US pensions taxation expats’ ‘No.1 concern’

On 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 they might accumulate in their non-US pensions remain tax-deferred until they begin taking their pensions.

(There are five such countries, he says, and they are Canada, Germany, the UK, Belgium and the Netherlands; “a handful of other countries, such as Malta, Bulgaria, South Africa and Italy, have tax treaties that provide limited protection in certain instances, but as a general rule do not protect the contributions and earnings of US citizen participants”.)

Ramping up efforts

As reported,   H&R Block, the largest tax return preparer in the US, is ramping up its efforts this tax season to reach out to far-flung American expats with its new expat-focused expat tax business, which it operates “virtually” out of its “international desk”, located in its Kansas City, Missouri headquarters.

Stateside Americans are expected to file their returns by 18 April this year, but expats have until 15 June to get theirs in.

New York Stock Exchange-listed H&R Block has been looking after the tax affairs of Americans abroad pretty much since the day it was founded in 1955. But until recently, these expats tended to be clients of the company’s US-based offices – most Americans are said to live within five miles of one – or of H&R Block facilities typically located on or near US military establishments overseas, company executives say.

According to Sabates, some members of his audience at the recent American in Britain event – which was held at the turn-of-the-century Russell Hotel in London’s Bloomsbury district (pictured) – appeared to be unusually knowledgeable about US tax matters, as the questions about the IRS’s treatment of tax-deferred pensions suggests.

But many other American expats, he and others say, still don’t even know they’re expected to file tax returns with the US tax authorities every year, let alone realise the extent of their potential outstanding tax liabilities and/or penalties.

That said, he urges anyone in that situation not to worry, but to get advice ASAP about enrolling in what is known as the IRS’s Streamlined Foreign Offshore Procedures programme, a kind of “unpaid-tax penalty amnesty” scheme aimed at those who may have failed to file the necessary tax returns and so-called foreign bank account reports (FBARs), even for a number of years, but who did so out of genuine ignorance, or what the IRS calls “non-wilful conduct”.

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

“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.”

H&R Block – in numbers

* 12,000 offices globally, with more than 80,000 tax professionals and associates worldwide

* Established in the US, Canada and Australia, it is expanding currently into India and Brazil

* In the US, H&R Block files approximately one in every seven US tax returns

* In Canada, where it has been operating for 51 years, it ha a 10% share of the market

* In Australia, it has a 7% market share

* It has office on or near 25 US military bases outside of the US, and is “evaluating other opportunities”

* Most Americans are said to live within five miles of an H&R Block office





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