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Autumn Statement: UK signs 'first of its kind' tax agreement with US ahead of Fatca
by Danielle Levy on Dec 05, 2012 at 16:07
The government is to crack down on taxable income on the investments of UK citizens living in the US after signing an unprecedented agreement with the US.
In this year's Autumn Statement the Treasury announced an agreement with the US, which it claims is 'the first of its kind anywhere'. This will significantly increase the amount of information on potentially taxable income automatically exchanged between the two countries, which the government hopes will set a new standard on tax transparency in order to tackle evasion. The government said it would look to conclude similar agreements with other jurisdictions.
The move comes ahead of the introduction of the US's Foreign Account Tax Compliance Act (Fatca), a far reaching measure which will see the US government force all financial organisations and their clients – whether active in the US or not – to prove they have no form of tax liability to the US.
While details about the expected timetable for the reciprocal agreement remain sparse, BDO's head of tax Stephen Herring estimates the agreement with the US as a point of comparison could raise only 5-10% of the estimated £5 billion the government is hoping to raise over the next 6 years from undisclosed bank accounts in Switzerland belonging to UK residents.
'For the relatively small number of people affected it might be significant, but in the terms of the Exchequer it is not going to be significant,' he said.
His sentiments are echoed by Andy Thompson of Apcims, who said the agreement was not necessarily about tax take but more about the longer term goal of gaining information on people who potentially should be paying more tax. 'The aim is for the US tax authorities to send data the other way, which the UK can benefit from,' he said.
He anticipates that from an administrative and operational perspective the implementation of the agreement will involve some work for UK financial institutions, although he anticipates that much of the groundwork will have been laid from the efforts of wealth management businesses to identify potential US citizens for Fatca.
'I think it will have an impact on UK financial institutions of varying sizes. Big banks may have issues as they have a large number of client accounts. Our member firms do not tend to have huge numbers but they will still have to comply with that,' Thompson added.
This fits with the government's drive to crack down on tax abuse and avoidance, which was confirmed in the statement.
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