The proposed US reporting rules on assets held with foreign financial institutions is forcing some US expatriates to review their global banking arrangements and reconsider their US citizenship, according to analysis by financial consultancy the deVere Group.
The Foreign Account Tax Compliance Act (FATCA), which was recently deferred six months until implementation in July 2014, is intended to ensure US citizens holding investments through foreign financial firms pay federal income tax, and requires institutions outside the US to disclose the identity and investment activity of all clients who have more than $50,000 (£32,500) in an account.
US tax authorities estimate that the reporting and payment of taxes will raise about $7.6bn (£4.9bn)over 10 years.
However, Nigel Green, deVere Group founder and chief executive, warns that an increasing number of US expats are finding themselves in a 'financial advice black hole'.
'As the FATCA deadline draws closer a growing number of non-US banks and wealth managers have been shutting the door on Americans outside the US because servicing them in a "FATCA-compliant" manner is deemed too onerous and too costly,' Green said.
HSBC has said it would drop its US clients with foreign accounts after FATCA was introduced, while UBS and Brewin Dolphin do not offer services to Americans in the UK.
Green maintains that an increasing number of American expats are now renouncing, or considering renouncing, their homeland citizenship, and adopting the nationality of their adopted country in a bid to make their tax affairs simpler to manage.
Federal Register data shows that 1,131 people gave up their US passports at American embassies in the year to June, compared to 189 expatriates who renounced US nationality the year before.
Green said: 'As the FATCA era moves closer, I would expect the number of Americans giving up their US citizenship to soar - not only so as they can access financial advice and carry out day-to-day banking procedures in their country of residence, but also because there is a developing sense of frustration around the FATCA concept itself.'
An estimated seven million US citizens live outside the country, and the US is the only other country apart from Eritrea which requires its overseas citizens to pay taxes.
FATCA requires banks and other financial institutions based outside the US to obtain and report information to the Internal Revenue Service (IRS) about income and interest accrued on assets over $50,000 (£32,500) held by US individuals.
As well as filing an annual tax return, a US citizen also needs to send the IRS a special form detailing their foreign assets if over a certain amount, in addition to the Foreign Bank and Financial Accounts report for anyone with savings of more than $10,000 (£6,500) abroad, which has to be filed each year.
