UK/US Taxes
#16
BE Forum Addict
Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK/US Taxes
newlife:
Cash ISA = OK In your case, it's wise to keep the cash ISA in the UK (IMHO). The only consequence is the US does not see the account as tax free, and you pay tax on any interest you receive to the US. You will also be required to file a Schedule B to declare a foreign account (Part III). You may also be required to file an FBAR and a Form 8938, depending on the amounts in the UK.
Stocks and Shares ISA = very unfavourable Perfectly legal, but the reporting can become horrendous. Even Professional tax advisors counsel against owning these if you are subject to US tax, and that's in spite of the fact they would make tons of fees from preparing all the incomprehensible paperwork.
I would guess the reason for nun's question was to find if it was a Stocks and Shares ISA, and to suggest selling those before going to the States if you owned that type of ISA.
Cash ISA = OK In your case, it's wise to keep the cash ISA in the UK (IMHO). The only consequence is the US does not see the account as tax free, and you pay tax on any interest you receive to the US. You will also be required to file a Schedule B to declare a foreign account (Part III). You may also be required to file an FBAR and a Form 8938, depending on the amounts in the UK.
Stocks and Shares ISA = very unfavourable Perfectly legal, but the reporting can become horrendous. Even Professional tax advisors counsel against owning these if you are subject to US tax, and that's in spite of the fact they would make tons of fees from preparing all the incomprehensible paperwork.
I would guess the reason for nun's question was to find if it was a Stocks and Shares ISA, and to suggest selling those before going to the States if you owned that type of ISA.
#17
Re: UK/US Taxes
For US taxes the cash ISA is treated just like any other interest bearing account. So you'll enter the amount in Schedule B Part I and declare the account in Part III and the if you have more than $10k in foreign accounts you'll have to file Form TD F 90-22.1. There is a higher threshold that will require you to file an 8938.
You say that you are on an H visa "for 3 years", that's what I said 25 years ago. You will probably have a retirement fund like a 401k or 403b where you work and you should definitely contribute as much as you can to those. Your employer will match your contributions up to a certain amount and you will probably be able to choose how they are invested in a range of mutual funds.
Your money goes in tax free and grows tax free until you take it out in retirement when it's taxed as income. It will be treated in the same way for UK tax purposes if you go back.
Leaving the cash ISA in place is OK, but I don't completely agree with theOAP as I think it would be better for you to cash it out and invest the money in the US. There will be no UK tax consequences as you won't be UK tax resident and you can invest the money in US mutual funds. These have a wide range of risk and reward potentials. Of particular interest would be the ROTH IRA which is a another retirement account that grows tax free in the US and the UK and is also tax free when you take money out. This is also a good opportunity for you to learn about the wider world of investing as the US has better access and lower prices on investments than the UK.
The Government backing and 3.5% return of your cash ISA has a place in most portfolios, but it should not be your only investment and given inflation of 3% you are not making much in the ISA. The US has things called Certificates of Deposit that are guaranteed, but they offer less than 3.5%. Of course what you do will depend on you comfort level with investments that are not "guaranteed", but I'd suggest you take a look at these websites to research your options. The first two are big, low cost mutual fund companies
http://www.vanguard.com
http://www.fidelity.com
This is a wiki about investing written by people who use the conservative investing style promoted by vanguard.
http://www.bogleheads.org/wiki/Main_Page
and their personal finance forum
http://www.bogleheads.org/forum/index.php
Remember it's fine to do nothing and just stay in the cash ISA, but you do have options.
Last edited by nun; Mar 31st 2012 at 2:24 pm.
#18
Just Joined
Joined: Jul 2010
Posts: 22
Re: UK/US Taxes
I started to get a headache just reading this thread. I'd hate to have the IRS get their teeth into me. I was thinking of spending a few years in the US on business, but tax plus health insurance put an end to that dream
#20
Just Joined
Joined: Jul 2010
Posts: 22
Re: UK/US Taxes
.....or Fox TV
That's enough to put anyone off.
That's enough to put anyone off.
#21
Re: UK/US Taxes
Fox "News" (quotes are deliberate) is not something I watch, but I need Fox Soccer Channel.
