Deadline October 2014: penalties apply for non-compliance
UK Trustees who have not yet checked whether the US tax rules under FATCA (the Foreign Account Tax Compliance Act) applies to them must do so now, even if the trust has no US citizen settlors, beneficiaries or US situated assets.
Read on if you are a UK Trustee, or a Beneficiary of a UK Trust…
The purpose of FATCA is to identify undeclared worldwide income of US citizens, but this is done by placing the onus on the payer of funds to identify when payments are being made to US citizens. The UK Government has introduced Regulations into the UK which mean that part of this reporting obligation falls upon UK Trustees. The problem is that in order to know whether a Trust has a reporting obligation, Trustees must review all Trusts that they administer and register any that are affected.
Which UK Trusts are affected?
FATCA will not require all UK trusts to register. FATCA primarily applies if the trustees themselves, or the trust itself, is a ‘Financial Institution’ (FI). If you are the Beneficiary of a Trust and a Financial Institution is your Trustee, then you won’t need to worry about this as they will already be registering the Trust.
The Trusts that are most likely to find themselves falling foul of the new rules are where the Trust itself is classed as a Financial Institution, as this definition can apply to family administered Trusts.
Is my Trust a “Financial Institution” for these rules?
A trust is an FI if it is an ‘Investment Entity’, which is either:
This can mean that any Trusts generating income from investments, either through managed funds or self managed funds, should review their FATCA reporting obligation.
The basic test is whether more than half of the Trust income is from investments such as shares.
Trusts owning Land & Property – are they affected?
HMRC’s Guidance Notes confirm that trusts whose assets consist of non debt direct interests in real property or land, even if managed by another Investment Entity, are not Investment Entities in their own right.
Trusts generating income and gains through non-debt interests in land (i.e. they generate rental income and capital profits) do not need to register.
What if we do need to register?
Trusts that qualify as FIs need to register online for a GIIN (Global Intermediary Identification Number) from the IRS by October 2014 in order to remain compliant. Alternatively, trustees who use fund managers may wish to ask if the manager will report on behalf of the trust so that the trust is a Sponsored Investment Entity.
What if we don’t need to register ourselves? Do we need to do anything?
Trusts that are not FIs themselves are still treated as Non-Financial Foreign Entities (NFFEs), and whilst they do not need to register or report themselves, they will still need to complete an IRS form to certify their status as such to any FIs they do business with. They must also determine if they are active or passive NFFEs. In real terms this means that banks and other financial bodies may issue a disclosure letter requesting details about the Trust. Trustees should complete these forms to ensure that the banks are able to continue to pay investment income to them in the usual way.
Why do UK trustees need a GIIN if they will have nothing to report? It seems simply because any institutions that are FIs themselves, such as fund managers, whose services the trustees wish to use, will expect the trustees to be able to demonstrate that they are FATCA compliant. In absence of this, some financial bodies may seek to withhold US tax charges until such time as the
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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.