US tracker Funds or US ETF within an ISA - Foreign Account Tax Compliance Act

MattInvestor

I am a UK resident and citizen with no intention of ever living in the US. I would like to invest some of my ISA funds in something such as 'Vanguards US Equity Tracker Fund U.S. S&P 500 fund'. How will this investment be affected by the Foreign Account Tax Compliance Act and does this impact on the viability of US based investments?

If this creates unwanted complexity, it this likely to be worth doing?

Thanks

EdSwippet

MattInvestor wrote: »

How will this investment be affected by the Foreign Account Tax Compliance Act and does this impact on the viability of US based investments?

No direct impact to you. FATCA forces non-US banks to report the activities of US citizens (including duals) to the US IRS, but if that's not you then you just tick the 'Not a US citizen' box with your bank or broker, complete a W-8BEN for the broker, and you are done.

Your may however encounter issues relating to the new EU MiFID II regulation.

Malthusian

If the OP means the Vanguard US Equity Index unit trust then this is a UK fund and no W-8BEN form should be required.

If he's planning to invest in the US-listed Vanguard 500 Index Fund ETF, then it would, but I don't know why you would bother when there are UK ETFs doing basically the same thing. Or unit trusts doing the same thing which have ongoing charge figures of 0.07% compared to the Vanguard ETF's 0.14%.

(I'm aware that some platforms are cheaper for ETFs than unit trusts, but we don't know if that's the case for the OP.)

dunstonh

How will this investment be affected by the Foreign Account Tax Compliance Act and does this impact on the viability of US based investments?

None at all.

FATCA impacts mainly on US citizens and Offshore investment bonds. If you are investing in EU/UK domiciled funds in an ISA then its non-issue.

bowlhead99

FATCA has been around in the UK and elsewhere worldwide since 2014.

It does not change the viability of US investments. It just creates workload for the investment funds, brokers, banks and other intermediaries by making sure that they properly identify the tax status (and US citizenship status) of their accountholders. Then if any of the account holders have US status the financial institution will have to annually report them to HMRC (or other local tax authorities such as e.g. Ireland or Luxembourg if the funds are based in Ireland or Luxembourg) so the information about the account balances etc can be reported periodically on to the US tax authorities. If you're not a US person, your info won't be reported under FATCA. If you were, it would.

There is a similar initiative (the OECD's 'Common Reporting Standard') which captures the information on other (non us) foreign accountholders so it can be shared between the tax authority of the country the fund or investment platform is based in, and the home country of the investor.

Collectively the above initiatives come under the heading of Automatic Exchange Of Information between countries for tax purposes (AEOI). If you are only investing in UK-based funds, and your only tax residence is the UK, and you're not a US citizen, there's no reason for you to be reported. The only impact on you is having to declare your tax status and tax ID when you open a new account with a broker /fund platform or the fund manager direct. The forms might refer to FATCA, CRS, AEOI or something else, but it's all generally the same thing.

(Apart from MIFID II which is not actually the same thing but still involves gathering personal data, for trade reporting.)

bostonerimus

FATCA won't be an problem for you is you are not a US citizen or resident and buy non US domiciled funds.

FYI unless there is a really good reason....like being a US citizen living in the UK.......don't buy US domiciled funds as you'll have to deal with HMRC reporting issues. Vanguard ETFs are HMRC reporting, but Vanguard regular mutual funds and 99% of other US domicile funds are not.