Back to the original topic of this thread. Some planning can make your taxes simple and the US has significant advantages over the UK when it comes to investing. It's a lot less expensive than in the UK, the fees on many US mutual funds are vanishingly small. I'm continually amazed at the fees on UK pension and investments products, it really is a scam.
Back to the original topic of this thread. Some planning can make your taxes simple and the US has significant advantages over the UK when it comes to investing. It's a lot less expensive than in the UK, the fees on many US mutual funds are vanishingly small. I'm continually amazed at the fees on UK pension and investments products, it really is a scam.
#22
Just Joined
Joined: Apr 2012
Location: NC
Posts: 9
Re: UK/US Taxes
Quick question on the reporting of cash ISA interest as a result of the tax years in the UK and US not aligning...
My cash ISA pays annually in March. So on my 2011 US tax return would I declare the exact amount paid in March 2011 (even though that is really 2010/2011 in UK eyes) or do I pro-rata it along with the interest paid in March 2012 to get a 2011 value?
My cash ISA pays annually in March. So on my 2011 US tax return would I declare the exact amount paid in March 2011 (even though that is really 2010/2011 in UK eyes) or do I pro-rata it along with the interest paid in March 2012 to get a 2011 value?
#23
BE Forum Addict
Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK/US Taxes
This may lead to some disagreement. Consider the following stance: If it were a 6 month CD taken out on 1 Oct. 2011 with your local US State Bank, it would payout on 1 April, 2012, and you would declare the income on your 2012 US tax return. Since it's a one off payment (6 months in the example of the CD, or yearly in your case), you might consider taking the stance not to pro-rate the income over the two years, but declare the full income amount only in the year you actually receive the payout.
#24
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Joined: Apr 2012
Location: NC
Posts: 9
Re: UK/US Taxes
Right. I wouldn't say an ISA is exactly the same as a CD but certainly the interest is only paid once a year. I was initially going to declare a pro-rated value however I then looked at it from eyes of the IRS: "What did you get paid in 2011?" - which would be the March 2011 payment only.
Also a pro-rated amount wouldn't exactly match with the maximum amount in the account from an FBAR filing requirement as I didn't get the most of that interest until March 2012. (Not that there would ever be an exact match due to fluctuations in exchange rate)
Maybe I'm over thinking this!
Also a pro-rated amount wouldn't exactly match with the maximum amount in the account from an FBAR filing requirement as I didn't get the most of that interest until March 2012. (Not that there would ever be an exact match due to fluctuations in exchange rate)
Maybe I'm over thinking this!
Last edited by 79chris; Apr 11th 2012 at 9:50 pm.
#25
BE Forum Addict
Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK/US Taxes
As far as a termed CD and a fixed term annual cash ISA, the names and descriptions on the tin may be very different, but the IRS treatment of the two accounts is much the same. But then, it's been a while since I've had a CD and things may have changed.
With the current IRS witch hunt on foreign accounts, most are probably over thinking FBARs and Form 8938s, so don't feel alone.
With a fixed term (12 months) cash ISA with an annual interest payment, the annual interest probably isn't included on the account balance until maturity. The total amount in the account may stay the same for reporting purposes until the ISA matures, but you can't always count on this. I had an 18 month fixed cash ISA, assumed nothing would happen until the 18th month, and filed an FBAR accordingly. In July of the second year (about the 14th month), I received an annual statement and found they had made a partial interest payment "after close of business on the 31st of December" of the first year! I spent some time head scratching on that one.
Any cash ISA that pays interest monthly should be reported on the US tax year basis since the account balance changes at the end of each month. In this case, it would be proper to report the 31 Dec. account balance on an FBAR and include all interest paid for the year on that years' 1040.
Also a pro-rated amount wouldn't exactly match with the maximum amount in the account from an FBAR filing requirement as I didn't get the most of that interest until March 2012. (Not that there would ever be an exact match due to fluctuations in exchange rate)
Maybe I'm over thinking this!
Maybe I'm over thinking this!
