Under UK legislation enacted last year there are new reporting requirements which potentially apply to UK resident trusts with managed investments and whose beneficiaries, settlors or protectors are resident in the US, Channel Islands, the Isle of Man or Gibraltar.
These reporting requirements potentially also apply to other kinds of UK resident investment entities, such as investment companies and investment partnerships, which use professional investment managers.
The next reporting deadline – 31 May 2016 – is fast approaching.
If you are a trustee, partner or director of any such trust, partnership or company you should consider whether you have or your entity has a reporting obligation under these new rules.
WHAT ARE THE NEW REPORTING RULES AFFECTING TRUSTS (AND CERTAIN OTHER ENTITIES)?
Some trusts, or the financial institutions such as investment managers and banks with which they deal, have new obligations to report to the UK’s HM Revenue and Customs (“HMRC”) any US, Channel Islands, Isle of Man or Gibraltar based individuals with interests in such trusts.
In addition, some entities with US connections are obliged to register with the US Internal Revenue Service (“the IRS”). Unless they are registered, it is not possible for a report to be submitted on them to HMRC, if required.
These obligations to report to HMRC arise under UK regulations which came into effect last year and which implement international agreements (so-called FATCA agreements) with the US, the Channel Islands, the Isle of Man and Gibraltar. These agreements deal with exchange of information for tax purposes between these jurisdictions and the UK. HMRC may forward the information reported to it to the fiscal authorities of the jurisdiction concerned.
In our experience, in many cases where reporting is needed, this is dealt with by the financial institution which provides investment management services to the trust or other entity in question. However, in some cases it might be necessary for the trust (or other affected entity) to do the reporting itself (see further below).
IF REPORTING IS NEEDED UNDER FATCA, WHAT IS THE DEADLINE?
In cases where reporting is required, the deadline for this is 31 May each year, so the next deadline is later this month, 31 May 2016.
WHICH TRUSTS HAVE TO REPORT TO THE UK’S HMRC UNDER FATCA?
Only UK resident trusts are reportable to HMRC under FATCA.
Apart from this the rules determining which trusts are reportable under FATCA are quite complex but in broad terms a UK resident trust is potentially reportable if
- it has individual (rather than corporate) trustees (where there is a corporate trustee the corporate service provider will normally do the reporting, although this should be checked)
- it has investments which are managed on a discretionary basis by a financial institution such as an investment bank or other professional investment managers; and
- it has any connections with
- the US
- the Channel Islands (Guernsey or Jersey)
- the Isle of Man; or
Such connections exist if any of the beneficiaries, settlors, protectors or trustees are resident in any of the above jurisdictions and, in the case of the US, if they are US citizens (which could include anyone born in the US or with a US parent) or Green Card holders.
WHAT IS THE PERIOD FOR WHICH I SHOULD REVIEW THE EXISTENCE OF US ETC CONNECTIONS?
For the US, you would need to check whether there were any US connections in calendar year 2015. (If the position was not checked last year for 2014, then you should also now check the position for the calendar year 2014).
For the US, you would need to check whether there were any US connections in calendar year 2015 (If the position was not checked last year for 2014, then you should also now check the position for the calendar year 2014).
BESIDES TRUSTS, WHAT OTHER ENTITIES ARE POTENTIALLY REPORTABLE?
Any kind of UK resident entity which exists to hold investments (rather than to trade) is potentially reportable to the UK’s HMRC under FATCA.
This includes investment companies and investment partnerships.
ARE ANY TRUSTS OR OTHER ENTITIES EXCLUDED FROM FATCA REPORTING REQUIREMENTS?
The following are not reportable
- registered pension arrangements such as Self-Invested Personal Pensions (SIPPs)
- estates of deceased individuals which are still being administered
WHAT ARE THE PENALTIES FOR NOT REPORTING?
The UK Regulations contain penalty charges for reporting failures. These range from £300 (with further daily penalties of £60 in some cases) to £3,000, depending on the circumstances and the degree of fault involved in the failure.
In addition, under the US FATCA agreement, a trust or other entity with US connections that failed to register with the IRS when under an obligation to do so may have up to 30% of its US income and gains withheld. Our understanding is that any such income or gains so withheld cannot be later reclaimed, even if the reporting failure is rectified.
WHAT SHOULD I DO NEXT?
If you think that any trust of which you are a trustee or investment partnership of which you are a partner or company of which you are a director is potentially reportable on the principles outlined above, and if as far as you are aware reporting is not yet in hand, you should contact your usual tax or legal adviser or accountant. You might also contact the investment managers or bank to see whether they are dealing with FATCA related reporting for the trust or other FATCA related entity in question.