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UK Savings & Tax

UK Savings & Tax

Old Aug 23rd 2012, 6:07 pm
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Default UK Savings & Tax

Here's the deal. I moved here in May 2011 and filed my first US taxes in Jan 2012. It was the most straight forward return you could do, as I'm single, no kids, single income, no assets etc. ( and I filed online through H&R ). Job done.

However, I do have quite a large chunk of savings in a UK tax free ISA. Through my nievety ( I realize it's no excuse ), I thought that as this is tax free I wouldn't have to mention it, so I didn't. From the bits I'm managing to learn, this should be taxed and I should also file another form stating it's over $8K I believe.

I was relunctant to move it over to the US as I'd lose the 2.5% tax free but as I'm looking to buy a house early next year when my GC comes through, it would all be used on that anyway.

I know you can't give definitive tax advise here, but opinions? I'm wondering whether to move it all to my US account now, just take the hit, then just declare as regular US savings on my next return. Or would I have to try and contact the IRS now to explain?

My main concern ahead of losing the interest, is it affecting my GC application in any way.

- Derek.
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Old Aug 23rd 2012, 6:13 pm
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Default Re: UK Savings & Tax

Originally Posted by dek
My main concern ahead of losing the interest, is it affecting my GC application in any way.
This type of thing will not affect your green card process.

Rene
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Old Aug 23rd 2012, 6:30 pm
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Default Re: UK Savings & Tax

I believe the correct way is to file an amended tax return for the 2011 tax year, showing the interest the ISA earned as part of your investment income for the year.

Might want to speak with a tax CPA for a one off piece of advice, especially if large sums are involved.
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Old Aug 23rd 2012, 6:34 pm
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Default Re: UK Savings & Tax

Thanks. Think I'll go have a sit down with H&R, just for piece of mind.
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Old Aug 23rd 2012, 6:56 pm
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Default Re: UK Savings & Tax

Originally Posted by dek
Thanks. Think I'll go have a sit down with H&R, just for piece of mind.
Talk to someone proper, not those muppets.
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Old Aug 23rd 2012, 6:58 pm
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Default Re: UK Savings & Tax

Suggestions?
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Old Aug 23rd 2012, 7:07 pm
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Default Re: UK Savings & Tax

Originally Posted by lansbury
I believe the correct way is to file an amended tax return for the 2011 tax year, showing the interest the ISA earned as part of your investment income for the year.

Might want to speak with a tax CPA for a one off piece of advice, especially if large sums are involved.
You need to file a 1040X and include interest and gains from your ISA....don't forget to amend your state tax return too. The complexity of dealing with the ISA will depend on it's type; is it a cash ISA or a stocks and shares ISA? If it's a cash ISA it's easy to deal with as it's treated as an interest bearing account. If it's a stocks and shares ISA it is a foreign grantor trust probably invested in passive foreign investment corporations (PFICs), ie UK unit trusts, and you will have to file the appropriate forms and do the mark-to-market calculations.

FYI you only need to specifically provide information on foreign accounts to the Treasury on the FBAR form if the total of your foreign accounts is greater than $10k at any time in the tax year.

UK ISAs have no tax advantages for US residents. You might be getting a good interest rate in the UK, which might make the ISA worth keeping, but you should look into US CDs and even ROTH IRAs if you are thinking of staying in the US for some time.

Last edited by nun; Aug 23rd 2012 at 7:14 pm.
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Old Aug 23rd 2012, 7:15 pm
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Default Re: UK Savings & Tax

Thanks. It's a cash ISA. I'll get right on it and file the correct forms. Bloody taxes, I'm just looking for an easy life
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Old Aug 23rd 2012, 7:37 pm
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Default Re: UK Savings & Tax

Originally Posted by dek
Thanks. It's a cash ISA. I'll get right on it and file the correct forms. Bloody taxes, I'm just looking for an easy life
OK you are fine. You need to file a 1040X and include the interest from your ISA on a new Schedule B if your interest amount was over $1500. Your Adjusted Gross Income will increase by the amount of your ISA interest and you'll have to send the IRS a cheque for the tax due.
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Old Aug 23rd 2012, 7:54 pm
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Default Re: UK Savings & Tax

Originally Posted by nun
OK you are fine. You need to file a 1040X and include the interest from your ISA on a new Schedule B if your interest amount was over $1500.
What if the interest is under $1500?
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Old Aug 23rd 2012, 7:57 pm
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Default Re: UK Savings & Tax

Which it will be. I only have to declare interest since I've been here (end May 2011), right?
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Old Aug 23rd 2012, 8:14 pm
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Default Re: UK Savings & Tax

Originally Posted by avanutria
What if the interest is under $1500?
No need to file a Schedule B then, unless you also have ordinary dividends.
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Old Aug 23rd 2012, 8:53 pm
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Default Re: UK Savings & Tax

Originally Posted by nun
No need to file a Schedule B then, unless you also have ordinary dividends.
For once, we disagree (well aside from the fairness of WEP!).
Schedule B changed for 2011. There's now two parts to question 7a (do you have a foreign account and does it require an FBAR). Sneaky. You're probably OK if you don't file Sch. B and if you aren't required to file an FBAR, but as Lizzit would say, filing the Sch. B and answering the question makes the return "Iron Clad".
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Old Aug 23rd 2012, 9:40 pm
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Default Re: UK Savings & Tax

Originally Posted by theOAP
For once, we disagree (well aside from the fairness of WEP!).
Schedule B changed for 2011. There's now two parts to question 7a (do you have a foreign account and does it require an FBAR). Sneaky. You're probably OK if you don't file Sch. B and if you aren't required to file an FBAR, but as Lizzit would say, filing the Sch. B and answering the question makes the return "Iron Clad".
Yes I agree. As the OP didn't seem to need an FBAR and didn't seem to file a Schedule B the first time I went by the dollar limits on Schedule B......no harm in filing one with the 1040x though.
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