Sports, media and entertainment stars continue to do business in the UK but in the case of American expats, the complex tax issues remain a big challenge. We spoke to a firm which tries to ease the cross-border pain.

US sports and entertainment stars have been coming to the UK for a long time, in particular former Suits actress Meghan Markle going up a step by marrying Prince Harry. Expat Americans have a problem, however.

Examples abound of big stars arriving in the UK, such as the actor Michael Douglas, who came over the pond after marrying Catherine Zeta-Jones. He is worth around $300 million, according to TheRichest.com. (Douglas also has British citizenship via his mother, whose birthplace was Bermuda.) Although she returned to the US, the actress Gwyneth Paltrow, who was married to Coldplay frontman Chris Martin, lived in the UK for several years.

The success of the UK's sports, media and entertainment sector keeps the transatlantic process alive, for example Friends' star Matt LeBlanc, who became a presenter on the rebooted version of Top Gear a few years ago. US tennis stars, such as John McEnroe,  who has played and worked as a commentator in the UK, have complex tax requirements. The tax situation became more difficult for US expats after the US Foreign Account Taxation Act, or FATCA, was enacted late in 2010. The core of the problem is that unlike most other nations, the US taxes expats regardless of whether they have spent any of their adult life in the country. 

However, while many American expats face a hurdle in getting financial services, there is a cluster of businesses making a point of catering to this demographic. One such is London & Capital, and this publication recently interviewed Daniel Freedman, managing director at the firm to explore the issues.

“The clear area where London & Capital believes it has an edge is that we believe we understand the American tax code when it comes to investments, as well as UK, French and various other codes,” Freedman said. “The significance of this is [that] the double-tax treaties with America and various other countries were written many years ago, and often don’t include aspects such as pensions, and what aspects they do include of pensions are somewhat outdated. They don’t include new areas of planning such as ISAs (Individual Savings Accounts)."

"What has happened is that we have new regulations such as FATCA, the Common Reporting Standard, MIFID II and GDPR, legislation that affects Americans outside of the US. The double-tax treaties and the new legislations do not meet - and so Americans who are coming to the UK or living outside the US are thrusted with both tax regimes, the UK and US regimes, and trying to make sense of it all when managing money becomes very difficult," he continued. (The Common Reporting Standard, an international set of agreements on sharing data to foil tax evaders, ironically does not include the US as a signatory.)

“What we see is that Americans that come and live here still end up with brokerage accounts in the States. And after a period of time when they become resident in the UK, there may be some domicile factors to take into account; they may sometimes marry a UK resident. And what actually happens is that it becomes more and more complicated to manage their money, such as conversion currency issues,” Freedman said.

The firm is trying to reach out to the media and entertainment sector for US expat clients. This publication reported in May that London & Capital appointed Jonathan Gold as executive director. Gold works closely with clients, including focusing on the sports and entertainment sector as well as US clients now based in the UK.

London & Capital has around $3.7 billion in assets under management, and is based in London. It is regulated by the SEC in the US, FCA and SFC in Hong Kong. 

Besides London & Capital, other firms catering to US expats are the obvious US institutions such as Citigroup and JP Morgan, along with specialists boasting a US expat service such as the Royal Bank of Canada, Schroders, Maseco and Reyl Overseas, the Swiss firm serving tax-compliant US expats. Since the FATCA legislation was passed, lenders such as HSBC and Deutsche Bank ceased taking on expat clients, and a raft of Swiss banks have shut offshore banking services for US expats following revelations of abuses.

Confusion
WealthBriefing has consistently reported on the rise of the media and entertainment segment in the wealth management sector. According to Statista.com, the film industry in the UK is worth around $4.13 billion, and according to Deloitte, in 2016 UK football clubs made around £4.4 billion. 

However, sports and media stars can earn huge amounts of money, but not as an even salary. As well as the irregularity their earnings, actors, TV personalities and sports stars may have to deal with a relatively short career. The need for financial guidance is even more prominent when clients have to handle their affairs from a different country.

