FATCA Letter from a UK Bank: What It Means and What to Do

A FATCA letter from a UK bank: an introduction

A FATCA letter from a UK bank is a request to confirm whether you are a US person for tax purposes. It is not a letter from the IRS, and it is not a penalty. However, it is the moment many people learn that the United States expects a tax return from them. Therefore, how you reply matters far more than the single page suggests.

This article explains why a FATCA letter from a UK bank arrives, which form to sign and what the bank does with your answer. Furthermore, it sets out the order to do things in if you have never filed a US return. Our full guide to IRS Streamlined Filing from the UK covers the catch-up process in depth.

Why a FATCA letter from a UK bank matters

The letter matters because it starts a clock. Before it arrives, most people in this position do not know that they have a US filing duty. After it arrives, they do. Consequently, the IRS will expect them to act within a reasonable time. A delay of years after a clear warning is hard to describe as an honest oversight.

In our experience, the people who receive these letters are rarely hiding anything. Instead, they were born in the United States and left as children, or they hold a green card they no longer use. Many have lived, worked and paid tax in Britain for decades. Nevertheless, US law still treats them as taxpayers.

What FATCA is

FATCA is the Foreign Account Tax Compliance Act, a US law passed in 2010. It requires financial institutions outside the United States to identify accounts held by US persons and to report them. The IRS explains the regime on its FATCA page.

The UK applies the law through an agreement signed with the United States in September 2012. HMRC describes it on its page for the UK-US automatic exchange of information agreement. Additionally, the US Treasury publishes every such agreement on its FATCA resource page. As a result, every UK bank, building society and investment platform must check its customers.

Why did your bank send the letter?

Your bank sent the letter because something in its records suggests that you may be a US person. The bank does not judge whether you owe US tax. It simply has a legal duty to ask. Therefore, the letter says nothing about what the IRS thinks of you.

The signs banks look for

Banks search their records for what the agreement calls US indicia. US indicia are facts that point to a US connection. For example, a US place of birth on your passport is one. Similarly, a US address, a US telephone number or a standing order to an American account can trigger the review. A power of attorney held by someone with a US address counts too.

Moreover, the review is not a one-off. Banks repeat it when you open a new product, change your details or hand over a new passport. Hence, a customer of twenty years can receive the letter for the first time after a routine update.

Why a US birthplace triggers it

A US place of birth is the sign that catches most people. Almost everyone born in the United States is a US citizen from birth. Furthermore, citizenship does not lapse because you leave. The bank does not know whether you left at six months or at sixty. It only sees the birthplace, so it must ask.

The IRS confirms on its page for US citizens and resident aliens abroad that living overseas does not remove the duty to file. Consequently, a FATCA letter from your UK bank is often the first notice of a duty that has existed for years.

Which form should you sign: W-9 or W-8BEN?

You sign Form W-9 if you are a US person and Form W-8BEN if you are not. The letter often encloses both, or a bank form that asks the same question. However, this is not a choice between two options. Only one of them is true for you.

Form W-9 for US persons

Form W-9 is the form a US person uses to give an institution their name and taxpayer identification number. US citizens and green card holders are US persons wherever they live. Therefore, if you are either, the W-9 is the only truthful form.

The form asks for a Social Security number. Many people who left as children never received one. In that case, tell the bank that you are applying for a number. Most banks accept a short delay when you explain it. Importantly, a missing number does not change which form is correct.

Form W-8BEN for everyone else

Form W-8BEN is the form a person who is not a US person uses to certify foreign status. You sign it under penalty of perjury. Consequently, a US citizen who signs it makes a false statement.

That false statement has a lasting cost. The catch-up routes that waive penalties depend on your conduct being non-wilful. A signed W-8BEN from a US citizen is exactly the evidence the IRS uses to argue the opposite. Therefore, never sign it to make the letter go away.

If you are unsure of your status

Some people are not certain whether they are US persons. For instance, you may have been born abroad to an American parent, or you may have given up citizenship years ago. Find out before you sign anything. If you formally renounced, the bank will ask for your Certificate of Loss of Nationality. Otherwise, a US passport, a US birth certificate or an unexpired green card each points to US person status.

What does the bank report, and to whom?

The bank reports your account to HMRC, and HMRC passes the information to the IRS once a year. The bank never deals with the IRS directly. Nevertheless, the result is the same: the IRS learns that the account exists.

What goes to HMRC

For each reportable account, the bank sends your name, your address and your US taxpayer number where it holds one. It also sends the account number, the year-end balance and the income paid during the year. HMRC sets out the detail in its International Exchange of Information Manual. In addition, HM Revenue and Customs collects the same kind of data for many other countries.

