UK Investment Club and US citizen joining

englishdealhunter

Hi - the UK club uses Interactive Investor as their platform, who require the W8-IMY form filled in for the club and all members who are UK Nationals sign the W8-Ben. This provides the witholding for the club and its members. As a dual national, I would sign the W9 form which seems to invalidate the W8-IMY form? 

Does anyone have experience of this, how to get around it, or to whom we should go for advice?

Thanks

EdSwippet

englishdealhunter said:

Hi - the UK club uses Interactive Investor as their platform, who require the W8-IMY form filled in for the club and all members who are UK Nationals sign the W8-Ben. ...

Interactive Investor specifically excludes US citizens from being members of an investment club. From their current new members form:

Section 3 - New member declaration
...
I confirm that I am not a U.S. citizen or resident in the U.S. for tax purposes.

The culprit is a 2010 extraterritorial US tax law, with the sophomoric acronym FATCA.

dunstonh

EdSwippet said:

englishdealhunter said:

Hi - the UK club uses Interactive Investor as their platform, who require the W8-IMY form filled in for the club and all members who are UK Nationals sign the W8-Ben. ...

Interactive Investor specifically excludes US citizens from being members of an investment club. From their current new members form:

Section 3 - New member declaration
...
I confirm that I am not a U.S. citizen or resident in the U.S. for tax purposes.

The culprit is a 2010 extraterritorial US tax law, with the sophomoric acronym FATCA.

Most platforms don't allow US citizens because of FATCA (and the fact that US citizens can sue firms they use in US courts).  So, I was surprised to see the OP saying it was ok.   Your response is more in line with that you would expect.

Bostonerimus1

Also would having a US citizen member cause PFIC issues? Would a US citizen member "contaminate the pool" for everyone...or does the investment club structure insulate the US citizen from PFIC issues? When I looked at this I decided it was easiest to keep my US based Vanguard ETFs rather than trying to find a UK broker who'd accept a US citizen and then dealing with the US tax issues.

EdSwippet

Bostonerimus1 said:

Also would having a US citizen member cause PFIC issues? Would a US citizen member "contaminate the pool" for everyone...or does the investment club structure insulate the US citizen from PFIC issues?

It's an irrelevant question. The investment club structure cannot be "contaminated", nor can it insulate the US citizen from anything, because the US citizen cannot participate in it.

Bostonerimus1

EdSwippet said:

Bostonerimus1 said:

Also would having a US citizen member cause PFIC issues? Would a US citizen member "contaminate the pool" for everyone...or does the investment club structure insulate the US citizen from PFIC issues?

It's an irrelevant question. The investment club structure cannot be "contaminated", nor can it insulate the US citizen from anything, because the US citizen cannot participate in it.

The reason for not allowing US citizens to join is probably the tax and reporting complications that would result. It's worth asking to understand the reasons for excluding US citizens.

EdSwippet

Bostonerimus1 said:

EdSwippet said:

Bostonerimus1 said:

Also would having a US citizen member cause PFIC issues? Would a US citizen member "contaminate the pool" for everyone...or does the investment club structure insulate the US citizen from PFIC issues?

It's an irrelevant question. The investment club structure cannot be "contaminated", nor can it insulate the US citizen from anything, because the US citizen cannot participate in it.

The reason for not allowing US citizens to join is probably the tax and reporting complications that would result. It's worth asking to understand the reasons for excluding US citizens.

Every one of Interactive Investor's "Terms and conditions" documents includes a refusal ("You confirm that you are neither a resident of Canada nor a US person.") and a threat ("Specifically, we may [summarily close out your account] if, by reason of payment method or any information that we obtain from any source, we have reason to believe that you are a US citizen, US resident or US person.")

These clauses didn't exist before FATCA. Now, they do. FATCA requires non-US financial institutions to grass up US citizens to the IRS (at their own expense, of course). As a result, some UK providers have taken the commercial decision that US persons are more trouble than they are worth, and it is easiest and simplest just to shun them.

The details of what extra information Interactive Investor might have to require from the investment club, and what specifically they would have to then pass on to the IRS, are unimportant (and probably indecipherable anyway), because Interactive Investor have decided, understandably, that any amount of this is simply too much. We can only speculate what they would have to do if not for FATCA and the exclusion policy it generates.

As for PFIC, this cannot apply to the club, because the club is not a US person. It would apply to any (hypothetical) US person member of the club, in which case they would have to deal with it themselves. Quite possibly also some ugly, expensive and time-consuming US reporting for holding an interest in a non-US partnership, trust, or corporation. All told, then, Interactive Investor's refusal here is probably saving all the parties -- Interactive Investor, the club, and its (hypothetical) US person member -- a considerable amount of US tax grief.

poseidon1

EdSwippet said:

Bostonerimus1 said:

EdSwippet said:

Bostonerimus1 said:

Also would having a US citizen member cause PFIC issues? Would a US citizen member "contaminate the pool" for everyone...or does the investment club structure insulate the US citizen from PFIC issues?

It's an irrelevant question. The investment club structure cannot be "contaminated", nor can it insulate the US citizen from anything, because the US citizen cannot participate in it.

The reason for not allowing US citizens to join is probably the tax and reporting complications that would result. It's worth asking to understand the reasons for excluding US citizens.

Every one of Interactive Investor's "Terms and conditions" documents includes a refusal ("You confirm that you are neither a resident of Canada nor a US person.") and a threat ("Specifically, we may [summarily close out your account] if, by reason of payment method or any information that we obtain from any source, we have reason to believe that you are a US citizen, US resident or US person.")

These clauses didn't exist before FATCA. Now, they do. FATCA requires non-US financial institutions to grass up US citizens to the IRS (at their own expense, of course). As a result, some UK providers have taken the commercial decision that US persons are more trouble than they are worth, and it is easiest and simplest just to shun them.

The details of what extra information Interactive Investor might have to require from the investment club, and what specifically they would have to then pass on to the IRS, are unimportant (and probably indecipherable anyway), because Interactive Investor have decided, understandably, that any amount of this is simply too much. We can only speculate what they would have to do if not for FATCA and the exclusion policy it generates.

As for PFIC, this cannot apply to the club, because the club is not a US person. It would apply to any (hypothetical) US person member of the club, in which case they would have to deal with it themselves. Quite possibly also some ugly, expensive and time-consuming US reporting for holding an interest in a non-US partnership, trust, or corporation. All told, then, Interactive Investor's refusal here is probably saving all the parties -- Interactive Investor, the club, and its (hypothetical) US person member -- a considerable amount of US tax grief.

Well done!

A very coherent discourse on the iniquities of FATCA which involved the IRS trying to make financial institutions/entities outside the USA, part of its compliance and policing of its overseas citizens to ensure said citizens meet their tax obligations.

No surprise, therefore that a majority of non US banks and investment institutions ( around the world) have effectively made US citizens persona non grata as a result.