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13 July 2010

“Increasingly complex reporting requirements sees huge rise in number of expat Americans renouncing their citizenship” The costs and administrative obligations associated with Non-dom status are now so onerous that the number of expat Americans renouncing their citizenship and choosing to settle in the UK for the longer term is rising at a record level. In the final quarter of 2009 no less than 502 US expats renounced their citizenship, the highest in any quarter in recent times and more than twice the total number recorded in 2008. The total number in 2009 was 743!¹ Whilst for the majority this will seem a step too far, the reporting requirements facing a US Non-dom are now so complex that one can understand why renunciation seems to some the more attractive option. The New England Expats “We are witnessing the emergence of a new breed of New England Expats”, says Daniel Freedman, Joint Managing Director at fast growing wealth manager, London & Capital. “The real cost of US citizenship has become increasingly apparent in recent times and with the US Government keen to reduce its deficit, it seems life as a US Non-dom is set to get worse. Specialist investment planning and tax/legal advice is going to be more important than ever.” With some 182,000² Americans living and working within the UK, it is difficult to size the US Non-dom problem, but the rules and regulations pertaining to their financial affairs are now so draconian that many wealth managers and international banks are simply withdrawing from the market. The Swiss banks refused to service the US Non-dom market long ago. “The US Non-dom is today more hotly pursued by the IRS”, says Freedman “and has become a modern day pariah.” The US Non-dom has long experienced financial difficulties at the most basic level, many unable to open a bank account with a UK bank, but where London & Capital observes most difficulties is in relation to the tax treatment of UK investments. “Many of the clients referred to us have been badly advised as regards ISA and SIPP investments”, says Freedman. “Many have been advised to take advantage of the ISA tax shelter to invest in Unit Trusts and OEICs, blissfully unaware that this is just about the only investment which will cause them to fall foul of the IRS’ ‘Passive Foreign Investment Company’ (PFIC) rules. They will be taxed aggressively on all gains and may be subject to penalties equal to 100% of value.” LONDON & CAPITAL INSTRUMENTAL IN HELPING TO RESOLVE NON-DOM DILEMMA../2 There are just as many problems with SIPPs, which the IRS classifies as a ‘Foreign Trust’ - growth within a SIPP being fully tax deductible. Many of the professional clients being referred to London & Capital have been advised to move their pension pot from a company scheme; investments which were once sheltered from the IRS in a company scheme becoming fully tax deductible as a result. “For the client, it is both frustrating and costly”, says Freedman. “Clients are consulting with specialist tax advisers to unravel the mess, and it need not be so. Investments can be held within a SIPP if arranged in a certain way and reported, just as a US qualifying insurance policy can be put in place. The good news is that we find that we are able to assist as many as 70% of those who approach us for advice.” Working from both its London and US office (in New York), London & Capital has been advising clients on their investment affairs - to ensure they are complying with the various rules and regulations with which they will need to comply in moving overseas - for more than 20 years. The Company has been building out its US Non-dom team and is now further leveraging its proven experience and track record in the field with a series of educational client facing seminars. In doing so, London & Capital is partnering with a number of specialist advisers - tax consultants, accountants and lawyers. The seminars, offered on a complimentary basis, address the key issues facing US Non-doms from an investment, tax and legal point of view. The seminars have so far been hugely popular during the first half of 2010 with the programme due to recommence for the second half of this year in September. Those seeking further information on London & Capital’s US Non-dom practice should contact Tony McLoughlin on 020 7396 3200. – ENDS –

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