Freedman discussed the problems surrounding these sectors and what wealth managers can do to help. 

“One of the sectors that we have found that is terribly confused is the entertainment and media sector,” said Freedman. “If you think about US footballers coming over to the English leagues, or US actors that live in London, and also some other sectors, for example musicians, bloggers and vloggers, there is a lot of interaction between the UK and the US. The UK has very big headquarters for companies such as Facebook and Google, and so many people are becoming millionaires through share prices. And then they get this money and then decide how to organise themselves. We have identified this particular sector as being underserved. It is complicated enough to deal with a transatlantic relationship. What we have seen from headlines is a series of movie stars and pop stars [who] have actually found it very difficult to manage their finances.”

“Most entertainment stars may have an advisor who handles all their affairs and they might have an IFA who would provide them with financial advice. If they are UK-based that’s fine. If they are an American, this would bring about a few problems. For example, can they invest in UK funds? Many of them may come over on the visa programme which the UK has, or the Entrepreneur Visa, a programme where you can put money into investments and get your visa or right to stay quickly," he said. 

"When you put your money into investment through the visa you have to put your money into direct stocks and bonds. Most financial advisors do not offer a service which they can give on stocks, shares and bonds. But for an American, that is the best way they can invest because they can solve issues on both sides of the Atlantic. If they buy a British fund, they tend to fall foul of the American passive foreign investment regulations which give them very adverse tax complications. This is an area which brings about a lot of confusion. Having your US brokerage account with US funds doesn’t work in the UK, so this is what we want the segment and Jonathan to focus on," Freedman continued. (He referred to Jonathan Gold, who recently joined from RBC Wealth Management and who has a Series 65 qualification to give advice in the US about the complication of US expats in the UK.)

Gold also spoke to WealthBriefing about the complexities around cross-border advice.

“From my experience, clients have often had issues over finances with the UK and US crossover,” said Gold. “There is a lack of coordinated advice in that space. There is a huge crossover; there are actors coming here to perform in studios such as Pinewood and there are singers who base themselves here. And a lot of this goes under the radar because it is the way they manage their public image. They don’t necessarily tell people what they are doing and where they are living. [With] People who are originally based here and head over to the States, a lot of the time they retain their original financial advisors in London because that’s where they are from. And that happens with US expats. I can’t say all but a significant proportion of major British golfers live now in Florida - that’s where they base themselves. They don’t want to transfer all of their affairs to the US so they need the coordinated advice.”

“The clients want the retention of their entrusted advisors and that includes the wealth management side. There has been a lack of opportunity to get that advice and London & Capital has been doing this for years, and coordinates affairs on both sides. What happens with a big organisation – if a client moves from London to the States – [is that] they can have someone here to deal with their affairs but their US affairs will have to be dealt by someone else. It might sound ridiculous but those people don’t understand the codes of each other’s jurisdiction.”

Schemes
WealthBriefing has reported frequently on media and sports stars falling foul of tax-incentive schemes that end up being investigated by the Financial Conduct Authority, with stars ending up with a large tax bill.

In February, this publication reported that several footballers were hit with a £5 million tax bill after UK collectors overturned their use of a film scheme.

Gold also spoke about how image conscious media and sports stars need guidance to keep their reputation at a high.

“The issue with these clients is that they are in the public eye, so their reputation and image is vitally important to them. And the media will find it salacious if they contravene the tax rules or they are faced with an embarrassing bill. You have seen all manner of high-profile people that they choose to oust that have been part of a scheme. It’s something that high-profile people end up doing because they have been allured to a certain type of investment or they have been given advice to invest into it. But ultimately, you take the tax requirements of the US people coming here and, unless you know the rules, there can be pitfalls and holes that you can fall into [so] they end up in embarrassing situations,” Gold added.