins to explain why many US expats have increasingly found it hard to open brokerage and investment accounts, as non-US financial institutions are increasingly refusing to work with US citizens.

But it is not just foreign institutions that are required to comply. The FATCA legislation also introduced a new tax form for US taxpayers. If you are an American living abroad (or even an American with foreign assets) you must complete IRS Form 8938 as part of your annual return (or pay additional fees to your accountant to complete this new form for you), adding another layer of complexity to America’s already complex tax requirements.

Unintended Consequences

We are sure that when Congress passed the HIRE Act it did not consider the detrimental effect it would have on ordinary, hard-working, tax-paying US expatriates.  Initially, the biggest impact for US citizen expatriates was the wave of European banks withdrawing their services. Since 2010 when FATCA was first announced the number of non-US banks and investment custody service providers who are prepared to open new accounts and administer accounts for US citizens has dwindled and US expats have become persona non grata.

However, the impact spread further, and it has manifested itself in the USA as broker dealers and investment platforms have closed their business to American expatriates and non-US resident account holders citing more complex reporting and increasingly complex due diligence requirements.  And the results have been palpable for ordinary expats with investment accounts. Since FATCA was passed, Morgan Stanley, Merrill Lynch, UBS, Charles Schwab, Fidelity, and Wells Fargo have all made concerted efforts to remove existing US clients who are living overseas. Unfortunately, that means that they often need to move their accounts quickly or have their accounts liquidated and transferred out. We have been approached by a variety of clients ranging from American families based in the UK to British retirees with US pensions who have been asked by their existing custodian, broker dealer or bank to move their accounts. While this is a complex space, Tanager partners with investment platforms and custodian banks that understand the issues and is prepared to work with US expats and other UK residents with US investment accounts.

Perhaps the biggest unintended consequence has been the record numbers of American citizens expatriating. Headlines for the last decade have reported more and more American citizens renouncing their citizenship each year , with the only break in that trend coming when embassies shut down for COVID-19. [3]

And Another Thing

FATCA has brought back into focus the requirement for American citizens to report any foreign financial accounts with balances in excess of $10,000. Form TD F 90-22.1 “Report of Foreign Bank and Financial Accounts” (FBAR) is required under the Bank Secrecy Act and the penalties for non-filing are significant.

We always ensure that our clients and other US expats we meet understand that they need to retain the services of a properly qualified UK and US accountant to ensure not only that their taxes are filed on time, using the correct forms but also to make sure they do not fall foul of the FBAR rules, FATCA and other changes to the system.

Footnotes

[1] https://travel.state.gov/content/dam/travel/CA-By-the-Number-2020.pdf

[2] www.international-adviser.com/news/tax-regulation/fatca-is-stranger-than-fiction?page=1

[3] https://www.prnewswire.com/news-releases/americans-gave-up-citizenship-in-record-numbers-in-2020-up-triple-from-2019-reports-tax-specialists-americans-overseas-301222817.html

 

Further articles on Investing

investments
Kris 460x280 1
ESG Philosophy

Secure your financial future

Our team of experts are ready to discuss your financial future.

Close
Abbas Somji

Abbas Somji

PARTNER AND FINANCIAL ADVISOR

Abbas moved to London in early 2018 to be with his British wife. Born in the United Kingdom and raised in Botswana, Abbas then migrated to Houston where he attended University. He began his professional career at an RIA in Houston and holds the Series 65 license and US CFP® . He brings with him a decade of experience in advising High-Net-Worth clients and business owners. Abbas is a Partner and Advisor and ensures he’s helping clients navigate the complicated world of being an expat in the UK. He particularly enjoys providing clients with the clarity and confidence to pursue their financial goals. A sports enthusiast, Abbas enjoys conversing about and playing soccer/football and attending Liverpool matches.

Read more… Abbas Somji, Beyond the Bio

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Alistair Jackson 8165 Edit

Alistair Jackson

FINANCIAL ADVISOR

Alistair joined the team at Tanager in 2019 following his completion of an MPhil in English at the University of Cambridge as a John Crook Scholar. With three years of experience working across our Investment and Financial Planning teams, Alistair transitioned to the Advisor Team in January 2022. His time is now focused on the production and implementation of robust planning and investment strategies for our clients on either side of the Atlantic. Outside of the office, Alistair’s time is divided between exploring East London’s many food markets, spending time with friends and family, and travelling abroad.

 

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Angela

Angela Lloyd-Read

FINANCIAL ADVISOR

Having worked with private clients for almost 25 years, Angela has helped a diverse range of clients improve their financial well-being. A Chartered Financial Planner and Fellow of the Personal Finance Society, she is passionate about the importance of relevant and ongoing financial planning, and the difference it can make to the lives of individuals and families alike. As a member of Resolution, she works with solicitors and mediators to improve financial outcomes for clients going through divorce or separation. By communicating complex ideas simply and setting out clear priorities, Angela allows clients to concentrate on their other concerns at this time. In her free time, Angela enjoys exploring London’s museums and galleries and being creative in the kitchen for the benefit of friends and family.

