UK: "FATCA"– Type Agreements Proposed With Offshore Financial Centres

Last Updated: 4 July 2013

In September 2012 the UK became the first jurisdiction to sign an enhanced automatic tax information exchange agreement with the United States. This new model intergovernmental agreement was based on the US FATCA legislation.

The UK Government has recently published a discussion document together with a draft model "FATCA"-type agreement that it wishes to conclude with the British Crown Dependencies (Jersey, Guernsey and the Isle of Man) and the Offshore Territories with financial centres (Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands).

The agreements that the UK is negotiating with the British Crown Dependencies will be fully reciprocal, meaning that information will flow from the UK to the Crown Dependencies and from the Crown Dependencies to the UK. Those with the Overseas Territories will only require one-way information sharing from those Territories to the UK.

The agreements will require financial institutions in the Crown Dependencies and Overseas Territories to exchange information automatically on accounts held by UK residents and entities controlled by UK residents.


It is helpful firstly to outline a number of important definitions used throughout the draft agreement, which derive directly from terms used in the US FATCA:

Financial Institution

A "financial institution" will generally cover all banks and investment houses and includes a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company. A custodial institution is an entity that holds financial assets on behalf of others, for instance the management of investments.

Financial Account

A financial account is an account maintained by a financial institution and includes a depository account, a custodial account, a cash value insurance contract, an annuity contract, and equity interests in partnerships and trusts which are collective investment schemes.

A custodial account is an account for the benefit of another person that holds any financial instrument or contract held for investment, including a share in a company, a bond or a debenture.

A cash value insurance contract is an insurance contract with a cash value greater than US$ 50,000.

Specified UK Person

A specified UK person is an individual or entity resident in the UK for tax purposes. However, it excludes:

  • a company whose shares are regularly traded on an established stock market;
  • a depository institution; and
  • a broker or dealer in securities, commodities or derivative financial instruments that is registered as such in the UK.

Information Reporting Requirements

The following information must be reported annually to the UK tax authorities in respect of each Financial Account held by a Financial Institution in the overseas jurisdiction in respect of a Specified UK Person:

  • Personal details of account holder (including name, address, date of birth, National Insurance Number)
  • The account number
  • Name of the financial institution
  • The account balance or value at the end of the end of the appropriate reporting period
  • The total gross amount of interest paid or credited in respect of any depository account
  • In the case of any custodial account (i.e. one used to hold an investment portfolio):
    • The total gross amount of interest, dividends and other income generated with respect to the assets held within the account during the period; and
    • The total gross proceeds from the sale or redemption of property paid or credited to the account during the reporting period.

Entity Accounts

The reporting requirement is extended to an account registered in the name of an entity (including a company, partnership or trust) which is identified as having one or more Controlling Specified UK Persons.

A Controlling Person is an individual who exercises control over the entity and, in the case of a trust, is taken to include "the settlor, the trustees, the protector, the beneficiaries and any other natural person exercising effective control over the trust."

There rules are designed to catch situations where a UK resident uses a Special Purpose Vehicle to hold assets indirectly but where the Financial Institution's due diligence identifies that the UK resident individual is the beneficial owner.

Special Rules for Non-UK Domiciled Individuals

Individuals who are resident but not domiciled in the UK, and who elect to be taxed on the remittance basis rather than the arising basis, may elect on an annual basis for an alternative reporting regime which has been designed specifically for this group of taxpayers.

Rather than reporting the account balance and income and gains credited to the account during the year, it will only be necessary to report the movement of funds to and from the UK during the year in question.

Existing Accounts

It appears from the guidance that only accounts in existence at 31 December 2013 will be subject to the new reporting regime.


New UK FATCA-style agreements are likely to come into force by the end of this year. UK residents individuals with cash funds or investments held with financial institutions in the UK Crown Dependencies or Overseas Territories should prepare for the fact that details of their accounts held in these jurisdictions will be provided to HM Revenue & Customs on an annual basis.

Any UK residents who have not previously disclosed taxable income or gains in respect of accounts held in any of the jurisdictions affected by the proposed agreements should now consider the various options available to them, including making the necessary disclosure to HMRC before the agreements come into force. In particular, it may be possible to make use of the Liechtenstein Disclosure Facility (LDF) which provides a mechanism to regularise UK tax liabilities with a limited period of reference and reduced penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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