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FATCA

Also known as: Foreign Account Tax Compliance Act, US Tax Reporting

Definition

FATCA (Foreign Account Tax Compliance Act) is US legislation requiring banks worldwide to report accounts held by American citizens to the IRS, and requiring US citizens to report foreign financial assets over $200,000.

Understanding FATCA is essential for US citizens creating UK wills, as it affects executor selection, banking access, and your estate's reporting obligations.

What Does FATCA Mean?

FATCA (Foreign Account Tax Compliance Act) was enacted by US Congress in 2010 to combat tax evasion by US citizens hiding assets abroad. The law creates a two-part reporting system: foreign banks must report US citizen accounts to the IRS, and US citizens must personally report foreign assets exceeding certain thresholds. Under the UK-US Intergovernmental Agreement signed in 2012, UK banks report to HMRC, who then share information with the IRS.

FATCA applies to all US citizens regardless of where they live. If you're a US citizen in the UK, your bank accounts, ISAs, pensions, and investments count as "foreign assets" from the US perspective. When your total foreign assets exceed $200,000 (single) or $400,000 (married filing jointly), you must report them on Form 8938 with your US tax return. Sarah, a US citizen in London, has UK accounts worth £180,000 ($225,000). Her bank asked for her Social Security Number and now reports her accounts annually to HMRC, who share it with the IRS. Sarah must also file Form 8938.

FATCA creates estate planning challenges for US citizens in the UK. Some banks refuse accounts for American citizens due to compliance costs, making it difficult to set up accounts executors will need. Failing to file Form 8938 triggers a $10,000 penalty, rising by $10,000 every 90 days up to $50,000. Deliberately concealing US citizenship can result in criminal prosecution.

Common Questions

"Does FATCA apply to me if I'm a US citizen living in the UK?" Yes, FATCA applies to all US citizens regardless of where they live. You must report foreign assets over $200,000 ($400,000 for married couples filing jointly) on Form 8938. UK banks automatically report your account information to HMRC, who shares it with the IRS.

"What happens if my UK bank discovers I'm a US citizen under FATCA?" Your bank will ask you to complete a self-certification form and provide your Social Security Number. The bank then reports your account information annually to HMRC, who passes it to the IRS. Some banks may refuse accounts for US citizens due to FATCA compliance costs.

"Can I avoid FATCA reporting by not telling my UK bank I'm American?" No, you cannot legally avoid FATCA reporting. UK banks actively search for 'US indicators' like US birthplace or US phone numbers. Failing to file Form 8938 triggers a $10,000 penalty, and deliberately concealing US citizenship constitutes tax evasion with potential criminal consequences.

Common Misconceptions

Myth: FATCA only applies if I owe US taxes or moved money from the US to the UK.

Reality: FATCA applies to all US citizens with foreign assets over the thresholds, regardless of whether you owe US tax or where the money originated. You must report UK accounts, ISAs, and pensions even if you earned everything in the UK and owe no US tax. FATCA is information reporting, separate from tax liability.

Myth: If I was born in the US but left as a baby and never had a US passport, FATCA doesn't apply to me.

Reality: You're a US citizen by birth regardless of whether you have a passport or exercised citizenship rights. FATCA applies to all US citizens, including "accidental Americans" who acquired citizenship through place of birth. You remain subject to FATCA unless you formally renounce citizenship, which costs $2,350 and requires bringing tax filings up to date.

  • US Citizen: FATCA applies to all US citizens, making citizenship status the determining factor for compliance.
  • Expat: US expats face $200,000 FATCA thresholds versus $50,000 for US residents.
  • Foreign Bank Account: Any account outside the US is "foreign" for FATCA reporting purposes.
  • Tax Compliance: FATCA enforces US reporting requirements with penalties starting at $10,000.
  • IRS: The US tax authority that receives FATCA reports and enforces penalties.

Need Help with Your Will?

If you're a US citizen in the UK, your executor needs to understand FATCA reporting requirements and be able to access UK bank accounts despite potential restrictions.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.