We are indebted to David Treitel of American Tax Returns Ltd for the following:
Many of the recent stories in the press fail to mention that even for many of the lowest earning Americans in the UK, US tax payable on income and gains on many investments will also increase substantially this year.
US law states that the rate of tax applied on “bad investments” is always the maximum rate – whether or not the individual is otherwise subject to tax at this rate. “Bad investments” include all UK unit trusts, investment trusts and similar collective investments – including those held in ISAs.
Additionally, for calendar year 2012 the IRS are now insisting in significantly more reporting of all of these investments.
Technical note: Investments outside of the United States may be taxed under the Passive Foreign Investment Company (or PFIC) regime which can result in an income tax charge at the top Federal rate plus an interest charge. The rate of tax plus interest can be close to 100%, making these investments extremely “unfriendly” from a US tax perspective. The President signed into law in 2010 an obligation for increased reporting of such investments, which the IRS suspended for calendar year 2011 returns, but which seems likely to be mandatory for calendar year 2012 returns due to be filed during 2013
For more, please get in touch with David Whiscombe or your usual BKL contact.