US persons having to close accounts in UK

Aegis

prudryden wrote: »

No one has denied that US persons are liable for taxes to the US government. But, in the UK, the tax that you pay is much higher than the US tax so there is no reason not to file a US tax return.

All true. However, someone paying basic rate tax in the UK is given a tax credit of 10% and pays no actual income tax on paid dividends. The US tax authorities might well see this as paying no income tax on dividends. Capital Gains Tax is not payable on ISAs here, but might well be due in the US. Offering services to US citizens which might result in them evading their tax (accidentally or otherwise) is troublesome from a legal perspective for two reasons: 1) most advisers or providers don't want to spend the enormous amount of time becoming fully compliant with US tax law when the majority of their customers have no exposure to that tax system, and 2) many US citizens aren't even aware of their tax obligations for shares/funds and might well use the services to inadvertently pay less in tax than they are required to.

The tax credit wipes out any liability for US tax unless your income is abnormally high. In that case, Alternative Minimum Tax kicks in. It is a very small amount and can generally be paid out of petty cash. As mentioned below, UK top tax = 40%. US, as I understand it, is 28%. Cook County may correct that if wrong.

The tax credit might well not be recognised under US tax law.

prudryden

Dun,
Many thanks for your valuable input. More research is obviously needed and more questions and answers to be received hopefully.

LEGAL ACTON: Very good points. Certainly US residents would take action in a US court. US citizens holding UK passports and permanently resident in the UK doing business with just any UK company (not a US subsidiary) may have trouble bringing action in the US. Needs more research.

DOUBLE TAXATION: Generally, the US/UK tax treaty is designed so that double taxation doesn't happen. It can happen when your earned/unearned income is very substantial. You then can fall into what is called AMT (Alternative Minimum Tax). It isn't a great amount however.

FSA: Again, very good points and raises more questions.

Is it then true that you could provide services to US persons permanently resident in the UK but at your own risk i.e. not covered under the blanket liability insurance provided by your admin/compliance umbrella?

tradetime

prudryden wrote: »

Hi Trade,
That is a good question and one certainly worth responding to. Many Americans who live in the UK were born here (dual nationality) or have lived here most of their lives. Their investments are not in US equities, but in UK products on which they pay British tax, unless, of course, the investments are in an ISA. Their entire estate is in British pounds not USD. Even though they have to file a US tax return, there is usually no tax to pay because of the UK tax credits based on the US/UK tax agreements. Top tax rate in UK =40%. Top tax rate in US = I believe is 28% (could be wrong on that). Cook County can tell us. US brokers find it difficult to hold foreign products and still be able to produce accurate year end tax forms and, therefore, many refuse to hold products evaluated in a foreign currency.

Hi prudryden.
Yes I can accept that someone with dual nationality who was born here and lived here all their lives is for all intents and purposes likely British in their experiences and thought processes, and thus "in their right mind" would allow them to use UK brokers.
I was thinking of people who are American, but resident here, they would if interested in using brokerages be used to US ones as first choice and thus with very little searching would have come up with Interactive Brokers one of the largest retail brokerages in the world, and accessible here. The "right mind" comment was related to the fact that once you are familiar with the fees and services of US brokers, you wouldn't waste your time with the usual UK retail brokers. Obviously for people who just go with the flow, the education, whilst inconvenient will likely benefit them in savings.

As to the issue itself, I am I'm afraid missing the point I think. The global witch hunt for tax evaders is making it very expensive for foreign firms to comply, particularly with US tax reporting rules. Recently there was talk of US nationals being refused bank accounts in Switzerland after the Credit Suisse / UBS debacles. Why would any firm take on extra costs to cater for a minority of clients?

In case you have friends whom this affects, thus bringing it to your attention, you might suggest they look at the above company. Interactive Brokers LLC is a US based company which is accessible here, operates in about 80 markets worldwide, allows you to denominate accounts in either Euro, Sterling, or US Dollar, and price wise is one of the most competitive brokers out there.

prudryden

Trade,
Thanks for your comments. I will take a look at Interactive. What about bank accounts - how will these "US persons" pay their gas/electric etc. bills if the banks start refusing to do business with this unwanted group of people?

prudryden

Tradetime,
I have looked at Interactive and have sent them an email to see if US passport holders but permanently resident in the UK can open an account in British pounds and trade only in UK shares. As they are a US firm, I'm expecting that there could be a problem with that. I will let you know if I hear back probably on Monday.

tradetime

There are a lot of things going on with regards to tax implications, and it will likely be a while before they all come to light (example the recent deadline for all UK residents to declare any offshore accounts they held)

As I say Interactive Brokers are a US company, though they have a presence in this country. UK nationals would open an account with the UK entity, although as far as I know it is all one firm, there is no separation, except that the account is registered here in the UK. i think much like the TD Ameritrade UK operation, the maintain a presence here but the chain of command goes back to the US As far as I am aware US nationals can hold an account registered with them in the UK or US.

As I say, accounts are available to open in a base currency of either Euros, Sterling, or US Dollar. Most people will open the account i their funding currency as you can only deposit and withdraw money in that currency.

Within the account IB being also an FX Market Maker allows you through their platform to exchange your base for any currency you need to trade in on the exchanges they have access to.

tradetime

Oh just one other thing, Interactive are not a hand holding firm, so whilst modesty is a admirable quality in people it's one to drop when talking experience with them, I have been told they will likely turn down potential clients with little or no experience in stock markets.

prudryden

tradetime wrote: »

Oh just one other thing, Interactive are not a hand holding firm, so whilst modesty is a admirable quality in people it's one to drop when talking experience with them, I have been told they will likely turn down potential clients with little or no experience in stock markets.

Have you used them yourself? I noticed they want to know if you have done at least 100 trades in the product you wish to deal in. Covers their backside as they can say you are experienced.

tradetime

prudryden wrote: »

Have you used them yourself? I noticed they want to know if you have done at least 100 trades in the product you wish to deal in. Covers their backside as they can say you are experienced.

Yes I use them for futures and equities trading, mainly US, they are a broker better known to the active trading community, and in fairness all the people I know who use them are active traders. Whilst I don't know any investors who use them, possibly in large part because I don't know any investors. I am not aware that they would exclude investors, although the 100 trade rule if strictly enforced would cause a problem for new or novice investors. The 100 trades I think was introduced to protect them from the problems associated with people using them to experiment in the markets just to see if they like it. There are also account minimums, but offhand I can't remember what they are.