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Treatment of UK trust investments under FATCA is clarified

Monday, 30 June, 2014

With the US Foreign Account Tax Compliance Act set to come into force tomorrow (July 1), HM Revenue & Customs has explained how it will treat trusts that own assets managed by a financial institution.

Trusts will be classed as FATCA-regulated financial institutions (FIs) in their own right if a trustee is an FI, or if the financial assets are directly held by the trust and the direct holdings of the trust are managed by an FI.

The uncertainty, until now, has centred on trusts whose financial assets are purely pooled assets, such as insurance products or investment bonds. HMRC has now declared that in such cases the management of the assets by an FI does not in itself make the trust an FI. Instead, the trust will be classed as an NFFE or 'non-financial foreign entity' (in the language of FATCA), and the FATCA reporting responsibilities will lie with the insurance company or fund manager rather than the trust.

However, if the trust itself is professionally managed, or the trust has appointed a manager to manage these investments (so the direct holdings of the trust are also being professionally managed) the trust will then still qualify as an investment entity. This applies whatever the nature of the financial assets.

The STEP/ICAEW/Law Society FATCA working group will meet later this week to look at any revisions needed to the practitioner guidance previously issued by the three bodies jointly.

  • The new British regulations requiring the Crown Dependencies and Gibraltar to report client information to the UK also come into force tomorrow (July 1). They generally mirror the FATCA agreement with the US. However, the UK is not adopting the amendments announced by the US government regarding new entity accounts opened between 1 July and 31 December 2014. The obligations on UK financial institutions to obtain self-certification for a new customer will apply as from tomorrow.

Sources