KikiDoug

I'm very confused and scared over these that I have only just heard about after reading an article in the BBC last week about US citizens giving up their citizenship.

First, I don't owe any taxes to the UK or the USA - they have always been paid.

I've lived in the US since 2006 and became dual US/UK citizen in Sept 2009.

I have a UK bank account that I pay taxes on the interest in the UK (low interest rates so just a few pounds a year is earned.) It has over 10000 GBP in it.

I also have a private UK pension, investment and life assurance (not cashing in on any of them at the moment, they are just growing slowly, they are meant for old age). I realize when I do I will be taxed on the gains.

What on earth do I do regarding this facta/fbar. I am very scared and actually was sick tonight reading about it.

My husband is a US citizen and we've never heard of this before now.


Thank you so much,
Kiki

penguinsix

You might want to check out Talk Yankee, the US expats in the UK website. They have a special section on taxes and whatnot, along with some recommendations for professional help available in the UK.

http://talk.uk-yankee.com/index.php?board=11.0

Have you and your husband been filing US tax returns? Did you check the box stating that you had an overseas account?

I'm afraid you'll probably need to consult a professional for what is the next step. If you don't owe any additional taxes you'll have a bit less to worry about with filing.

http://www.forbes.com/sites/robertwo...he-first-time/

http://www.forbes.com/sites/robertwo...ng-to-a-crime/

KikiDoug

Yes, my husband did the our joint tax returns but apparently never included my UK bank details or made me aware I needed to.

I don't owe taxes as I paid them in the UK but I'm still uncertain.

JAJ

I don't see a serious problem here.

We're told that bank interest is immaterial, with interest rates so low and the tax taken by the U.K.
It's not really a problem.

As for the pension, it's probably not liable to U.S. tax for now. It may need to be reported, but that can probably be done going forward without any need to amend prior tax returns. If you believed in good faith that your tax return was correct when you signed it you are not under an obligation to amend and it is usually not a good idea to do so for immaterial amounts.

Investment/life insurance - depends on what they are, but again, the dollars are probably not significant. Perhaps these should be sold or divested to make life simpler going forward. Life assurance, is it "whole life" or simple term?

Remember - there is normally a 3 year statute of limitations on tax returns.

I would be concerned about contacting these "expat" tax professionals because so many of them seem to make a living out of scaring people into thinking there are large consequences for immaterial tax mistakes or omissions. Unless someone is hiding hundreds of thousands, millions, etc, in a Swiss account or similar, there's not too much to be concerned about.

But as a minimum - future tax returns must always be filed correctly. And future FBARs must be filed.

nun

You need to be filing FBAR for this account and if it is over the FACTA threshold, that too. You have not done your taxes correctly as you should NOT be paying tax on UK interest if you are resident in the US. You need to file a US-Individual2002 form

http://www.hmrc.gov.uk/cnr/us_individual_2002.pdf

so that HMRC can exempt your UK interest form UK tax. You MUST include that interest on your US taxes and pay US tax on it in future. If the past amounts have not been large and/or you have used foreign tax credits to offset the US tax due I would not worry too much. But make sure you do your taxes correctly in the future.

You need to find out the US status of these pensions and investments. The pension may, or may not, be covered by the US/UK tax treaty. If it is covered then it can grow tax free until you take income. However, you need to make sure that is the case. What are the other investments you have and does the life assurance have an investment component. If you own UK based mutual funds outside of a pension plan covered by the treaty you will have to file PFIC forms with the IRS. At a minimum all UK based investments, excluding pension plans covered by the treaty that are in the accumulation phase, must be included on your US taxes.

You file FBAR/FATCA on any foreign accounts/investments that meet the thresholds

KikiDoug

The bank interest (which I PAID tax on) has been small since 2006 (when I moved here) since rates are so low, just a couple hundred dollars in total over the course of the years.

I never applied for tax credits, just paid the tax on the interest on my UK bank account.

My pension and investments are "gross-roll ups", so one only makes an income on them when you cash them in (whole or partly), which I have never done.

All the money used to start my investments was earned OUTSIDE of the USA and were started when I lived abroad in 1998.

I moved here in 2006.

