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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Theresa May’s stage-managed election campaign keeps the public at bay

Jeremy Corbyn’s approach may be chaotic, but at least it’s more authentic.

The worst part about running an election campaign for a politician? Having to meet the general public. Those ordinary folk can be a tricky lot, with their lack of regard for being on-message, and their pesky real-life concerns.

But it looks like Theresa May has decided to avoid this inconvenience altogether during this snap general election campaign, as it turns out her visit to Leeds last night was so stage-managed that she barely had to face the public.

Accusations have been whizzing around online that at a campaign event at the Shine building in Leeds, the Prime Minister spoke to a room full of guests invited by the party, rather than local people or people who work in the building’s office space.

The Telegraph’s Chris Hope tweeted a picture of the room in which May was addressing her audience yesterday evening a little before 7pm. He pointed out that, being in Leeds, she was in “Labour territory”:

But a few locals who spied this picture online claimed that the audience did not look like who you’d expect to see congregated at Shine – a grade II-listed Victorian school that has been renovated into a community project housing office space and meeting rooms.

“Ask why she didn’t meet any of the people at the business who work in that beautiful building. Everyone there was an invite-only Tory,” tweeted Rik Kendell, a Leeds-based developer and designer who says he works in the Shine building. “She didn’t arrive until we’d all left for the day. Everyone in the building past 6pm was invite-only . . . They seemed to seek out the most clinical corner for their PR photos. Such a beautiful building to work in.”

Other tweeters also found the snapshot jarring:

Shine’s founders have pointed out that they didn’t host or invite Theresa May – rather the party hired out the space for a private event: “All visitors pay for meeting space in Shine and we do not seek out, bid for, or otherwise host any political parties,” wrote managing director Dawn O'Keefe. The guestlist was not down to Shine, but to the Tory party.

The audience consisted of journalists and around 150 Tory activists, according to the Guardian. This was instead of employees from the 16 offices housed in the building. I have asked the Conservative Party for clarification of who was in the audience and whether it was invite-only and am awaiting its response.

Jeremy Corbyn accused May of “hiding from the public”, and local Labour MP Richard Burgon commented that, “like a medieval monarch, she simply briefly relocated her travelling court of admirers to town and then moved on without so much as a nod to the people she considers to be her lowly subjects”.

But it doesn’t look like the Tories’ painstaking stage-management is a fool-proof plan. Having uniform audiences of the party faithful on the campaign trail seems to be confusing the Prime Minister somewhat. During a visit to a (rather sparsely populated) factory in Clay Cross, Derbyshire, yesterday, she appeared to forget where exactly on the campaign trail she was:

The management of Corbyn’s campaign has also resulted in gaffes – but for opposite reasons. A slightly more chaotic approach has led to him facing the wrong way, with his back to the cameras.

Corbyn’s blunder is born out of his instinct to address the crowd rather than the cameras – May’s problem is the other way round. Both, however, seem far more comfortable talking to the party faithful, even if they are venturing out of safe seat territory.

Anoosh Chakelian is senior writer at the New Statesman.

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