UK Tax resident; UK/US citizen

Courtney1

I have just applied for a Fixed Rate Bond with a savings bank. My application was denied..

The tax questions asked were:
Can you confirm that your only country of residence for tax purposes is the United Kingdom? I answered Yes to this as I am resident in the UK for tax purposes. I moved back here permanently in 1996.
Are you a citizen of the United States of America? I answered Yes to this as I am a dual national
I phoned the bank and they said they could not help me. As I submit a US tax return every year and sometimes have to pay tax should I have answered 'No' to the first question even though I have always been under the impression that my tax home is the UK. I don't want to lie so thought I would see if anyone can help me with this before I proceed.

gingercordial

The issue here is a new-ish piece of US legislation called FATCA. It requires overseas banks to report to the IRS on any US citizens which hold accounts, even if (especially if!) they are not US-resident as the idea is for the IRS to be able to keep tabs on Americans overseas, many of whom forget to do that US tax return every year.

Unfortunately for you the reporting requirements for the banks are very onerous and so many banks have just decided they are not going to do business with any US citizens including dual citizens. That way if they have no US customers they don't have to report to the IRS. Since no bank is obliged to take your business you will simply find yourself restricted as to where you can get an account. So the savings account you want is not going to be available to you.

Try looking at accounts with the major international banks who need to do the reporting anyway so won't have the restriction.

Do not try lying as they will find out especially if you were born in the US.

I work in the tax department of a company so am currently filling out all sorts of forms for FATCA for our bank accounts, simply to declare that the company has nothing to do with the US. When I personally applied for a current account with M&S I had the third degree from a worried-looking manager due to the number of US entry stamps in the passport I'd provided for ID, and had to reassure him that I just liked going there on holiday and was not a citizen. Luckily I understood why he was asking!

bowlhead99

Most countries in the world operate a residence-based tax system and your bank needs to get the details of your other tax residences so they can prepare a report for the overseas tax authority which details your year-end account balances and annual interest receipts, if that particular country has agreed to share information with the UK via HMRC.

So if (e.g.) I was a French resident or German resident or Channel Islands or US resident, or I had one of those residences as well as a UK residence because I spent half of each year in each country, I would need to tell the bank at Question 1. This is so they could (a) decide if they wanted to offer an account to me, given the extra compliance and reporting implications - some banks might have a policy to only deal with UK-only residents for simplicity; and (b) get the right details like a French or German or Channel Islands or US tax ID etc if they were going to accept me as a customer.

The US is different from most other countries in the world because it taxes its population based on residence AND citizenship. If you are (1) a US resident, or (2) US citizen whether or not you're US resident - you need to file US tax returns, and the US wants to know if you have any significant overseas account balances or incomes.

Therefore as well as asking a general question about whether you have more than one tax residence, UK banks also have to ask an explicit question about whether you have US citizenship.

Again, as with Question 1, your answer to this question means they need to decide whether they want to take you on as a customer, because being a 'US person' results in extra tax compliance; they have to file a similar report to the one that results from reporting Frenchies and Germans and Jerseymen, although it is a slightly different set of legislation and they may have already decided that they will save £millions by avoiding the 'FATCA' legislation which gingercordial describes by simply not taking on customers who have either US residence or US citizenship. And if they are OK with taking on US citizens as customers, they would need to take your US tax ID at that point of the application to facilitate the reporting.

So, that's why they ask the questions (aside from the obvious ones about not wanting to take on too many customers resident in obscure foreign countries who might be more likely to be terrorists or money launderers).

Depending on the way the banks set up their customer onboarding documentation, some banks will roll the two questions into one: and so when they ask you in Q1 to list all your residences they want you to include US if you are a US citizen because practically it means you are still someone who is supposed to be be filing tax returns to an overseas tax authority. Sometimes there is extra 'help' or 'small print' to clarify how they want you to answer this when you hover over the question on an online form, or in the instructions when filling out a paper application.

To me, it sounds like you answered the questions correctly based on a literal reading of the questions and the way you explained your circumstances to us: you're not a US resident you are just a US non-resident citizen so you can say that yes, you are only resident of the UK. And then for the second question you can say that yes, you are a US citizen and go on to give them your SSN and whatever else they ask for if they don't mind having US citizens as customers.

However, it's not possible for us to say whether the reason they rejected your form is:

i) because they have a policy of not wanting to attract US tax compliance obligations by taking on US citizens as customers, OR

ii) because they feel the two answers given are inconsistent, on the basis that through some small print you weren't aware of they really intend you to answer in Question 1 that "No", although UK is the only literal tax residence you have, the UK is not the only practical tax residence you have because you're a US citizen and need to fill out annual 1040 forms to declare your worldwide income each year to the IRS.

You mention the bank said they couldn't help you. I don't know if that's because the person you were asking does not know why the application was rejected, or the bank has a policy of not telling prospective customers why the application was rejected. The rejection reason may be as simple as them not wanting US citizens as customer, which means you need to look elsewhere, or it may be as simple as them wanting you to answer the question differently and the customer service person wasn't aware of the exact detail of the questions because customers like you are only 0.01% of the applications they get.

