Under FATCA, non-US financial institutions (which include banks, stockbrokers and investment funds) are given a choice. Either

• they become FATCA-compliant, which involves registering with the IRS and reporting on US account-holders, or
• they risk being subject to a 30 per cent. withholding tax on certain payments with, or attributable to, a US source or connection.

The UK has entered into an agreement with the US in order to regulate how FATCA is to apply to UK financial institutions.

• The good news is that UK financial institutions will generally be treated as FATCA compliant, and should not be subject to withholding.

• The not so good news is that they are still required to register with the IRS and will have to report information about their US account holders to HMRC, which will report back to the IRS.

The UK is also entering into FATCA-style agreements with a number of other jurisdictions. This will result in automatic information exchange with those jurisdictions.One concern in the UK is how trusts will be treated.

• This depends on whether FATCA treats the trust as a “financial institution” under the rules.
•  If a company provides its services as trustee, or as manager of the trust or of its financial assets, this could result in the trust being caught.
• If this is the case, the trust would be required to register with the IRS and report to HMRC (although there may be exemptions).
• Trusts which are not financial intuitions themselves may need to provide information to the financial institutions holding their investments.
• More detailed guidance on the application of FATCA to trusts is expected to be published.

There is still time to get ready for FATCA. In the UK, the first reporting deadline is 31 May 2015 in respect of the 2014 calendar year.

However, those affected by FATCA will need to understand their obligations and carry out any necessary due diligence in preparation for this.