How Americans in Britain became "toxic citizens"

After FACTA.

"We have become toxic citizens," says Andy Sundberg, the founder of American Citizens Abroad. To what is he referring? Congress passed FATCA (Foreign Account Tax Compliance Act) in 2010, designed to address the issue of US citizens evading tax by using Swiss bank accounts. Those financial institutions wishing to retain their US clients must in future report US account holders to the relevant authorities. This has resulted in several leading private banks deciding to withdraw from the fray, thus rendering their US clients orphans.

This has caused great consternation in the UK, where there are 177,000 Americans (according to the 2011 Census), many of whom have been here a long time. Indeed, some have chosen to settle here permanently or perhaps indefinitely, marrying non-American spouses and educating their children at British schools and universities. Many of them have earned substantial salaries and bonuses in financial services or in law, and until recently, their wealth management needs have been serviced by the full gamut of British and European private banks. Now all this has changed.

Essentially, FATCA is forcing foreign financial institutions to identify and report the accounts and investments of their American clients. The reporting obligation is what is driving many institutions into pushing their US clients away. All the banks, custody houses, trust companies, and insurance companies in Britain that have US citizens as clients now have an obligation to identify who meets the definition of a ‘"US person" and then they have to furnish such information to the authorities who in turn will provide the information to the IRS.

It is certainly having the desired effect as far as the IRS is concerned, since over 600,000 US citizens living overseas filed a Report of Foreign Bank and Financial Accounts (FBAR) in 2011 following greater awareness of FATCA, compared to fewer than 300,000 in 2009. FATCA is flushing everyone out into the open and forcing them to sort out their affairs. Nonetheless, those 600,000 are one-tenth of the 6.3 million US persons living in 160 countries around the world.

Companies like mine, Vestra Wealth, have decided to respond differently to FATCA, preferring to see it less as a catastrophe and more as an opportunity. When FATCA was introduced, the partners agreed that there was a significant opportunity to let us create the infrastructure for a dedicated US team. This was driven primarily by client need, as we found that there are a number of British nationals resident in the US as well as US citizens living in the UK, all of who were seeking investment services. So as of May this year we have been registered with the Securities and Exchange Commission (SEC) in the US as well as being fully regulated by the Financial Conduct Authority (FCA) in the UK.

The US is one of the few countries in the world who taxes its citizens on their worldwide income and gains, regardless of residency status. US residents and non-resident citizens (including Green Card holders) have therefore always had an obligation to report their annual income and gains to the US authorities. All that a US citizen with wealth management requirements in the UK needs to know is that their chance of being caught up in the FATCA net has vastly increased, so they should ensure their affairs are structured and reported correctly.

When a new client comes to us at Vestra US we conduct a rigorous assessment of their affairs to ensure everything is in line. If the client has been unintentionally delinquent in the past, or possibly even misadvised, then we put them in touch with the appropriate legal advisers and accountants, so that we are able to start with a level playing field before giving them investment advice.

Most of our clients are US professionals working in the City of London or Mayfair, who are often too busy to manage their own affairs let alone understand both the UK and US consequences of different investments. For example, some investments set up in the UK to be tax-efficient in the UK are inefficient in the US, and some investments set up to be tax-efficient in the US are inefficient in the UK once you have been resident here for over seven years.

The standard UK-based wealth management solution often involves funds, unit trusts and OEICs. Yet from a US perspective these are considered to be Passive Foreign Investment Companies (PFICs), with all the gains accrued therein liable to US income tax at 39.6 per cent. There is also a reporting requirement with a PFIC, so the problem compounds itself if you fail to declare such investments for several years.

If you hold a PFIC for long enough without reporting it, you could find yourself paying up to 100 per cent tax on any realised gain because of all the penalties and compounded interest charges that would be applied. Therefore we look to structure investment portfolios which would not attract negative tax in either jurisdiction.

As pension lifetime limits keep coming down, along with annual pension contribution limits, so investments in EIS (Enterprise Investment Scheme) companies are becoming more popular. However, it has to be the right type of EIS. It is necessary to ensure the client has sufficient foreign tax credits to offset the relief in the UK, otherwise you are simply reducing UK tax and increasing US tax.

You also have to ensure you do not breach any of the other rules around percentage ownership or the number of Americans that own assets within the EIS. Managed correctly, it is a great way for a US client to utilise their foreign tax credits (under the Double Taxation Agreement) while at the same time increasing their overall tax efficiency.

With mixed marriages between one US citizen and one non-US citizen, the wealth manager needs to make sure that ownership of assets and their respective wills are structured correctly. Certainly in my experience there are a large number of UK-resident Americans who have been shoe-horned into inappropriate products, whether PFICs within ISAs, non-qualifying pensions or insurance policies.

