Matt2112

I'm (now) a US citizen living in the US for many years.

This year (2013) my endowment mortgage policy matured and payed out $46K

I have never bother filing FBARs with the IRS since I had no real money left in the UK (I usually have <$100 in my Lloyds account) and certainly no income.

Will I need to declare the $46K on my 2013 tax return? And if so, should I file an FBAR for this year? If I did, what would I declare? Up until now the surrender value would have been much less than the final payout.

It hasn't performed great so I doubt there's much if any gain that would be taxable. Also I'm not sure how I would calculate the gain anyway since for the past 20 years my dad has been paying the premiums, not me. But I'm guessing those premiums would count as approx. $1500 gifts each year. So maybe I should just calculate the taxable gain as the payout minus the premiums.

Mr Weeze

Yes, you will have to declare it - it's all worldwide income.

From the session I just had with KPMG, FBAR is required if at any point in the calendar year you had $10,000 or more in foreign accounts.

At less than $50,000 it also doesn't trigger FATCA (although that is also cumulative, with pensions also potentially counting). KPMG have told me that defined benefit (i.e. final salary) pensions have a value of zero until you retire as they are not accessible.

lansbury

Just had a payout myself last December. The profit on the policy is taxable and should be shown on your IRS return for 2012. You need to do a FBAR. It might even be that if the surrender value was greater than $10k, or would have put you over the $10k limit in previous years, a FBAR should have been done for those years.

If you received the money in 2013, it isn't declared on this years tax return, which is for the 2012 tax year, but is declared in 2014.

Matt2112

I get that I need to file it for 2013 because my current account went over $10,000 for a few days this year, but...

...do I need to file an FBAR for 2012? There was virtually no money in my account for the whole of 2012 and I have no idea how to value the endowment policy before it matured. Does an endowment policy even count as a "foreign account". I would not consider it "accessible" because there are penalties associated with surrendering.

Mr Weeze

Ah. Based on what I sat through today, no to FBAR for 2012.

FATCA might be another matter - the $50,000 threshold - if you have other investments. I believe you would use the penalized value for a 2012 calculation and for 2013 use the $46,000. If you have anything other than a state pension in the UK you might need to do FATCA for 2013.

Matt2112

I have no other foreign assets (except state pension), so I think I'm OK because I'm under the $50K limit (just).

nun

Definitely FBAR and US tax on any gains. You should also investigate your UK tax situation for the gain and whether tax has been withheld at source so you can either apply to have no tax withheld at source or take foreign tax credits.

UK endowment policies are foreign investments and should be included on your US taxes before they mature, so annual reporting of gains and FBAR. Their taxation will be complex, probably involving PFICs.

http://talk.uk-yankee.com/index.php?topic=76841.0

Mr Weeze

From what I remember nun knows a lot about tax. I just happened to sit through 90 minutes on it by KPMG today. Although I thought FBAR was just bank accounts and goes to the fed as opposed to FATCA which goes to IRS and covers far more types of finance.

lansbury

Would you be kind enough to explain why. My understanding was endowment policies if you were the beneficiary you had to do a FBAR when foreign assets reached $10k.

I was advised I didn't need a FBAR for mine because I only received the money if it matured. If I died it went to my son in England, and therefore was outside my control and not part of my assets.

nun

FBAR is not just for bank accounts it's for foreign accounts that you have a financial interest in or signature authority over. I know enough about taxation to be dangerous, but he link in my previous post has a good explanation about the US tax status of a UK endowment policy given by a tax professional called Guya.

Mr Weeze

No FBAR filing for 2011 in 2012 was how I understood it. The way KPMG explained it to me was bank accounts. Endowments etc are covered by FATCA.

This could be me misunderstanding, or a change in the interpretation since last year. KPMG prepare all these for me, I just provide info on everything. I don't have a endowment, so don't know specifics.

I did get some slides, so I will check tomorrow to see if they are copyrighted and throw them up here if I can.

Cook_County

An endowment policy is not a US qualified insurance policy. The company pays UK corporate tax on its profits, but the US will not give credit for that.

It is probably a PFIC taxable each time a "bonus" is declared. Any terminal bonus will probably be an excess distribution subject to PFIC tax plus interest figured over the holding period.

It was always FBAR reportable; but the IRS have only been saying publicly since 2008.

nun

Either you or KPMG are incorrect. A UK endowment policy is a foreign account under both FBAR and FATCA.

Mr Weeze

I'll quite happily accept I'm wrong here - I normally don't bother with the tax ones (and maybe I should stick to that) but I'd just been listening to it today.

penguinsix

I think we had a similar thread a couple years ago dealing with endowment policies:

http://britishexpats.com/forum/showthread.php?p=9450120