FATCA - What do trustees need to do? - Boodle Hatfield

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17 Jan 2017

FATCA – What do trustees need to do?

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The UK and US governments have reached an agreement to implement a US law, the Foreign Account Tax Compliance Act (FATCA), in the UK.

FATCA was designed to combat tax evasion by US residents using foreign accounts and it requires institutions outside the US to pass information to US tax authorities. The extra-territorial aspect of FATCA caused raised eyebrows initially, but what has really surprised people is the range of institutions that are affected including many private trusts.

Corporate trustees, and trusts which delegate the management of investment portfolios where more than 50% of their income derives from investments, will generally need to register with the IRS by 25 October 2014, and thereafter must report certain US connections annually to HMRC, who will pass the information on to the IRS.

Alternatively, trusts which delegate the management of investment portfolios may be able to enter into an agreement with a third party (e.g. the investment manager) to report on their behalf. For instance, an investment manager could act as a Designated Withholding Agent for the trust and be responsible for reporting on their behalf, in which case the trust would be “owner documented” and would not need to register with the IRS. It would, however, still need to provide the relevant information to the withholding agent.

Other trusts such as those which just hold property, cash, or direct investments or those which delegate the management of investment portfolios but less than 50% of their income derives from investments, will not generally need to register but may have annual reporting requirements if they have any US beneficiaries, trustees, protectors or settlors. All trustees should consider their status and obligations under FATCA as soon as possible and if applicable speak to their investment manager. For full details please see our flyer entitled ‘FATCA: What trustees need to know.’

The US has also entered into similar agreements under FATCA with a wide variety of countries, including Jersey, Guernsey, and the Isle of Man, although the precise terms do vary. Therefore it is important to work out which country’s agreement covers a particular trust and to take advice in the appropriate jurisdiction.


The US FATCA agreements are not the end of the story. The UK has entered into similar information-sharing agreements, based on FATCA, with Jersey, Guernsey, Isle of Man and Gibraltar (referred to here collectively as the Crown Dependencies, although Gibraltar is technically an Overseas Territory) and will soon be entering into similar agreements with the other Overseas Territories, namely the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands and Montserrat.

There is no registration required under these FATCA-style agreements but there are reporting requirements. For instance, the Crown Dependencies will need to report on UK persons or non-UK trusts with UK controlling persons, broadly the settlor, the trustees, the protector, the beneficiaries, and any other individual exercising ultimate effective control over the trust.

Reporting requirements are fully reciprocal so that UK Financial Institutions will have to provide similar data on residents of the Crown Dependencies. Unlike the US FATCA, there is an alternative reporting regime for remittance basis users.

The first reporting deadline is not until 31 May 2016, although trustees may be advised to identify whether they are likely to have any reporting requirements sooner rather than later.

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