Wishing Green Financial Blog readers,
Clients, friends, suppliers and associates
a very Merry Christmas and a Happy New Year
Friday 23 December 2011
Thursday 15 December 2011
Born in the USA (or just visiting) ?
Are you a Green Financial Client that was Born in the USA?
Are you a US citizen, or married to a US citizen.
Or are you a green card holder or temporarily resident in the country or even just own a holiday home in the US!
If you are one of the above and a Green Financial client we may need to talk soon.
Chewing the FATCA
"The US-instigated FATCA (Foreign Account Tax Compliance Act) threatens to be a costly administrative headache for financial institutions in the UK",
says Cherry Reynard on www.adviser-hub.co.uk ,
It brings responsibilities for advisers such as Green Financial too.
And for added responsibility, read added cost :(
AdviserHub reports:
"As government coffers weaken around the developed world, policymakers have been implementing increasingly draconian legislation to generate revenue and the Foreign Account Tax Compliance Act (FATCA), introduced by the US tax authorities in March 2010, is one of the more far-reaching examples.
Some commentators, including Robin Stoakley, managing director of Schroders’ UK intermediary business, have even gone so far as to suggest that the impact of FATCA could be as significant as that of the Retail Distribution Review (RDR) (see other Green Financial Blog Posts).
It certainly threatens to be a costly administrative headache for UK-based financial institutions.
The legislation is designed to crack down on offshore tax avoidance on ‘US accounts’ of more than $50,000 (£32,000). Crucially, this is not limited to US citizens but may include other individuals potentially subject to US tax, such as those with a holiday home in the US, green card holders or those who are temporarily resident in the country.
The US authorities’ aim is to ensure that tax is paid on individuals’ worldwide income where appropriate. One of the thorniest areas of FATCA may be where US citizens are married to non-US citizens. The legislation is not yet clear on whether the income of the non-US spouse potentially falls within its scope.
This would seem to present few problems for UK-based fund managers, advisers and administration platforms were it not for the requirement that any investor holding US assets effectively ‘prove’ that they are not US citizens. This means that UK financial institutions will have to undertake a significant data-gathering exercise to ensure their clients do not fall within the remit of the legislation.
Compliance process
According to a report by KPMG, FATCA and the funds industry the data that is required for FATCA compliance in the investment funds industry is, in most cases, not held by one person. As such, advisers like Green Financial will also form an important part of the compliance process in that they will need to provide details of clients. Problems could also arise where nominee structures are held.
The KPMG report suggests as many as 32% of investment fund managers expect to have to adapt their product range to comply with FATCA. Fund of funds have a particular problem with only around 10% saying they can determine the amount of US-sourced investments.
Research by Schroders suggests the legislation may cost as much £400m for the financial services industry, potentially raising administration costs for advisers.
The full details of the legislation have yet to be finalised, with further guidance expected shortly, but Foreign Financial Institutions (FFIs) will have to register with the US’s Internal Revenue Service (IRS) by 30 June 2013 under the new rules. The deadline for full implementation of the legislation was originally January 2013, but some parts have now been moved back to 2014 and beyond.
Once registered, FFIs are expected to work with the IRS to attain ‘Participating FFI’ status. This will include demonstrating they have procedures in place to pick up US accounts among their existing clients and to implement proper account opening procedures in future.
Draconian penalties
The penalties for non-compliance are draconian. Withholding tax of 30% on income and asset disposals is payable for so-called ‘recalcitrant account holders’ – in other words, those that do not provide reasonable disclosure – and for non-participating Foreign Financial Institutions (NPFFIs).
These are called ‘Passthru’ payments and, according to RBS Dexia, may include US-sourced interest, dividends and gross proceeds on disposition of assets as well as non US-sourced interest, dividends and gross proceeds on disposition of assets multiplied by the pro-rata ratio of US to non-US assets.
Some groups are defined as ‘deemed compliant’. These are accounts the IRS views as exempt from FATCA’s rules and include certain holding companies, start-up companies, hedging/financing centres of a non-financial group and certain insurance companies. Pensions are currently under review. In practice the IRS has been tight in its definition and relatively few institutions are deemed compliant."
Adviser Hub concludes:
"Broadly speaking, fund and wealth managers have gone one of two ways in tackling the legislation. Some are moving towards full compliance, whereas others are moving out of the market altogether. In practice the latter may not be easy, given the spread of the legislation although, in July, HSBC said it planned to sever its ties with wealthy US customers who bank offshore to aid FATCA compliance. Some groups are making a virtue of necessity, setting up US tax-compliant investment vehicles through which US citizens can invest."
We at Green Financial will be working with our UK based clients to ensure full compliance with any new rules. If you think this may apply to you in any way, please do contact us to discuss.
Tuesday 13 December 2011
Contracting Out, SERPS, S2P & all that
The powers that be are ending 'contracting out' from 6 April 2012
What does this mean?