With a fixed term (12 months) cash ISA with an annual interest payment, the annual interest probably isn't included on the account balance until maturity. The total amount in the account may stay the same for reporting purposes until the ISA matures, but you can't always count on this. I had an 18 month fixed cash ISA, assumed nothing would happen until the 18th month, and filed an FBAR accordingly. In July of the second year (about the 14th month), I received an annual statement and found they had made a partial interest payment "after close of business on the 31st of December" of the first year! I spent some time head scratching on that one.
Any cash ISA that pays interest monthly should be reported on the US tax year basis since the account balance changes at the end of each month. In this case, it would be proper to report the 31 Dec. account balance on an FBAR and include all interest paid for the year on that years' 1040.
#26
Just Joined
Joined: Apr 2012
Posts: 17
Re: UK/US Taxes
USA (Uncle Sam), taxes a Lawful Permanent Resident and/or Citizen on WORLDWIDE INCOME subject to international treaties. You WILL need an experienced accountant. WELCOME! (My husband now has dual UK/US, and I'm in the UK awaiting my UK/ and I have US citizenship), and we are paying taxes in both UK and US, and we find that the accountants and tax lawyers are so worth it in what can be a minefield! (As some said, once people have interest, dividends, any self-employment...) anything off the more simple employers wage statements--then all the more need for the professional advice and assistance with the international taxation rules and laws. One area the IMMIGRATION forces that be in the US may be unforgiving, (other than crimes and unlawful entries and previous removals) is... TAXES OWED!
#27
Lots of questions to ask!
Joined: Mar 2012
Location: UK > Los Angeles
Posts: 29
Re: UK/US Taxes
USA (Uncle Sam), taxes a Lawful Permanent Resident and/or Citizen on WORLDWIDE INCOME subject to international treaties. You WILL need an experienced accountant. WELCOME! (My husband now has dual UK/US, and I'm in the UK awaiting my UK/ and I have US citizenship), and we are paying taxes in both UK and US, and we find that the accountants and tax lawyers are so worth it in what can be a minefield! (As some said, once people have interest, dividends, any self-employment...) anything off the more simple employers wage statements--then all the more need for the professional advice and assistance with the international taxation rules and laws. One area the IMMIGRATION forces that be in the US may be unforgiving, (other than crimes and unlawful entries and previous removals) is... TAXES OWED!
After giving an accountancy firm our basic details, we've just been given a rough quote of $2000 for filing our first US tax returns (we have a flat let out in the UK, savings in the UK, my husband will be working in the USA and I will not be). This seems awfully high to me. Would like to ask some other firms for quotes.
Any thoughts people?
#28
Just Joined
Joined: Apr 2012
Posts: 17
Re: UK/US Taxes
It's difficult to respond that the quote is high without all the underlying facts. If you are in LA, or NY, etc., prices are often higher. E We are paying UK and the county in UK, and in the US, which means Fed, State and local taxes for now. It will be a huge relief if and when a rental property there is sold, just the additional paperwork! Would you be able to send an e-mail off-forum for a referral? If BE.com doesn't allow that, then, let me know. Best--- E
#29
Lots of questions to ask!
Joined: Mar 2012
Location: UK > Los Angeles
Posts: 29
Re: UK/US Taxes
It's difficult to respond that the quote is high without all the underlying facts. If you are in LA, or NY, etc., prices are often higher. E We are paying UK and the county in UK, and in the US, which means Fed, State and local taxes for now. It will be a huge relief if and when a rental property there is sold, just the additional paperwork! Would you be able to send an e-mail off-forum for a referral? If BE.com doesn't allow that, then, let me know. Best--- E
#30
Re: UK/US Taxes
Elaine - which accounting service do you and your husband use?
After giving an accountancy firm our basic details, we've just been given a rough quote of $2000 for filing our first US tax returns (we have a flat let out in the UK, savings in the UK, my husband will be working in the USA and I will not be). This seems awfully high to me. Would like to ask some other firms for quotes.
Any thoughts people?
After giving an accountancy firm our basic details, we've just been given a rough quote of $2000 for filing our first US tax returns (we have a flat let out in the UK, savings in the UK, my husband will be working in the USA and I will not be). This seems awfully high to me. Would like to ask some other firms for quotes.
Any thoughts people?
check out Pete Newton
http://www.britishexpatstax.com/