Thousands of ‘accidental Americans' could be unwittingly caught by the Foreign Accounting and Tax Compliance Act (FATCA) from July, leaving them exposed to US tax liabilities, Vestra Wealth has warned.
FATCA was enacted in 2010 by the US Congress to target American tax payers who try to avoid paying what they owe by using foreign accounts.
However potentially hundreds of thousands of UK citizens who have US green cards enabling them to work in America are also likely to be on the radar of the IRS, according to Vestra Wealth.
This, Vestra Wealth said, is because most people assume that green cards expire, but in reality a holder must go to the US embassy and hand the document in, which relatively few people bother to do.
UK financial institutions will be obliged to report on these ‘accidental Americans' to the IRS, and to enforce compliance a 30% withholding tax will be imposed on certain payments made to non-compliant individuals.
Vestra Wealth director Paul Nixon said:"The holder of a US green card has the same US filing requirement as a US citizen.
"A common misconception is that the obligation to file a US tax return ends when the individual leaves the US or on the green card expiry date.
"Green card holders retain an obligation to file US returns until the green card is physically handed back and the relevant formalities completed.
"With thousands of UK citizens obtaining US green cards each year this misunderstanding could potentially be very costly, especially as once the green card has been held for eight years the process of relinquishing it is the same as that of a US Citizen relinquishing their passport."
Managing investments on behalf of those with a US filing requirement will have implications on the types of investments that should be included in a portfolio, Nixon added.
"For example, the US tax regime taxes the shareholders of any non-US registered investment fund in a penal manner," he said.
Read more on FATCA HERE
Slow progress in improving diversity
Share purchase deal with assets of £28m
Came into effect in January
Three examples of compensation rule issues
Buying in baskets