Managing Director, Americas, RBC Wealth Management

Offshore benefits: diversification for international AmericansOffshore benefits: diversification for international Americans

Many wealthy internationally-minded Americans appreciate the benefits of holding money offshore.  It is rare that tax is the primary driver: more frequently they are seeking to diversify their risks and returns by employing country diversification, providing political or economic stability. Holding investments offshore also means that their assets come under the protection of a different independent legal system and they can benefit from different investment styles.

When the Obama administration passed the legislation for the Foreign Account Tax Compliant Act (FATCA) in 2010, one of the desired effects was to ensure tax was collected on offshore funds held by US persons.  It was a smart move in some regards; there would be no opposition to chasing unpaid tax from wealthy individuals seemingly hiding their money and this disparate group of people would not have a single voice to appeal. What was unintended was the significant impact and disruption on foreign financial institutions.

US persons were already required to declare their worldwide income to the IRS. FATCA, on the other hand, imposed the obligation on the overseas institutions holding US persons’ funds to report on the monies and be subject to heavy penalties if they failed to comply.

As a consequence many foreign financial institutions’ risk committees concluded the cost/benefit versus the regulatory risk of dealing with US citizens to be too great and systematically began filtering their records for their US clients in order to ask them to close their accounts.  The consequence was that many tax compliant Americans living and working abroad were left orphaned by their banks and investment managers.

Meanwhile, other wealthy international Americans have arguably actually benefitted from this turn of events. Compliant in their tax affairs, they continue to protect their money offshore by using the few remaining specialist institutions that are genuinely committed and resourced to serve US persons. A steady flow of US money to the major financial capitals, not least London, has continued since FATCA’s introduction.

London has been well regarded for its financial services for centuries and the industry continues to be the largest contributor to UK GDP. This is underpinned by the protection of a legal system second to none which ensures trust, confidence, fairness and security.

The UK’s historic trading and cultural links with the US, its common language and its position at the gateway to Europe continues to make it an ideal partner for the wealthy international American. It’s no wonder that the leading US international estate planners are so well versed in the benefits of using the UK as trusted custodians of clients’ wealth.