Be careful! It’s possible to invest in US companies without necessarily being aware of it because many list their shares on non-US exchanges. Income from these investments would still have a US source. Even if you are sure you will not have exposure to the US, will your custodian of assets insist you are a participating FFI to make their life easier?
The potential obligation to withhold on investment income may require a change to policy terms and conditions. If the policy is a qualifying policy, the revised terms and conditions may need to be recertified for these potentially insignificant variations.
There is also the question of how these matters are addressed for policies that are already in force. Is a targeted mailing of policyholders holding financial accounts required or is publishing the revised terms and conditions on the website sufficient?
It depends! What is clear is that under a UK personal pension contract the tax-favoured contributions from earned income are limited to £50,000. It should be remembered that contributions can be made from non-earned income although tax relief is then only available for the first £3,600. These features do not meet the definition of an Excepted Financial Account which requires that contributions are only from earned income and are limited to $50,000.
A key question therefore is whether the pension contract is with an Exempt Beneficial Owner (EBO). Is the owner of the contract eligible for treaty benefits under the Income Tax Treaty with the US, exempt from income tax in the UK and does the owner operate principally to administer or provide pension or retirement benefits? A trust based pension scheme, such as a SIPP, should meet this definition. The challenge is then what treaty rate is your pension fund receiving? Perhaps it is time to benchmark the performance of your custodian?
Next steps could include:
- What type of FATCA entities are there in the group.
- Which of my products are reportable financial accounts?
- Whether to continue to invest in non-participating FFIs.
- Revising Ts&Cs.
- System changes to process the withholding on recalcitrant policyholders.
- Updating KYC/AML procedures for FATCA on-boarding procedures.
- Discussing your operational concerns with the ABI.
If you would like to discuss matters raised in this article please contact your usual KPMG contact or Jeanette Cook 0117 905 4277.
IN COMPLIANCE WITH US STANDARDS OF TAX PRACTICE PRESCRIBED BY THE US TREASURY THAT APPLY TO ALL US TAX ADVISERS, PLEASE BE ADVISED THAT ANY US TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.