UK/US dual citizen fatca pension nightmare

EdSwippet

SWsmith wrote: »

It could be that SIPPS are the problem - possibly because they're considered PFICs. I don't know.

A SIPP wrapper itself probably won't generally be a PFIC, but its contents might be. Here is one expert's best guess on how to handle this state of affairs:

There is no clear guidance on whether there is annual reporting requirements for PFICs held in a pension, when a US income tax treaty protects the employee from US tax on the pension’s income until the pension is distributed.

So it is not clear whether the US citizen with an employer funded UK pension scheme has annual reporting requirements for the PFICs in the pension.

Our practice is to not file Form 8621 annually.

Although entirely unsatisfactory, this type of rune-reading is nevertheless all that we have to go on for the many, many cases where the US fails to specify exactly how its tax laws are supposed to operate when applied extraterritorially.

bostonerimus

I'd give Charles Schwab in London a call. I hear they will deal with US type people. Them there are the boutique firms that deal specifically with US expats. I think regular UK retail firms will always be an issue.

Then you could always "do a Megan" and go for UK citizenship and then renounce the US.

SWsmith

@edswippet - thank you. you're correct - it is totally unclear. I'm sure I'll figure out a solution. The accountants I use are an IRS enrolled agent and rather brilliant - I'll trust their judgement. It'll be interesting to see what Vanguard do about this when they start their pension stuff at the end of this year.

@dunstonh Your posts confirm why I don't use IFAs (for this situation). If I feel I need an IFA in the future for other reasons I will pay a flat rate. No more ad valorem % fees. TBH I don't find IFAs who use ad valorem fees add value. Quite the opposite. Especially for decumlation. But that's a different post entirely.

SWsmith

@bostonerimus I am a dual national. I have a British passport - I am a British subject. As I said previously renouncing US citizenship is not as easy as it sounds - it's complicated and expensive and often the FATCA CBtax problems continue even after one renounces. Charles Schwab is a no go. I checked that one out too. But thank you!

bowlhead99

SWsmith wrote: »

Thanks. I have been reading up on this subject and researching sites/platforms for months on end. I've checked terms and conditions for most plans and the majority will not accept 'US taxpayers' or 'US persons'.

If HL (the largest direct-to-customer provider in the market) has not formed part of your research, you may need to step up your game in terms of who you are looking at. I don't know conclusively if they accept US citizens but the old article posted by xylophone said that they would, and their website doesn't say they don't; as mentioned, ensure you are looking for US citizenship being acceptable rather than simply seeing no "us persons" and disregarding them when what they are talking about is us residents.

It could be that SIPPS are the problem - possibly because they're considered PFICs.

I doubt they come under PFICS creating a problem, given the pension wrapper is respected both directions in the UK-US tax treaty. I mean, they may be PFICs or contain PFICs if you are not careful what you buy in the pension, but if it makes sense to do so you will be claiming treaty relief and not paying tax on the income / gains in the pension trust as you go along.

It appears most drawdown plans are SIPPS. Is that correct? I'd be fine with a plan that allowed UFPLS...

In the DIY market, SIPPs are dominant, though there is also Stakeholder (which is designed to be simple but comes with more restricted investment options and can be expensive);some of the stakeholder products don't support UFPLS.

I'm not paying for an IFA (again) since most are not clued up on US law.

You mentioned you don't have any assets in, or dealings with, the US. So, doesn't seem you really need them to be clued up in US law from your side. You only want to access a pension product with UFPLS which accepts US citizens.

Of course, the advisors might not want to take you on if they don't have US knowledge and risk you moving to the US and trying to sue them in US court.

You could look at US wealth management firms with outposts over here - but they won't be offering you a cheapo DIY option.

SWsmith wrote: »

It's the decumlation stage that is the major problem. Distributions... I've lived in the UK for decades. I have a British passport. I'm a British taxpayer. I have no dealings or assets in/with US. It seems crazy that FATCA can control my destiny - and deny me my right to invest and retire.

You can invest if you like and retire if you like- indeed, you already have a pension which is still offering the same terms as when you bought it.

It's not quite true that you have no dealings with the US. You have the rights and obligations of US citizenship which you don't want to give up in case the loss of your right to visa-free US travel/work is something you regret. The other 60+ million of us here in the UK don't have those rights and obligations and so are easier for certain businesses to deal with. As others said, you could give up your citizenship (which the 60m+ of us with no US assets or dealings are quite happy to live without) but you choose not to - for your personal reasons, which are understandable, but your own choice.

Giving up US citizenship/passport is easier said than done. I won't bore you with all the details but it is not a simple process - it's a complicated and expensive option. Please do not consider taking US citizenship without thinking it through very carefully.

Yes, it's not a decision to be taken lightly and isn't cost-free or hassle-free. But you can see that keeping yourself in scope of US extraterritorial laws is not something that all businesses find attractive.

