US Citizens living abroad have a whole host of challenges when managing their financial lives. As you will be aware, the US tax on citizenship rather than residency and as such Americans living overseas must declare their global income and gains to the Internal Revenue Service (IRS).
What’s the change?
Over the last few years many of the larger US banks have started to simplify their US operations by rejecting business from foreign US persons. In addition to new business, they are also asking current clients to find alternatives.
Why?
Ordinarily everyone expects this to be a Foreign Account Tax Compliant Act (FATCA) issue, surprisingly it’s not. FATCA, passed in 2010, focuses on the foreign account of US individuals abroad.
The main drivers for this are risk and compliance.
In addition to the usual bank procedures in the US, for foreign clients the banks will have extended money laundering rules, local country tax rules and potential legal ramifications. With the percentage of overseas clients being so small, many banks have taken the view that this isn’t a worthwhile risk and have closed down their operations.
From our experience, Americans living overseas are finding it increasingly difficult to manage accounts held in the US and find themselves in the situation whereby UK domestic financial institutions are also closing the door.
What are the options?
For clients still holding these accounts, this could be a looming problem with possible exit on the cards for the future. So, what should you do?
Option 1
Hold tight – If your US bank hasn’t asked you to leave yet, it may be coming up. The first and simple option is to leave everything as is and wait to see until and if this happens. The biggest problem here is timing. Part of building a solid financial plan is the ability to control the timing of moving assets and crystalising gains and losses. Clients, essentially, don’t want to be forced to sell out of the markets at the wrong time. Control and management around these decisions, with the support of your wealth manager is fundamental.
Option 2
Put together a plan and move now – We have a dedicated team at London & Capital who are available to speak through your options and see if there is an opportunity to move custodian at your own pace.
