UK trustees: do you speak FATCA?

8 May 2014

Do you know any UK resident trustees? If so, do they realise that they need to be getting up to speed with FATCA (the Foreign Account Tax Compliance Act), even if the trust has no US citizen settlors, beneficiaries or US situated assets?!

That is one of the (many) surprising issues surrounding the implementation of the 12 September 2012 UK-US intergovernmental agreement to implement FATCA and the associated 2013 UK Regulations.  The latter are enforceable with penalties in the UK.  HMRC issued its latest Guidance Notes on the Regulations in February 2014.

The purpose of FATCA is to unearth 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.

FATCA will not affect all UK trusts. FATCA bites if the trustees themselves, or the trust itself, is a ‘Financial Institution’ (FI). A trust is an FI if it is an ‘Investment Entity’, which is either:

  • trusts that are managed by an entity that acts for customers (such as a discretionary fund manager) and where more than 50% of the gross income (of the entity) is attributable to a business trading in money market instruments, portfolio management or the investment and administration of funds; or
  • trusts where more than 50% of the trust’s income is attributable to investing, reinvesting or trading in financial assets and the trusts are managed by an FI (which might include a corporate trustee).

HMRC’s Guidance Notes confirm that a trust whose assets consist of non debt direct interests in real property or land, even if managed by another Investment Entity, is not an Investment Entity in its own right.

Trusts that do 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.  Other options to use third parties to meet reporting obligations may also be available.

Trusts that are not FIs are Non-Financial Foreign Entities (NFFEs), who do not need to register or report, but these 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.

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.

Not conversant with all this ‘FATCA-speak’ yet? If you are a UK trustee, you soon will be.

Helena Luckhurst Author
Helena Luckhurst
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