If you're really keen on getting that particular account, you could perhaps reapply and say No for question 1 and give them your US tax ID at that point. Or phone and speak to someone else who understands your questions and their policy to see why it is that they don't want you

Courtney1

Thank you to both of you for your responses. I now have a much better understanding of the situation and will go ahead and check further with the bank regarding their reasons for rejecting my application. After all, they do advertise themselves as a UK bank for UK savers and I believe that is what I am. If still a no go, I will have a look around the larger banks and hope for the best. Your help is much appreciated.

EdSwippet

Related article: Why expat Americans are giving up their passports, BBC News, 9 Feb 2016.

Thrugelmir

Courtney1 wrote: »

Can you confirm that your only country of residence for tax purposes is the United Kingdom?

The question asked is very clear and not open to interpretation.

Courtney1

Although I file a US tax return every year, I have not resided there since the end of 1996. I assume you cannot be resident in two countries? I was born in the UK (father a US Serviceman) and given dual citizenship at birth. Does any of that make any difference. This is a bit of a confusing situation.

Still waiting to hear from the bank as to their reasons for rejecting my application.

bigadaj

Courtney1 wrote: »

Although I file a US tax return every year, I have not resided there since the end of 1996. I assume you cannot be resident in two countries? I was born in the UK (father a US Serviceman) and given dual citizenship at birth. Does any of that make any difference. This is a bit of a confusing situation.

Still waiting to hear from the bank as to their reasons for rejecting my application.

Yes, fatca is too onerous and risky for smaller financial institutions so if you are a us citizen or have non uk financial tax affairs then they will automatically decline your custom, it's the effect of the us governments standpoint.

The big banking groups have to operate within the us and so absorb their legislation and liabilities, hsbc for example after their massive fines.

Who did you apply to, I recall tesco bank and some others had this question, you represent a bigger risk than reward for them unfortunately.

diamonds

FATCAt...

was that deliberate? lol


Crazy the rest of the world has to gather info for one of the worlds biggest countries that obviously have issues with IRS like HMRC does doing its own investigative work.


Sick of getting this on applications.

bowlhead99

Courtney1 wrote: »

Although I file a US tax return every year, I have not resided there since the end of 1996. I assume you cannot be resident in two countries? I was born in the UK (father a US Serviceman) and given dual citizenship at birth. Does any of that make any difference. This is a bit of a confusing situation.

Still waiting to hear from the bank as to their reasons for rejecting my application.

Different countries use different criteria to decide whether someone is a resident for tax purposes, which might be based on number of days in the country in current or recent years and/or a while variety of other factors. It is therefore quite possible for an individual to be regarded as resident for tax purposes under the laws of more than one country (‘dual-resident’).

Many countries, but not all, have "double tax agreements" between them to help avoid people being taxed on the same income twice; those agreements often contain 'tie-breaker’ rules for determining in which of the 2 states an individual who is dual-resident under the respective domestic laws should be treated as resident for the purposes of the agreement.

Still, in your case it sounds reasonably clear that you're UK resident and very unlikely to be US resident having not lived there for a decade. So like I said, "yes I am only resident in UK and not anywhere else " sounds right, along with "yes I'm a us citizen"

diamonds wrote: »

FATCAt...

was that deliberate? lol

No.

Crazy the rest of the world has to gather info for one of the worlds biggest countries

Not particularly crazy that the rest of the world would go along with a demand from one of the world's biggest countries which does a lot of world trade.

It would be crazy if it was instead a request from one of the world's smallest and least powerful countries that was expecting us all to jump when it said so

that obviously have issues with IRS like HMRC does doing its own investigative work.

It is precisely *because* the IRS has difficulty investigating and extracting data from around the world about its residents and citizens who might easily avoid tax by not reporting overseas income and assets, just like a UK resident might do the same, that IRS and HMRC and their respective countries' Treasuries agreed to share information.

Sick of getting this on applications.

Really? I would contend you are not really made physically sick by reading a question that asks what country (ies) you're resident in, nor are you significantly inconvenienced by spending the two seconds needed to click the button or tick the box that positively confirms you're not a US citizen. You just wanted to chip into the thread to have a bit of a moan.

You sound like one of the people who is standing in line in a shop and it takes thirty seconds longer than it might have done if everyone was hyper efficient, and later recounts the tale to her friend that it was "an absolute nightmare" at the checkouts.

:beer:

bigadaj

diamonds wrote: »

FATCAt...

was that deliberate? lol


Crazy the rest of the world has to gather info for one of the worlds biggest countries that obviously have issues with IRS like HMRC does doing its own investigative work.


Sick of getting this on applications.

If you hav simple tax affairs and aren't a us citizen it's just one or two more boxes to tick, wasting fractions of a second of your time.

The us isn't one of the worlds biggest countries, it's the only global superpower and they can force the rest of the world to largely do what they want. You can't operate globally without a us presence and they can insist on what they deem necessary, as evidenced by the penalties and restrictions for banks dealing with Iran and ote hrs when the transactions don't go anywhere near the us itself.

It's always been the way that the most powerful can dictate the terms, a century ago it would have been Britain, before that the French, Spanish and there empires into the depths of time. Britain obviously had a more hands on approach with gunboats, and German business before the First World War argued strongly against a conflict on the basis that they would economically dominate the continent within a few years in any case.