What the IRS does with it

The IRS can match the reported accounts against the returns and reports it holds for you. Specifically, it can compare them with your annual FBAR and with Form 8938. The IRS comparison of Form 8938 and the FBAR shows what each one covers. If the IRS holds nothing for you at all, the gap is plain.

However, a report is not an investigation. The IRS receives a very large volume of FATCA data, and it does not write to everyone named in it. That is the window in which you can still come forward on your own terms. Therefore, treat a FATCA letter from your UK bank as early notice, not as a verdict.

What happens if you ignore the letter?

If you ignore the letter, the bank generally reports your account anyway and may restrict it. Silence does not keep you out of the data. Instead, it removes your chance to answer accurately.

The account is reported anyway

An account with US indicia and no reply is usually treated as reportable. Consequently, the bank sends the details without your taxpayer number. The IRS then sees an American account holder with no number and no filings. Hence, ignoring a FATCA letter from a UK bank leaves you worse placed than replying to it.

Restrictions and closures

Banks chase, usually two or three times. After that, some freeze the account, decline new products or close it altogether. Furthermore, a closed account still appears in that year's report. None of this touches the underlying duty to file. It only adds a banking problem to a tax one.

Quiet fixes that backfire

Some people respond to a FATCA letter from a UK bank by moving money or closing the account. Others start filing this year's return and hope that the past goes unnoticed. Neither approach works. The closed account is still reported for the year, and a first return with no history invites questions. Moreover, both steps can look deliberate later. Therefore, deal with the earlier years through a formal route instead.

What should you do next?

Establish your status, take advice on the right catch-up route, reply to the bank truthfully and then file promptly. The order matters. In particular, do not send years of old returns to the IRS before you know which formal procedure fits.

The right order of steps

First, confirm whether you are a US citizen, a green card holder or neither. Next, gather the last six years of UK tax records and account statements. Then decide which catch-up route applies before you file anything. After that, return the correct form to the bank. Finally, submit the catch-up filing without a long gap, because a returned W-9 puts your name in front of the IRS.

Most banks set a reply date in the letter. If you need longer to confirm your status, ask the bank in writing for more time. In practice, banks prefer a short, honest delay to no answer at all.

Catching up on missed filings

Most people in this position use the Streamlined Filing Compliance Procedures. Under the foreign version, you file three years of tax returns and six years of FBARs with a signed statement that your failure was not wilful. Importantly, qualifying filers who live abroad pay no penalty. You must have spent at least 330 full days outside the United States in one of the last three years.

The FBAR is the annual report of non-US accounts worth more than $10,000 in total. The IRS guidance on the FBAR and FinCEN's FBAR page explain it. Our article on the FBAR for Americans in the UK covers the detail. Additionally, the route closes once the IRS contacts you first, so time matters.

An illustrative example

Consider a typical case. Claire was born in Boston to British parents and moved to Leeds at the age of three. She has a UK salary, a workplace pension and a cash ISA. Last month, a FATCA letter from her UK bank asked about her US birthplace. She had never heard of a US filing duty.

Claire is a US citizen, so the W-9 is the truthful form. She tells the bank that she is applying for a Social Security number. Meanwhile, three years of US returns are prepared. Her UK tax is higher than the US tax on her salary, so foreign tax credits reduce that part to nil. However, the ISA interest needs reporting. She files under the Streamlined procedures and pays no penalty.

How US UK Tax Experts can help

We handle the whole response to a FATCA letter from a UK bank. First, we confirm your status and tell you which form is correct. Next, we work out which years and which forms are missing. We then prepare the US returns, the FBARs and the certification from the same file as your UK figures. In addition, we keep the ongoing filings up to date afterwards.

Our streamlined filing service covers the catch-up submission. Furthermore, our guide to FBAR and FATCA reporting explains what you report each year once you are current. Where both a US return and a UK Self Assessment are needed, we prepare both returns together.

Conclusion

In summary, a FATCA letter from a UK bank is a question, not an accusation. Your bank must ask because US law requires it, and your account is reported whether you answer or not. Therefore, the safe course is to answer truthfully and deal with the past at the same time.

Sign the W-9 if you are a US person, and never sign a W-8BEN to avoid the issue. Then use a formal IRS route to catch up before the IRS writes to you. Ultimately, most people in Britain who do this owe little or no US tax and pay no penalty.

Contact us

Have you received a FATCA letter from your UK bank and are unsure how to reply? Email us at hello@usuktaxexperts.com. Alternatively, send a short description of your situation through our contact page. We reply within one working day with the form to sign, the filings that apply and the dates that matter.