Case may have implications for British citizens born in US, who risk having accounts frozen

HMRC is facing a legal battle to block it from handing personal details about British citizens to US tax authorities.

The case could have wide-ranging implications for tens of thousands of so-called accidental Americans who left the US when they were months or years old but risk having their British bank accounts frozen for failing to comply with the US tax requirements.

The case will challenge the 2010 Foreign Account Tax Compliance Act (Fatca), which requires foreign financial firms with US operations – including UK banks – to report information about US taxpayers to the IRS or face huge fines.

It is the latest fightback against the long arm of America’s tax authority. A challenge is also on the horizon from the French Association of Accidental Americans (AAA). The AAA’s president Fabien Lehagre said his group will file a formal complaint with the European Commission as early as October. It comes after the group lost an appeal in France in July.

“I hope the United Kingdom justice [system] will be more independent than the French courts this summer,” Lehagre said.

Law firm Mishcon de Reya has taken on the UK case for a client who alleges HMRC is breaching citizens’ data protection and privacy rights by transferring vast amounts of financial and personal data to governments outside the EU.

Fatca is meant to root out tax dodgers hiding money offshore from the US, which is the only country aside from Eritrea that taxes non-resident citizens on their global income. But Filippo Noseda, the lead lawyer in the case, says his client is not a tax dodger.

The client, who works at a university in north-west England, is exempt from paying US taxes since she earns less than the $104,000 (£84,000) benchmark for Americans living abroad. But like many US expats, she has paid thousands of pounds to a professional accountant only to confirm she owes nothing to US authorities.

However, Fatca still requires her information to be sent overseas without her permission, which her lawyers claim breaks the EU’s GDPR laws and put her at risk of identity theft.

“Our client has no problem with measures to fight crime and tax evasion,” Noseda said. “Her issues are with the disproportionality of these measures and the breach of various fundamental data protection principles contained in the GDPR, which expose her to potential hacks and identity fraud.”

The client, now in her early 40s, married in Britain after finishing college and moving to the UK in 2000. In 2016, she received a letter from her bank warning she may owe US tax and that her data would be sent to the Internal Revenue Service via HMRC.

While the client is not an accidental American, her crowdfunding page claims she is trying to “protect the fundamental rights of accidental Americans and other compliant US citizens living abroad” and is aiming to raise £50,000 to fund her case.

Many accidental Americans are opting to renounce their US citizenship, which involves filing six years of back taxes, rather than go through the costly accounting process every year.

Following the Guardian’s coverage of the accidental Americans issue, the IRS last week announced it was giving a tax break to some Americans expats looking to renounce their citizenship. People with less than $2m (£1.6m) in assets who owe less than $25,000 (£20,000) in back taxes will have their tax bill waived by the IRS when they give up their citizenship.

However, groups including the AAA said the IRS initiative did not go far enough and failed to consider the $2,000-plus bill of renouncing citizenship.

Responding to the legal challenge in the UK, HMRC said it does not discuss individual taxpayers. However, it defended Fatca, saying the law “plays an important part in the multinational fight against tax avoidance and evasion”.