SWsmith wrote: »

As I said previously renouncing US citizenship is not as easy as it sounds - it's complicated and expensive and often the FATCA CBtax problems continue even after one renounces

FATCA involves reporting investors who are US citizen or US resident. If you're not either, you're not reportable by UK financial institutions. When you open an account and they ask you if you are, you can say you're not.

If they have seen your passport and it shows an unambiguous US place of birth, they may question it, at which point you can give them a copy of your certificate of loss of nationality. If they are not reviewing your passport/ place of birth anyway, it won't come up. Other than that I'm not sure what sort of FATCA tax problems might be continuing to plague you after you're renounced.

SWsmith

@bowlhead99 Thank you very much for your constructive comments. Very helpful indeed.
IRS states quite clearly that certain investment products are unacceptable. stocks and shares ISA is a no go. They will tolerate Cash ISA, Premium bonds, a pension plan that falls under the UK/US treaty terms. But...property, cars and fine art are acceptable. It's ironic since those 3 assets are most used by super wealthy tax evaders - who actually live in the USA! The people FATCA was invented for. Not for normal small fry expats, dual nationals and accidental Americans. *sigh*

bowlhead99

SWsmith wrote: »

@bowlhead99 Thank you very much for your constructive comments. Very helpful indeed.
IRS states quite clearly that certain investment products are unacceptable. stocks and shares ISA is a no go. They will tolerate Cash ISA, Premium bonds, a pension plan that falls under the UK/US treaty terms.

S&S ISA should be 'acceptable' i.e. having one does not break any laws- it's simply that the IRS doesn't recognise it as something that's exempt from US income or capital taxes.

But after decades of being subject to US tax returns on your worldwide income and gains you are probably used to their exemptions and reliefs not matching the UK ones (not the same total relief from CGT on selling the house you live in, etc etc). It's why many would renounce, for a simpler life, if they weren't going to use the advantages of citizenship in the future.

But...property, cars and fine art are acceptable. It's ironic since those 3 assets are most used by super wealthy tax evaders - who actually live in the USA! The people FATCA was invented for.

Well, it was invented to catch US residents and citizens who didn't properly declare their foreign financial accounts and the income and gains from them, by having banks and insurers and custodians and investment firms report the accounts.

It's rather harder for them to get your housekeeper to report the value of a high end painting on a wall, than to get a bank to electronically report an account balance via an automatic exchange of information agreement. So as a general principle you can't really blame them for choosing to go for the 'low hanging fruit', even if the cost of all the financial institutions complying is higher than the extra tax that the IRS collects

I understand your sentiment of course and it does remain true that super-wealthy people are more likely to be able to avoid some of the laws or mitigate some of the taxes by throwing money at the problem and/or paying advisers to come up with smart ideas. As has always been the case. Mere mortals might struggle to circumvent the rules, so it will cut down on 'casual tax avoidance' and perhaps make life more difficult for expat joe sixpack.

bostonerimus

The ISA wrapper is meaningless to the IRS so you'll have to hold cash, individual stocks or bonds or US domiciled funds to avoid PFIC issues. Inside a UK pension wrapper that should not be an issue.

Renouncing isn't that hard, it will cost a few dollars, but the forms are not hard to fill out.

IanManc

SWsmith wrote: »

@bostonerimus I am a dual national. I have a British passport - I am a British subject.

+Pedant Alert+

You're almost certainly not a British Subject. You are overwhelmingly likely to be a British Citizen.

British Subjects are people who gained that status under the British Nationality Act 1948, who were living in former British colonies and who chose not to take the nationality of the newly independent nation in which they resided and to which they were entitled.

They have British nationality but have no right to reside in the UK. They're entitled to travel under a British Subject passport and to consular assistance.

There are thought to be less than thirty thousand British Subjects still alive in the world, though there is no central register of them. They are dwindling in number because British Subject status is no longer bestowed and British Subjects cannot pass their nationality on to their offspring or spouse.

Have a look in your passport next to your photograph - it will say British Citizen.

grey_gym_sock

EdSwippet wrote: »

Anyway, for what it's worth the EU is now concerned about the effects of FATCA on Americans

it sounds to me more like they're concerned about the lack of reciprocity in FATCA (other countries give the USA info, but the USA doesn't reciprocate), as opposed to CRS (which is reciprocal, and is otherwise similar to FATCA, but the USA hasn't signed up to it). and they're only floating the idea of not fully complying with FATCA as a way of pressuring the USA to agree to reciprocity in some form. and they're only floating it, not doing it ..

bostonerimus wrote: »

Then you could always "do a Megan" and go for UK citizenship and then renounce the US.

that makes it sound a much more attractive option than if you'd called it "doing a boris"