There are myriad reasons why investors resident in the UK might have a US taxpaying requirement. It has amazed us over the years how many people in that situation are simply not aware of it, have chosen to ignore it, or have had their investment portfolios poorly structured, the consequences of which can be dire from a tax perspective.
If you or your clients have a foot in the US camp, it is vital that you structure your affairs and your investments appropriately.
FATCA is 10
July 1st marked the 10th anniversary since the Foreign Account Tax and Compliance Act (FATCA) came into force. For many it is an inauspicious date, but it still has huge implications for US citizens living abroad and their financial intermediaries. For whilst FATCA was enacted in 2010, four years of detailed planning had already been required by non-US banks and financial companies to get to grips with the complex new legislation before it would take effect.
The United States is in the elite club of two countries (the other being Eritrea in East Africa) which tax their citizens on a worldwide basis, regardless of the location of their permanent residence. FATCA was ultimately introduced to ensure that US persons were correctly paying taxes on their assets held outside the US. However, whilst the responsibility is very much on the individual to comply with US tax rules, the Act also places heavy obligations on non-US banks and financial intermediaries to report the details of any US-linked customers to the Internal Revenue Service (IRS).
The administrative and compliance burden that non-US financial institutions faced as a result of FATCA meant that the simple answer for many was to stop dealing with US clients altogether.
Sarasin is one of the few investment houses in London committed to looking after US clients.
Sarasin’s commitment to US-connected investors
In 2023, it was estimated that at least 5.4 million US citizens were living abroad.[1] In the UK alone, there are 170,000 US expats – a substantial potential client base[2] needing expert advice.
Multi-jurisdictional families are ever more common, and the ability to manage suitable investment portfolios for US clients alongside other family members without a US connection is a key specialist area, particularly when it involves complex family structures as part of the family’s overall circumstances. The bespoke nature of our investment solutions for clients lends itself particularly well to these scenarios.
We have deep experience in managing investments for US clients, not just in the UK but all over the world. Having established our subsidiary, Sarasin Asset Management Ltd (SAM) over 20 years ago for this purpose, we were already set up and ready for FATCA. We had been managing portfolios for our US-connected client base into SAM long before FATCA came into effect, and were fully equipped to take on more clients and invest for them in a tax-efficient way without compromising overall service.
Getting the right advice
Whilst we understand how to structure an investment portfolio to meet client needs, and keep ourselves up to date with current tax legislation affecting US clients, we also appreciate the importance of working alongside a client’s legal and tax advisers. We pride ourselves on maintaining strong network of professional advisers with transatlantic reach.
Whether US-connected or not, Sarasin client portfolios are always managed following our global thematic investment philosophy and process. Unlike UK investors, for whom collective funds are a popular and highly efficient investment choice, the tax complications associated with them for US clients makes them problematic, to say the least. Non-US collective funds are considered Passive Foreign Investment Companies (PFICs), the majority of which have severely negative tax consequences for US investors.
Given the regulatory and tax complexities faced by US clients, our aim is to simplify the investment offering for them by creating segregated portfolios of individual securities, all sourced from our global thematic buy list.
The result is a simple, transparent and efficient portfolio that truly meets the complex requirements that US connections bring.
Investment always comes with its complexities, but US persons face a number of additional considerations and potentially painful tax pitfalls from a poorly constructed investment portfolio. Individuals with an inkling that they (or any of their family members) may have a US tax reporting obligation should seek advice to avoid a giant tax pothole down the road.
[1] The Association of Americans Resident Overseas, based on State Department data. https://www.aaro.org/living-abroad/how-many-americans-live-abroad#:~:text=American%20Citizens%20Abroad%3A%20The%20American,and%20other%20government%2Daffiliated%20Americans
[2] World Population Review 2024 https://worldpopulationreview.com/country-rankings/american-expats-by-country
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