New Trust And Tax Reporting Obligations For UK Resident Non Doms – A Mini UK FATCA?

Author:Ms Justine Markovitz, Judith Ingham, Lindsay Brown, Jessica Dabbs, Ian Perrett, Louisa Douglas Home and Melissa Ellis
Profession:Withers LLP


UK resident non-domiciliaries (RNDs), who have offshore bank accounts and interests in non-UK structures, are currently not required to provide any information about those accounts/structures to HMRC, provided that they claim the remittance basis of taxation in the UK, those accounts do not hold assets which produce UK source income and/or gains and nothing is remitted to the UK from the bank account or structure1. This is about to change.

Under new rules, information about offshore bank accounts and non-UK structures with UK resident owners (in the case of personally held accounts) or UK resident settlors, beneficiaries and protectors (in the case of trust structures) will be provided automatically to HMRC from 2016 even where there is no UK tax payable, nothing is brought to the UK, and all relevant UK persons are compliant with UK tax requirements. RNDs will be able to limit the information passed to HMRC if elections are made - in some cases by spring 2015. But some information must be provided, which will concern many RNDs who, whilst they are tax compliant, are fiercely protective of their personal information for privacy and security reasons.

The changes, although being referred to as 'UK' or 'mini' FATCA, are not only relevant for Americans. The regime is the UK's version of FATCA - enabling HMRC to obtain information in relation to UK taxpayers.

Which accounts and structures do the changes affect?

For now only accounts and structures in the UK Crown Dependencies2 and certain British Overseas Territories3 are impacted. These jurisdictions have entered into agreements with the UK setting out the basis upon which information will be provided. The agreements are not identical and the comments below are a guide only to the position. The application of the rules will be fact-specific, and advice should be sought as necessary.

As well as concerning individuals who hold bank accounts in these jurisdictions, obligations are also imposed upon trusts in these jurisdictions that are 'investment entities' or passive 'non-financial foreign entities' (NFFEs). Broadly, if a trust has a corporate trustee or a professionally managed investment portfolio, it will be an investment entity unless under 50% of its income derives from 'financial assets' (excluding real property). If the trust is not an investment entity then it will be a NFFE. It will be a passive NFFE if 50% or more of its income is 'passive income' (which includes rents)...

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