SusanV76

Ok so you are saying I need to report the “interest” or “gain” on the ISA stock and share in my 1040 for tax purposes AND also need to disclose this on the FBAR. I wonder why they the treasury department told me not to disclose it. I have seen sites where stocks and shares do not need to be disclosed anymore (perhaps they were in the past)

Do you know where under turbo tax this would be reported? I would think you don’t report anything until you sell?

nun

I'd be interested to see your emails with FBARquestions.

You have to be careful here, the Treasury doesn't do taxation, that's an IRS function. The TDF form is not a tax form, it's a disclosure form. If the account was over $10k at any time during the year is must be declared on a TDF 90.22-1.

A UK ISA doesn't come under the pensions definitions in the Tax Treaty and it's tax free status isn't recognized by the IRS. It's simply an investment or saving account as far as the IRS are concerned, so any income or gains must be included in your US taxes. The tricky part is the type of ISA investment you have. A foreign stock fund must falls under PFIC rules which are complex and nasty. My advice would be to sell your ISA, realize any gains and declare them, then move the money to a US based account with someone like Vanguard.

nun

You have to report dividends and capital gains distributions. I don't know how UK ISA stock funds report those, but you need to find that out to comply with US rules.

celticgrid

Just to be absolutely clear, it is the total off all reportable accounts that matters. This account could be well below the $10k level itself but it still has to be reported if the total across all reportable accounts sums to more than $10k at any point in the year.

robin1234

Another thing about the form TD F 90-22.1. (Been mentioned in other threads, but not in this one I think..)

Look at the last question in Part One, question 14.

Obviously 25 is a lot of foreign accounts, but if you qualify, all you have to do is fill out your name and address and SS# (the information in Part I) and you're done! Of course you'd have to keep good records.

SusanV76

Ok thanks...so say at the end if 2009 the Jupiter fund is worth 12k pounds and in 2010 it's at 14.5k , do you mean I need to report the gain or dividend as the difference of that EVEN if I didn't cash it? So 2.5k pounds? It could go up and down though.
Sorry just trying to understand. Thx everyone for advice! Also does anyone know what section that goes under turbo tax?

I agree on the vanguard transfer..no doubt that will also have tax implications.

SusanV76

H wait so there is nothing to declare for 2010 taxes since I didn't sell them yet correct? Nun think you are saying sell then declare the gain and transfer funds to vanguard. In relation to 2010 I don't have to "report" anything on taxes but DO have to send in a FBAR form.

im9907620

Yes that is correct. For cash ISAs its the interest. For stock/bond ISAs its the income (from the tax (dividend) voucher). For unit trust ISAs its the annual income and short/long term gains of the fund. The point is that none of these fund managers produce this information in the correct format for US tax purposes (why should they). Therefore you need to hold US tax compliant funds which are difficult to find from a UK firm AND the correct reporting format.

Alternatively, as Nun stated, cash out and take the funds to the US but if you US tax resident when you do that you could well be liable, under PFIC rules, to US tax on any income, gains or distributions since inception (even if that was when you were UK resident).

Simple and prudent message to other posters is: pre-immigration/expatriation planning!

SusanV76

Got it!! Great advice everyone. So for my 2010 taxes-nothing to declare. Fir FBAR I should also disclose this account.

Am I correct?

Also how do I know a ISA stock and share fund is a brokerage account? That is reportable. I think whoever answered emails thought it's just a individually held stock account. They said that's not reportable.
Thx!!

im9907620

EG: If the Jupiter fund has increased by £2,500 in the US tax calendar year then, yes, you would be liable to that gain even if you didn't cash it (the PFIC trap). Additionally, most funds pay dividends/income at least twice a year (or give you extra units) and these distributions are also reportable/taxable. As I say, you won't be able to get that info from Jupiter on your portion of the fund as one unit holder of many so you might just have to 'wing-it' on turbo tax.

If you are currently sitting on a profit then you'll need to take tax advice before cashing it/reporting it.

nun

You have to know what type of investments you have in your ISA to know how the IRS will tax them. So what do you have in there....individual stocks or pooled investments like unit trusts?

Next the IRS taxes dividends from stocks and unit trusts and reinvested capital gains distributions from pooled investments like unit trusts. So even if you don't sell during the year there will probably still be tax due. For individual stock you should get an annual report and you can fill out the IRS forms using that. The IRS does not have special rules for individual stocks held abroad. However, for foreign pooled investments the IRS has special Passive Foreign Investment Corporation PFIC rules. These are basically to discourage US tax payers form moving money overseas and they impose high taxes on the gains from foreign funds. If you have a foreign unit trust you will have to comply with the IRS PFIC rules.

This is all very unfair, but holding that ISA will continue to be a pain as long as you are in US resident. If you intend to stay in the US for any length of time I'd get rid of the ISA pay the tax bill and be done with it. Also fill out your TDFs. It might be worth getting this all done by a professional, spending some money will save you the worry of getting this stuff wrong.

nun

I think this is a very important point, tax and investment planning before moving between countries is often forgotten. When I moved from the UK to the US 25 years ago I was a student and didn't do much planning other than deciding to pay voluntary NI contributions. However, I had no investments and simply closed my UK bank account and opened up a US checking account with $3k worth of travelers cheques. So I have nothing in the UK and no UK tax obligations.

However, if I move back to the UK I will have to do substantial planning. Firstly I will not invest in UK unit trusts. My UK investments will be long term cash ISAs. The interest will be UK tax free, but I'll have to pay US tax on it and importantly they won't come under PFIC rules as they are just savings accounts paying interest. Before I leave the US I will realize all my capital gains in after tax investments and on my house and pay the US tax. I'll probably reinvest in some US based mutial funds, but I'll have to pay tax on any capital gains as if they were income in the UK as HMRC does not recognize US based funds...its sort of like US PFIC. Anyway most of the money I'll put in those UK cash ISAs. I'll leave my retirement accounts in the US as they are well covered by the UK/US tax treaty, but before I leave I'll transfer as much from IRAs to ROTHs as they are tax free in the US and the UK.

SusanV76

thanks- i will have to ask my husband...but we are sure that an ISA stock and Share fund is a brokerage account and needs to be reported...that is the important thing. I hope I dont get penalised for not knowing!

I just wasnt sure what is the difference with a brokerage fund vs a individual stock plan.

Thanks everyone!

nun

The important thing is the sort of investments you have in that brokerage account. If you have individual company stocks the taxes will be far easier than if you have unit trusts.

chopper40

Gosh its been 2 months since I posted this thread. I can't even bear to think about the countless hours I have spent worrying about this.

My situation in the end boils down to not reporting on my 1040 less than $200of interest earned from a UK savings account. Luckily this is not an ISA so I paid tax on it at source. My foreign tax credits for 2009 should cover any US tax.

Thankfully, becasue I became LPR half-way through 2009, refiling as dual-status will exclude most other interest recieved because it was recieved in the first half of the year.

I have been advised NOT to go into the voluntary disclosure program. That is designed for people hiding US sourced money to avoid paying tax. On my part there is no criminal intent, no US sourced income, no tax due, was not advised properly by CPA, just did not know about FBAR, I'm clearly taking steps to correct the filing error, looking at the numbers I'm just a blimp on the radar.

Still, it could turn out to be one of those horror stories where it was better to not be honest. I still have to report all my UK financial assets on FBAR. Becasue of that $200 i could in theory face a horrific draconian penalty.

I'll take some comfort that a few other people have realized they need to take action because of reading this. And I have been told that its my CPA that will be getting thrown under the bus. Error and Ommissions liability exists for things such as this.