UK pension schemes will be subject to the United States’ Foreign Account Tax Compliance Act (FATCA), according to AutoRek director Jim Muir.

Under FATCA, certain US taxpayers with foreign assets in excess of USD $50,000 will be required to report information about the assets on a new form attached to the annual tax return.

Reporting is required for assets held in taxable years beginning after 18 March 2010. Those who fail to report foreign financial assets will face a penalty of USD $10,000, and up to USD $50,000 if reporting continues to be neglected after Internal Revenue Service notification.

Underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional "substantial understatement" penalty of 40 per cent.

Citing uncertainty over whether FATCA would apply to UK pension schemes, Muir said it appeared “absolutely certain” that that pension income would be included as the traditional annuity is “easy to assess for liability”.

It was also clear FATCA would apply to other cash distributions such as tax free cash or income drawdown, Muir said.

“Complexities over valuation of a pension pot that isn't delivering income (especially a defined benefits plan) may mean that plans which have not yet moved into maturity will need to be excluded in the early days.

“Complex arguments around refund of premiums which have been tax relieved or otherwise will no doubt surface but my sense and judgement would be that businesses should prepare for the worst even though it may not quite materialise on day one,” Muir said.

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