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
david c 6001

David Costello

PARTNER AND FINANCIAL ADVISOR

David arrived in the UK on New Year’s Day 2014 and brought with him fifteen years’ experience advising private clients and business owners. He attained the U.S. Certified Financial Planner designation in 2007. David specialises in building financial plans for UK based households that include US taxpayers and is tirelessly committed to helping Tanager clients maximise their wealth and achieve their stated goals and objectives while navigating the US/UK tax and investment landscape. David is a Non-Hodgkins Lymphoma survivor and is active in volunteering and fund raising for the support toward the treatment and eradication of blood cancers.

Read more… David Costello, Beyond the Bio

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Gail Hamilton King

Gail Hamilton- King

FINANCIAL ADVISOR

Gail joined Tanager in 2021 as a financial advisor with more than fifteen years of experience in senior investment banking and management consulting roles at Morgan Stanley and Deutsche Bank. She enjoys leveraging her financial experience to make a tangible difference for Americans living in the UK by helping to manage their complex finances globally. Gail moved to the UK from Chicago to complete an MBA at London Business School. As a dual UK/US family living in west London, she understands the challenges our clients face.

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
1

Ieuan Martin

FINANCIAL ADVISOR

Ieuan joined Tanager in January 2023 to continue his career in wealth management and provide client solutions for families across the UK and the US. He has a strong background in finance, having spent 3 years as a Financial Planner after graduating from Newcastle University with a 2.1 degree in Economics and holds the Series 65 license, the CFA Investment Management Certificate (IMC), and the Diploma in Regulated Financial Planning (CII). A keen student of history, Ieuan spends his weekends either reading or watching his beloved Newcastle United.

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
2

James Painter

ASSOCIATE FINANCIAL ADVISOR

After graduating from Oxford Brookes University in 2018 with a 1st Class Honours in Accounting & Finance, James spent 9 months traveling the United States and Australia before returning to the UK in 2019 to embark on his career in Financial Planning.  Since then, James went on to obtain the coveted (CII) Level 4 Diploma in Regulated Financial Planning in 2022, and more recently, in May 2024, joined Tanager as an Associate Financial Advisor where he will be working closely with the Senior Advisors to support them and their clients with their financial planning. James loves all things exercise-based outside of work, including running, football, snowboarding, and everything in between.

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Kris Heck

Kristopher Heck

MANAGING PARTNER

Kristopher has lived in London since 2007 and combined his ten-plus years of experience in the Institutional Asset Management Industry in the US and Europe and personal experiences as an expat to found Tanager. A founding partner and Chief Investment Officer, Kris has been a guest lecturer at the London School of Economics and has particular interest and experience in portfolio efficiency – encompassing tax, cost, and the optimal risk budgeting of a client’s assets. Kristopher is an avid fan of the Baltimore Orioles and enjoys going back to Maryland whenever he is able to.

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Kyle 4262 Edit 1

Kyle Pettigrove

PARTNER AND FINANCIAL ADVISOR

Kyle is a Certified Financial Planner ™ (CFP ®) and joined Tanager in London in 2016 having moved to the UK with his fiancée. A US/UK dual citizen and Philadelphia native, Kyle previously worked as a financial advisor in the US specializing in retirement planning. Now spearheading Tanager’s stateside office in Philadelphia, Kyle brings both relevant personal and professional experience to his role and covers the areas of pensions for US residents, British expats and transatlantic families living in the US. Outside of his work life, Kyle is an avid traveller and craft beer enthusiast.

Read more… Kyle Pettigrove, Beyond the Bio

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Patrick 4463

Patrick Mulhern

PARTNER AND FINANCIAL ADVISOR

Born and raised in New Hampshire, Patrick moved to Scotland at seventeen to study at the University of St. Andrews and has been picking up knowledge of life on both sides of the Atlantic ever since. A Partner and Financial Advisor, he specializes in complex planning for high-net-worth clients, international estate planning and inheritance issues. Prior to working in Financial Planning, he worked for a trust and estate law firm and co-wrote the book Estate Planning to Die For. Patrick lives in Sussex with his wife and children. He gets back to New England as often as possible and is one mountain short of having hiked all 4,000 Footers of the White Mountains.

Read more… Patrick Mulhern, Beyond the Bio

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Susan 4430

Susan Blaylock

FINANCIAL ADVISOR

Susan joined Tanager in 2019 upon moving to London. She is a Financial Advisor and has over a decade of experience in the financial services industry, mainly as a CPA. What she loves about financial planning is the opportunity to help people understand and achieve the financial goals that are most important to them. She enjoys the challenge of working with the complex situations of US expats. Susan shares Tanager’s philosophy of developing strong relationships with clients and gaining a deep understanding of their financial situations and life goals. Outside of work, Susan enjoys exploring, including hiking in the Alps, canyoning, kayaking London’s canals, cycling, and spending time with friends and family.

Read more… Susan Blaylock, Beyond the Bio

envelope icon
in icon
  • email icon
  • linkedinn logo
Close
Tori Bown 7230 Edit

Tori Bown

FINANCIAL ADVISOR

Tori joined Tanager in May of 2022 after moving to London in late 2021 to join her English Husband. Prior to joining Tanager, Tori worked in Dallas, Texas for a large wealth management firm for over five years where she specialized in financial planning for high net worth clients. As a Certified Financial Planner ™ , she’s developed a holistic approach to wealth management that incorporates all aspects of a person’s financial life. Tori enjoys helping clients define and achieve their financial goals by enabling them to put context around their finances.

envelope icon
  • email icon
  • linkedinn logo
Scroll to Top