The IRS has published guidance indicating UK occupational pension schemes may be exempt from the provisions of FATCA.


In February, the US Inland Revenue Service (the “IRS”) published draft guidance on a piece of American legislation – the Foreign Account Tax Compliance Act (“FATCA”) – which could have material implications for the investments of pension schemes in the UK and elsewhere.

FATCA would impose a 30% withholding tax on US income earned by a non-US “financial institution” unless it agrees to give information to the IRS about US citizens and taxpayers who have an interest in it. The problem for UK pension schemes is that, from 2013, FATCA could treat them as financial institutions – and impose the 30% tax on their US investment returns – if any scheme member, or even any dependant of a scheme member, is a US citizen or taxpayer. Even if they were happy to provide that information, schemes might not know which of their members are US citizens, let alone whether any members have dependants who are.


The good news is that the IRS’ draft guidance exempts certain non-US pension plans from FATCA. The fly in the ointment is that it is not clear that the wording of the exemption would cover all UK occupational pension schemes. In our view, the issue has arisen only because the IRS has not fully understood UK schemes, rather than because it does not intend to exempt them.

HM Treasury is liaising with the IRS about this issue, and we expect that the next draft of its guidance will more clearly exempt all UK occupational schemes. In our view, therefore, trustees should not take any action for now. However, they should continue to monitor developments.