Very stressed about this....

nun

You are not understanding that as a US resident/citizen your worldwide income is taxable. You cannot pay tax according to what seems reasonable, you must follow US law the rules agreed between the US and the UK when cross-border situations arise.

Strictly speaking you paid the wrong country when you paid tax on your UK interest. As a US resident you should have paid tax to the US and you certainly should have included the interest on your US tax return. From now on you must include all your income on your US return no matter where it comes from. Read USIndividual2002 as a start to understanding your situation.

I have no idea what "gross-roll-ups" means. Is your pension a final salary pension from an old employer? What exactly are your other investments? Private annuities? How are they invested?

The fact that these pensions and investments were started when you were not a US resident does not insulate them from US taxation once you become US resident or a US citizen. Therefore, you must understand their status under US tax rules. There might not be enormous issues to deal with as your pension might be exempted from current US taxation under the treaty, but you must do the research to understand your situation or pay someone to get you on the right track.

penguinsix

Hi,

While not every person needs a professional accountant in these situations, I think in your case, you probably would be wise to consult with one.

I'm not trying to be demeaning, but it sounds like you don't know what you are doing. That's understandable--you are a relatively new US Citizen and probably relying on your husband to handle these things, and it can be quite confusing when dealing with cross border transactions on your first tax and FBAR or FATCA filings. While some professionals might want to scare you into taking on more work than you really need, I do think some help, either from some expat tax professionals or the embassy or even a serious study session of the available forms and explanations from the IRS would be in order. Also, the status of your pension is something that we can't easily assess over a messageboard and would probably require a more professional review.

We can't tell how the IRS will handle your case. If there is no additional tax due and the omissions were minor then it may very well be just a simple administrative paperwork matter of getting caught up to date. While on paper the penalties for failure to file and whatnot are severe, it would be rather excessive in cases of a few dollars in the wrong column here or there.

IRS Publication 54 is a bit long, but honestly, it's a great place to get started. It outlines the basics of filing a tax return while living overseas and can be a starting point for your research. Worth printing out and going over.

http://www.irs.gov/pub/irs-pdf/p54.pdf

Good luck.

JAJ

It's probably better to find a U.S. based CPA who is familiar with foreign tax issues. There are some of these, especially in larger cities.
http://britishexpats.com/wiki/Choosi...Accountant-USA


It might not involve anything more than ensuring future tax returns etc. are filed correctly.

penguinsix

I would suspect this as well. There are some IRS agents who will rain fire and brimstone but in the end it might just be something simple like this, at least as it relates to old FBARs. The FATCA applicability to the pension thing I don't entirely understand though. That's the one that confuses me.

nun

The full nature and size of the OP's UK investments is still not clear to me. Things could be simple, or they could be complicated. The insurance policy and holdings outside of the private pension plan could be problematic.

The CPA would need to be conversant with the US/UK tax treaty and able to correctly categorize UK investments. The problem areas might be investments that are not excluded from UK taxation when owned by a US resident as I'm not sure how much effort a US CPA will make to comply with UK law.

KikiDoug

Thank you everyone.

Steve_

The simpler solution surely is just to file an R105 with the bank and say you don't live in the UK, then they don't withhold the tax. Then there is no UK tax, you just pay US income taxes on it on your 1040.

KikiDoug

Thank you Steve, I have already contacted the bank to do this.

About my investments (life assurance)...I understood 16 years ago when I started these through a Financial Advisor (I was a British expat working in the UAE), that when they mature I can cash them in and then they will be liable for taxes. They are not yet mature (2018 is the due date) so I have never earned an income off them to date.

I have contacted a tax attorney.

Steve_

I have no idea about UK investments of that type, but unless it's specifically mentioned in the tax treaty, a foreign tax shelter won't be recognized in the US, so if whatever it is pays a dividend, has some sort of reinvested payout or rolls over in some way then likely it is subject to US tax even if it is not in the UK.

The US-Canada tax treaty for example is the most comprehensive tax treaty between any two countries in the world as far as I'm aware, it recognizes Canadian RRSP accounts and Canadian departure tax (deemed disposition tax) but it doesn't recognize TFSAs (the Canadian equivalent of an ISA). Because TFSAs are only available to Canadian residents. Similar situation with ISAs.