We know the red flags and we know the people who can help resolve the situation. There are scenarios where a client and their estate could end up paying dual inheritance tax for example. US clients need a triumvirate of advisers – a wealth manager, an accountant, and attorney – who are fully aligned and work in a cohesive, not competitive, manner.

Vestra US also advises professionals going to work on Wall Street or elsewhere in the US, who often have investments and pensions that can be structured correctly for US tax purposes or which permit deferral of US capital gains tax and income tax while they are US-resident for tax purposes. We would look to establish a fully US-compliant life insurance wrapper for the client that defers the annual taxation and allows investments to be made into PFICs without penalty or annual reporting.

I have enjoyed playing British American Football, for the London Warriors, in a small British summer league, and I often think the US tax regulations are similar to the rules governing American football. The first time you watch the game it is very difficult to understand what is happening. But once you know that there is an offence and a defence, and that you have four attempts to move the ball ten yards otherwise the other team gains possession, it is suddenly not too difficult to comprehend.

It is the same with running money for US citizens in the UK. There are numerous rules and regulations to consider, but once you know what they are, there is no need to feel intimidated.

Paul Nixon is a director of Vestra US

This piece first appeared on Spear's.

American tourists in Madame Tussards. Photograph: Getty Images

This is a story from the team at Spears magazine.

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The deafening killer - why noise will be the next great pollution scandal

A growing body of evidence shows that noise can have serious health impacts too. 

Our cities are being poisoned by a toxin that surrounds us day and night. It eats away at our brains, hurts our hearts, clutches at our sleep, and gnaws at the quality of our daily lives.

Hardly a silent killer, it gets short shrift compared to the well-publicised terrors of air pollution and sugars food. It is the dull, thumping, stultifying drum-beat of perpetual noise.

The score that accompanies city life is brutal and constant. It disrupts the everyday: The coffee break ruined by the screech of a line of double decker buses braking at the lights. The lawyer’s conference call broken by drilling as she makes her way to the office. The writer’s struggle to find a quiet corner to pen his latest article.

For city-dwellers, it’s all-consuming and impossible to avoid. Construction, traffic, the whirring of machinery, the neighbour’s stereo. Even at home, the beeps and buzzes made by washing machines, fridges, and phones all serve to distract and unsettle.

But the never-ending noisiness of city life is far more than a problem of aesthetics. A growing body of evidence shows that noise can have serious health impacts too. Recent studies have linked noise pollution to hearing loss, sleep deprivation, hypertension, heart disease, brain development, and even increased risk of dementia.

One research team compared families living on different stories of the same building in Manhattan to isolate the impact of noise on health and education. They found children in lower, noisier floors were worse at reading than their higher-up peers, an effect that was most pronounced for children who had lived in the building for longest.

Those studies have been replicated for the impact of aircraft noise with similar results. Not only does noise cause higher blood pressure and worsens quality of sleep, it also stymies pupils trying to concentrate in class.

As with many forms of pollution, the poorest are typically the hardest hit. The worst-off in any city often live by busy roads in poorly-insulated houses or flats, cheek by jowl with packed-in neighbours.

The US Department of Transport recently mapped road and aircraft noise across the United States. Predictably, the loudest areas overlapped with some of the country’s most deprived. Those included the south side of Atlanta and the lowest-income areas of LA and Seattle.

Yet as noise pollution grows in line with road and air traffic and rising urban density, public policy has turned a blind eye.

Council noise response services, formally a 24-hour defence against neighbourly disputes, have fallen victim to local government cuts. Decisions on airport expansion and road development pay scant regard to their audible impact. Political platforms remain silent on the loudest poison.

This is odd at a time when we have never had more tools at our disposal to deal with the issue. Electric Vehicles are practically noise-less, yet noise rarely features in the arguments for their adoption. Just replacing today’s bus fleet would transform city centres; doing the same for taxis and trucks would amount to a revolution.

Vehicles are just the start. Millions were spent on a programme of “Warm Homes”; what about “Quiet Homes”? How did we value the noise impact in the decision to build a third runway at Heathrow, and how do we compensate people now that it’s going ahead?

Construction is a major driver of decibels. Should builders compensate “noise victims” for over-drilling? Or could regulation push equipment manufacturers to find new ways to dampen the sound of their kit?

Of course, none of this addresses the noise pollution we impose on ourselves. The bars and clubs we choose to visit or the music we stick in our ears. Whether pumping dance tracks in spin classes or indie rock in trendy coffee shops, people’s desire to compensate for bad noise out there by playing louder noise in here is hard to control for.

The Clean Air Act of 1956 heralded a new era of city life, one where smog and grime gave way to clear skies and clearer lungs. That fight still goes on today.

But some day, we will turn our attention to our clogged-up airwaves. The decibels will fall. #Twitter will give way to twitter. And every now and again, as we step from our homes into city life, we may just hear the sweetest sound of all. Silence.

Adam Swersky is a councillor in Harrow and is cabinet member for finance. He writes in a personal capacity.