Many people have built up pension pots since the 80s based on the fact they contracted out. This pension was known as ‘protected rights’. What happened, in simplistic terms, was rather than have a portion of their National Insurance (NI) contributions build up a second state pension (not to be confused with the basic state pension, which is not affected by this) their NI was diverted into a separate pot often alongside their personal pension contributions from earnings. The personal contributions were known as ‘non-protected rights’ or ‘ordinary benefits’. This could even be done if you didn't make any personal contributions yourself. I remember meeting a pension salesman in the mid 90s who built his entire career based on contracting out New Zealanders whilst they worked here in the UK.
The contracting out pension was once referred to as SERPS (State Earnings Related Pension Scheme) and in more recent times S2P (State 2nd Pension).
From 6th April 2012 there will no longer be the option to ‘contract out’ of S2P.
The change won’t affect any past benefit accrued in the tax years before 6 April 2012 – they’ll remain invested in the same way you have them now. However, there will be more flexibility over how you draw the benefits from the pension.
The rules and flexibility over accessing SERPS and S2P have changed in recent years. The latest big change is that at the moment (pre April 2012) you are forced to take a pension that also pays a pension to your spouse or civil partner when you die but after April 2012 this will no longer be the case – although you could if you wanted to of course.
Further reading is available on the Government website :
www.direct.gov.uk/en/pensionsandretirementplanning/statepension/DG_180010
What do you have to do now?
For most people the answer is nothing, the changes happen automatically.
However now might be a good time to review your pension contributions and what you might expect from your pension when you retire to see if it will be sufficient for your needs. It is important now, more than ever, to work out as best you can what the state will provide and therefore what gap needs to be made up personally.
I have more information on how I can help in reviewing your pension on my website:
http://www.iangreen.com/pensionperformance.php
Or my Guide to retirement guide on facebook:
(also available with many other guides here http://www.iangreen.com/education.php )
What does this mean?
Many people have built up pension pots since the 80s based on the fact they contracted out. This pension was known as ‘protected rights’. What happened, in simplistic terms, was rather than have a portion of their National Insurance (NI) contributions build up a second state pension (not to be confused with the basic state pension, which is not affected by this) their NI was diverted into a separate pot often alongside their personal pension contributions from earnings. The personal contributions were known as ‘non-protected rights’ or ‘ordinary benefits’. This could even be done if you didn't make any personal contributions yourself. I remember meeting a pension salesman in the mid 90s who built his entire career based on contracting out New Zealanders whilst they worked here in the UK.
The contracting out pension was once referred to as SERPS (State Earnings Related Pension Scheme) and in more recent times S2P (State 2nd Pension).
From 6th April 2012 there will no longer be the option to ‘contract out’ of S2P.
The change won’t affect any past benefit accrued in the tax years before 6 April 2012 – they’ll remain invested in the same way you have them now. However, there will be more flexibility over how you draw the benefits from the pension.
The rules and flexibility over accessing SERPS and S2P have changed in recent years. The latest big change is that at the moment (pre April 2012) you are forced to take a pension that also pays a pension to your spouse or civil partner when you die but after April 2012 this will no longer be the case – although you could if you wanted to of course.
Further reading is available on the Government website :
www.direct.gov.uk/en/pensionsandretirementplanning/statepension/DG_180010
What do you have to do now?
For most people the answer is nothing, the changes happen automatically.
However now might be a good time to review your pension contributions and what you might expect from your pension when you retire to see if it will be sufficient for your needs. It is important now, more than ever, to work out as best you can what the state will provide and therefore what gap needs to be made up personally.
I have more information on how I can help in reviewing your pension on my website:
http://www.iangreen.com/pensionperformance.php
Or my Guide to retirement guide on facebook:
(also available with many other guides here http://www.iangreen.com/education.php )
Friday 9 December 2011
On an Island with who?
I was recently interviewed for Blue & Green Tomorrow Magazine on my approach to ethical investing.
You can read the whole interview here:
http://www.blueandgreentomorrow.com/features/2011/12/9/green-by-name-green-by-nature-helping-people-do-what-they-ca.html
As well as a few facts about Putney, where the office is located, the interview also asked that old favourite about who I'd like to be stranded on a desert island with.
Rather than give a fascinating insight into my psychological make-up, as the interviewer hoped, I gave a practical and logical answer, hopefully in keeping with my approach to ethical investing.
(Or was that a fascinating insight into my psychological make-up?)
Who was it? Have a read and find out...
You can read the whole interview here:
http://www.blueandgreentomorrow.com/features/2011/12/9/green-by-name-green-by-nature-helping-people-do-what-they-ca.html
As well as a few facts about Putney, where the office is located, the interview also asked that old favourite about who I'd like to be stranded on a desert island with.
Rather than give a fascinating insight into my psychological make-up, as the interviewer hoped, I gave a practical and logical answer, hopefully in keeping with my approach to ethical investing.
(Or was that a fascinating insight into my psychological make-up?)
Who was it? Have a read and find out...
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