US Expats and Pension Taxation

ford mustang stallion - US Expats and Pension TaxationOn the subject of tax, Americans attending a recent one-day conference in London aimed at US expats seemed most concerned about how the US is likely to tax their non-US pensions, according to an expert on such tax matters, who spoke at the event.

“Some of them have got certain kinds of older, defined-benefit pensions that don’t really fit the existing tax treatment guidance that’s out there for them,” says Roland Sabates, of tax operations for H&R Block’s new Expat Tax Services business, whose hour-long seminar at the American in Britain magazine event was aimed at highlighting the key issues currently facing expatriates, as the US continues to ramp up its scrutiny of American wealth held outside its borders.

“There were also questions about self-invested personal pensions (SIPPs); some questions about whether additional information reporting is required, and whether they need to be taxed as ‘foreign grantor trusts’, for US tax purposes,” Sabates added. “In actual fact, that’s very much a grey area, and an issue on which I’d say even tax practitioners fall on both sides of.”

Sabates says his American expat audience, of around 300 people, was also keen to hear which countries the US has a sufficiently robust tax treaty with, to ensure that any tax-deferred earnings

[box type=”note”]“The time to take action, if you’re an American expat who needs to catch up with your filing requirements, is now,” Sabates says.[/box]

“Now that FATCA [the Foreign Account Tax Compliance Act] is in force, and non-US financial institutions are required to report to the IRS on any accounts they may have that are held by American citizens, anyone who has not come forward yet really does need to consider taking advantage of this or one of the other disclosure programmes.

“They [the disclosure programmes] are all open-ended now, which means they could continue to be open for the next five to 10 years, but they also could be closed tomorrow.”

Sabates said his participation in last week’s expat event was not part of a regular programme of such presentations, although he and his H&R Block colleagues do occasionally get to meet some of their expat clients, typically in places like London, where there tend to be lots of Yanks, and ‘Green Card’ holders, who can also have tax obligations to the US. (Some 250,000 Americans are estimated to live in the UK, most of whom live in or around London, according to American in Britain publisher Helen Elliott.) But he said he’s hoping to do more such events, if the opportunity presents itself.

Help ‘for advisers with H&R Block customers’

H&R Block doesn’t provide an institutional service aimed at helping non-US advisory firms with their American expat clients’ tax problems. However, it will help advisers whose clients are already H&R Block customers. (Block doesn’t advise individuals on anything except taxes, although certain kinds of non-US investment products can be toxic from a tax standpoint for Americans, and it will, Sabates says, go out of its way to warn individuals about these.)

“We might tell an H&R Block client, for example, who has been working with a financial adviser in London, or Sydney, that certain investments would be the tried-and-true, go-to options for someone in those cities who was a UK or Australian national, but that, because they’re American, these products would carry very punitive tax implications from a US standpoint.

“So the cost of compliance alone could undermine your entire investment strategy.”


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