FACTA for child investments

I called Family Investments today because I noticed on their Junior ISA online application it said that you can't apply if you or your child is a US person.  They advised they won't open a junior ISA for a child if either is true because they are trying to avoid FACTA (Foreign Account Tax Compliance Act) which apparently has onerous reporting requirements to the US gov't.

This was for an equity junior ISA.  I was wondering if anyone knows if this would hold true for a junior cash ISA?  Would FACTA not be an issue if it was this type of account?  Are there any other alternatives?

Thanks.

FATCA (not FACTA) had apparently been negotiated not to include ISAs (http://www.ftadviser.com/2012/09/21/investments/savings-and-isas/isas-avoid-us-clampdown-a1K7WZPnLxetSA8GtWxXPL/article.html), but it could be that they just mean cash ISAs. It could also be that this particular institution is avoiding US persons completely just to keep things simple and another one would let you have the equity account. You should be fine with a cash ISA either way.

I noticed this from the Post Office. It goes against the language of FATCA. Digging a little deeper with Google searches, I see many providers will not open an ISA account for U.S. Persons, not just Junior ISA’s. I can see legal challenges ensuing from dual citizens being denied account opening.

“The Post Office® Fixed Rate Cash ISA is not available to
US persons. This includes citizens or residents of the
United States.
If you become a US person after your Account has
been opened, you must let us know immediately. This
may result in your Account being closed, and the value
returned to you.”

If you really want a child ISA, try LLoyds. They were all set to open my son one but I decided to go with a regular ol' junior savings account instead to have access to the money in case of an emergency. I asked if it mattered that he was a dual citizen and she just said that any US taxing was, essentially, my problem and nothing they were going to get involved in.

Thanks for the advice.  I was planning on calling Lloyds tomorrow to see about setting up Junior cash ISA.  We are Lloyds customers and DS already has a normal savings account with them.  I'm assuming the US is concerned about equity accounts as there's been advice about not opening funds, OEICs and the like.
Their ISA rate at 3% seems pretty competitive.

Cheers.

The words quoted sound like SEC registration under Dodd Frank is the issue.
It does not sound like FATCA is on the local branch radar quite yet.

ISAs are simply investment accounts. As you say avoid PFICs and deal with reporting income on the parent's 1040 on form 8814 or 8815 - and on the parents FBAR and Form 8938 and these should be fine and tax efficient.

The words quoted sound like SEC registration under Dodd Frank is the issue.
It does not sound like FATCA is on the local branch radar quite yet.

ISAs are simply investment accounts. As you say avoid PFICs and deal with reporting income on the parent's 1040 on form 8814 or 8815 - and on the parents FBAR and Form 8938 and these should be fine and tax efficient.

So is the exclusion of ISAs from FATCA only at the institutional level and ISAs still have to be included on an individual's 8938......or is this a "cover your ass" scenario where we include everything to make sure we don't fall foul of the IRS whatever the exact rules might be.

Correct. FATCA is merely a withholding or reporting mechanism at an institutional level. It has zero effect on the obligations of US individuals under US domestic law under both Title 26 (income tax) and Title 31 (FBARs).

I'm a dual US and Irish citizen, resident in the UK. Whenever I opened my various bank accounts I used my Irish passport. Same is true for my UK pension company, USS.
Is there anything in the US or UK legislation that requires me to now inform them of my US citizenship.  (I always fulfill all my IRS reporting obligations)

There will be. The UK and US gvernments signed an intergovernmental agreement last month (the UK interpret this as having the status of a treaty). More domestic legislation to enforce this will feature in the Finance Act 2013.

Investing in deemed compliant and exempt products may be the best solution.

There will be. The UK and US gvernments signed an intergovernmental agreement last month (the UK interpret this as having the status of a treaty). More domestic legislation to enforce this will feature in the Finance Act 2013.

I can see how they can control it for new accounts - I've already come across it. But for the existing accounts it's hard to see how they would notify people like me of the obligation (i.e., to go back to the bank, etc and now tell them that they're also american citizens).

