Hotscot

Was wondering if it's worth diversifying a bit into these.
Presumably FBAR and potentially FATCA?
I'm mostly in Vanguard, tax deferred, on this side so maybe they're not worth the hassle.

Any opinions?

Additional:
Looks like the rates are really low and not worth the paperwork.

theOAP

For a US tax return, a cash ISA is reported in exactly the same way a UK bank account would be reported. If over the threshold for 8938 (FATCA), it is also reported on that form. So in all, reporting on Schedule B, 1040, reporting on 8938, and FBAR. A cash ISA is not taxed by HMRC, but is taxed by the IRS. Technically, you must be UK resident to contribute to (or newly open) an ISA of any flavour.

In addition to cash ISA's and S&S ISAs, there are now LISAs, and HTB ISAs. For the US Person, only the cash ISA is straightforward.

For the US Person, there are 4 non-punitive ways to invest in the UK: bank/building society savings accounts, cash ISA, privately owned property, and self invested stock. Example - go somewhere in the UK that will sell to a US Person and buy 100 individual shares of XYZ for your own investing purposes. The individual shares can only be bought and sold by you, no one else.

The interest rates for a cash ISA are low, or at least lower than some available savings accounts. For HMRC, all interest from a cash ISA is tax free, which makes it better than investing under the mattress. But, for the 0% and 20% band UK taxpayer, the first £1,000 of interest from any UK bank or building society account (aggregate if more than one) is also tax free. If yearly interest (aggregate) is below £1,000, better rates might be achievable in a normal savings account.

I won't even start on the fun for a US Person resident in the UK of the consequences for reporting the tax free portions of ISAs and bank/building accounts when using FTCs (form 1116), passive basket. Retirees, take note.

There - everything worth knowing about cash ISAs (for starters, at least).

Hotscot

Thanks OAP. You're a fount of information.

I'll leave them out. As I approach dotage I want to streamline matters.

LeavingLondon

Hi, i have cash ISAs in the UK which have generated around $4k of interest since we moved here 6 years ago. Should i have declared that to the IRS and if so how do i do it? Will i be taxed on it?

More importantly, I just found out that my (then) accountant did file an FBAR in 2013 - 2015, but then we filed our returns ourselves with TurboTax and didn't realize we needed to file an FBAR so didn't do it in 2016 or 2017. When we declare it now retrospectively (and file for 2018) might there be a penalty? We literally earned less that $500/year in interest.

Hotscot

Yes.

theOAP

Interest from a cash ISA is reportable income, yearly, on an IRS 1040 tax return, and possibly a State tax return. For the IRS, the amount (converted to $US) is listed in Part I of 1040, Schedule B, and information must be given in 1040, Schedule B, Part III. From there it goes on the 1040, line 2b as taxable interest. If the appropriate monetary thresholds are met, it is also declared on FinCEN 114 (FBAR) and reported to the Financial Crimes Enforcement Network online, separate from the IRS return. Again, if appropriate thresholds are met, it is included on form 8938 (FATCA) of the IRS 1040. For both FinCen 114 and form 8938, the 31 December Treasury exchange rate must be used, but the IRS unofficial exchange rate may be used for 1040 Schedule B. Failure to declare the amounts on a FinCEN 114 if required is punishable by a $10,000 fine. Failure to report the cash ISA on an 8938 if required also carries an additional $10,000 fine. Under the US/UK IGA, if your bank/building society is aware you are a US Person, they may already be reporting the account to the IRS on a yearly basis.

Isn't the US tax system lovely! Just a continual barrel of laughs. It's assumed, since it's a foreign account, that the $500 went for money laundering tax evasion human trafficking and terrorism purposes. Or, maybe not,..... but you have to prove that by declaring the accounts.

A lack of FinCEN reporting can be corrected by filing a FinCEN 114 for each year it was not reported. On the first page, note this is a delinquent FBAR and in the drop down box wanting to know why it's late, simply state why you didn't file (oops, I forgot). The only sticky point is you have declared the account previously on an FBAR, so choose your wording carefully. Job done, and most likely you'll hear nothing more.

As for the delinquent 1040 reporting, you could file a 1040X for each year.

LeavingLondon

thank you so much!!! much appreciated. yes i'm worried they won't believe me and will think i didn't file on purpose but it was a genuine oversight.

next question!!! what about uk pension - we have private and state pensions? where should i have filed those?

LeavingLondon

Has anyone ever used these people? https://www.greenbacktaxservices.com...ng-procedures/ was think of paying them to retroactively file my FBARS for my cash isasa and pensions in the hope of not incurring any penalities and to ensure i do it right?

theOAP

They should be listed as income on line 4a of the new 2018 1040. Line 4a is for the gross amount, and line 4b, the taxable amount, can be used to offset any basis you may have in the private pensions. OR, alternatively, you may declare all the UK pensions on line 21 of 1040 Schedule1, and in the blank space beside, put 'foreign pensions, OR, you could put the private pensions on line 4a and do the basis deduction for line 4b, and then list the UK State pension on line 21 of schedule 1 (since it has no basis), listing it as 'foreign social security'. All Schedule 1 entries eventually go onto line 6 of the 1040.

theOAP

Slow down, you're panicking.

The above link is for Streamlined filing. Streamlined is primarily for people who haven't filed any return. (SEE EDIT BELOW.) I trust you have been filing tax returns, but have neglected to include the UK pensions and ISA. A 1040X may suffice and a local CPA, if you feel unable to do it yourself, should be able to do this if the pensions are in the drawdown phase. A 'general rule' worksheet (Pub. 939) may be required if you wish to claim the basis in the private pension. As for the delinquent FBARs, there are many folk around the world in the same boat, and in your case, an account yielding $500/year (£40,000?), should not raise any large red flags. Once you are satisfied with the wording, submit the past FBARs, and there should be no further action. At worse, the local CPA could also do the FBAR filing and help with the wording.

If you are above the threshold for form 8938, the private pension should also be included. 'Defined Contribution' pensions should be included on both an FBAR and 8938; 'Defined Benefit' (final salary) pensions are declared on the 8938 but not FBAR. A UK State pension is not declared on either.

I'm assuming you still live in the US? If not, then a 'local' CPA might not be able to help.

EDIT TO ADD:
To be clear, I'm assuming you have not declared income on your tax return for the pensions and ISA. If you have been declaring the income on your tax return, but not on an FBAR, there is no need to do Streamlined Procedures.


There is a Streamlined Domestic Offshore Procedure for those in your situation (undeclared foreign source income), and details can be found here:
https://www.irs.gov/individuals/inte...-united-states

If you were to select this route, there is a 5% penalty for undeclared income form offshore sources. A detailed statement is also required. It's your choice as to whether you choose to go down this route, or try the 1040X route, consulting a local CPA if you are in the US. Most professionals outside the US would suggest the Streamlined route.

If you're not in the US, there is a Streamlined Foreign Offshore Procedure. There is no penalty for this procedure.
https://www.irs.gov/individuals/inte...-united-states

Giantaxe

In your explanation , I'd mention that you switched from using an accountant to Turbotax the first year you failed to file an FBAR and that was the cause of the overlook.