theOAP

Since the two accounts combined may well end up over $10,000, you will be reporting both on an FBAR (114) for 2015, won't you?.

jmood

I have no idea. Really. I don't know what I should be doing.

Anyway, which 2 accounts are you talking about?

Owen778

I'm guessing he means the ISA and the UK Citibank account. The limits for FATCA (8938) and FBAR reporting refer to the total amount you hold outside the US, not the amount in each account.

Steve_

If you do that you're basically saying, "hey HMRC, I still live in the UK, please tax my worldwide earnings". If you want to put it in something more liquid than a 401(k), use a Roth IRA. The long-term capital gains tax rate in the US is so low compared to the UK that there isn't as much of a reason to seek a tax shelter, so if you've got more than the Roth IRA contribution limit, just invest it directly. Put it in a savings account or CD and earn 0.2%, whatever.

nun

The IRS won't necessarily ask. You have to declare your worldwide interest income. If you have foreign accounts over $10k you have to file an FBAR with the Treasury. If you are single, US resident and the value of the accounts is over $50k you also have to file 8938.

JAJ

Really?

If someone has $5k in account A, and moves it to account B, the aggregate value of non-U.S. accounts is always under $10k. So not clear at all if FBAR is required.

And, probably not an issue here, since the reporting threshold is higher. It seems that accounts in non-U.S. subsidiaries of U.S. banks - such as Citibank U.K. - do not need to be included in the reporting for form 8938 (although they do need to be reported on FBAR). From the form 8938 instructions:
Instructions for Form 8938 (12/2013)

theOAP

Yes, really; but you're correct if you mean it isn't logical.

As I'm sure you know, this question has been raised for years, and at one point there was a Webinar from the Treasury in which a Treasury official stated the same funds would not need double reporting. Unfortunately, that info was given when the old paper FBARs were in force, and the new 114 rules state all instructions for previous FBAR reporting no longer apply. That Webinar has also disappeared.

The instructions for 114 states:
"If the maximum account value of a single account or aggregate of the maximum account values of multiple accounts exceeds $10,000, an FBAR must be filed. An FBAR is not required to be filed if the person did not have $10,000 of maximum value or aggregate maximum value in foreign financial accounts at any time during the calendar year." (page 10)

Any instructions allowing one to ignore same funds can not be found anywhere in official Treasury instructions. Is it logical,... well no. If under normal circumstances one must file a 114, (more than the aggregate value of $10,000 in multiple accounts) then does it really matter? The question exists for those whose aggregate value meets the reporting threshold only by using the same funds.

Again, as you've pointed out, 8938 and 114 are different and have no bearing on one another.

The instructions for 114 state:
"A foreign financial account is a financial account located outside of the United States. For example, an account maintained with a branch of a United States bank that is physically located outside of the United States is a foreign financial account." (page 4)

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

I'll edit this to clear up any confusion. Owen778 was correct, I meant the Chelsea account (foreign) and the UK based Citi account (foreign by 114 rules). I'm not sure if JAJ is referring to only the Citi accounts (one foreign, one non-foreign).

JAJ

So it comes down to the meaning of the term "aggregate", although the chances of this being tested in the courts are likely close to zero.

In the absence of a specific safe harbor provision, obviously a person should file. That said, there is no evidence to suggest that the IRS/Treasury are looking for cases to impose penalties for having $10,001 in foreign accounts that are unreported on FBAR/114.

Steve_

Okay to summarize, keeping an ISA if you live in the US is a really bad idea because:

(a) HMRC may deem you resident (as it is a benefit only for UK tax residents);
(b) you've got to pay taxes on it in the US anyway (because the tax treaty doesn't recognize it);
(c) it's a foreign trust which means you have to file 3520 and the FFI has to file a 3520-A, which they're not going to do (ooh I can hear JAJ typing away disagreeing with me - read 26 USC 6048(b), the funds are held in trust by the FFI, so by definition - foreign trust);
(d) you are subject to other reporting requirements in the US, such as the FBAR and possibly 8938, depending on how much you've got in it;
(e) you can't trade any securities in it, because that violates SEC and probably the equivalent UK rules.

So for these and no doubt other reasons - close the account.

nun

I'd agree with (b), (d) and (e) and add the possibility of 8621 PFIC issues. Even if I don't agree with all of the list above I think we can all agree that stocks and shares ISAs are bad......cash ISAs are probably ok, but pretty much useless to a US tax payer.

Steve_

Oh and (d)(ii) - FATCA, the FFI won't want to comply with that either.

And I'm pretty sure HMRC would deem you resident if you use a UK address to fool the FFI, as postulated by the OP.

JAJ

ISAs are not reportable under the U.K./United States agreement on FATCA compliance.

Which doesn't mean they are not taxable, etc. or that the taxpayer doesn't need to include them on any U.S. reporting forms. It does mean, however, that the IRS/Treasury don't care enough about them to insist that the U.K. financial institutions send them the information.

Would deem?
Perhaps they might do so. Or they might not. Although it's a valid point, that anyone seeking to establish non-residence and/or non-domicile should be careful about using a U.K. address.

dunroving

One reason to keep ISAs (though probably switch them to cash) would be if a person had considerable funds in them, was only heading to the US for a relatively short term and didn't want to lose the tax-free aspect of the ISAs (i.e., still there when they come back).

Maybe the advantage of retaining the ISAs would be worth the hassle of all the reporting you'd need to do. With the new ISA rules it is now easier to switch back and forth between cash and S&S ISAs before leaving and after returning.