All financial institutions in the UK that are not exempt or deemed compliant that are still offering accounts to US persons will start looking for all US person customers; the answer as to whether or not data will be provided to HMRC appears from the condoc to depend on both whether the account holder has a sufficient account balance and whether the account holder has US indicia.

See:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032308

None of this affects an individual US persons' obligations under either Title 26 or Title 31 to file with the IRS and/or US Treasury.

All financial institutions in the UK that are not exempt or deemed compliant that are still offering accounts to US persons will start looking for all US person customers; the answer as to whether or not data will be provided to HMRC appears from the condoc to depend on both whether the account holder has a sufficient account balance and whether the account holder has US indicia.

See:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032308

None of this affects an individual US persons' obligations under either Title 26 or Title 31 to file with the IRS and/or US Treasury.

interesting reading. thanks for the reference.

All financial institutions in the UK that are not exempt or deemed compliant that are still offering accounts to US persons will start looking for all US person customers;

Sorry to bring up an old thread, but I've been absent for the past month and out of touch (Luddite). I've been catching up, and came across this most interesting and informative post by Guya giving the link to the HMRC consultation paper.

For the average USC resident in the UK, the reporting aspects of FATCA should pose no new threats (Form 8938 reporting began in 2011). If you're compliant, then carry on.

The only concern was the reaction of UK banks and building societies to the required implementation and reporting. As for building societies, the first published sight of the IGA outlined in Annex II of the agreement (5.4) initially appeared to give local building societies a favourable position (Deemed Compliant). It gave hope that we USCs resident in the UK would have a safe haven (no closed accounts due to US indicia) since the major cost of reporting (by the building society) would disappear.

After reading the document linked by Guya, I have the opposite opinion. From page 30 of the document (Annex II):

5.4 Annex II introduces the concept of Financial Institutions with local client bases. This is aimed at exempting those groups or entities that are located solely within the UK and who serve a local customer base. There are several requirements that need to be met to be able to take advantage of this exemption:
(my emphasis throughout)

OK, got that. From the 3rd bullet point:

98% of accounts must be held by residents of the UK or another member state of the EU

OK. Joe Bloggs is a USC and his local is the Whipsnade Building Society, a small but friendly place. Joe, and Sally down the road, are probably their only US indicia customers (both resident in the UK). Joe has $30,000 in deposits, Sally has $55,000 in deposits. Then there's the gent who lives next to the Red Lion. He was born in Iowa, but doesn't realise he's still a USC. Deposits: $10,000.

From the 4th bullet point:

The entity must not provide accounts to a Specified US Person.........

OOPS! Do what.....? Joe is a USC and as I understand (please correct me if I'm wrong) Joe is therefore a Specified US Person. From the 5th bullet point:

Policies and procedures must be introduced to capture the fact that an account may have been provided to a Specified US Person, ...... who are US citizens or residents on or after 1 January 2014. In the event that this does happen the account must be reported as if the entity is a Reporting Financial Institution, or the account should be closed.

OK, that takes care of new accounts after 1 January 2014 (or does the new revised FATCA timetable move this date back?). What about pre-existing accounts? From the 6th bullet point:

For any account that is a U.S Reportable Account ....... which exists prior to the policies and procedures above being put in place, then these must also be reported on as if the entity were a Reporting Financial Institution or the account should be closed.

Since Whipsnade B.S. has 3 Specified US Persons, it has a choice: Whipsnade can become a Reporting Financial Institution with all the associated costs and responsibilities, or it can close 3 accounts totaling only $95,000 (one of which is definitely reportable as a “Lower Value Account”). Or does the 4th bullet point automatically close their accounts? Hmmmmm......... I have a sneaky suspicion as to which option Whipsnade might chose.

My original interpretation of the IGA as first announced was Deemed Compliant FIs could provide accounts to US Persons who are resident in the UK. I missed the part that specified the Institution must also report these accounts as normal if they exist. So, what is the advantage of being a Deemed Compliant Institution if they have US Persons as account holders?