UK Accounts and FBAR
UK Accounts and FBAR: There are many US persons who have an FBAR reporting requirement because of foreign accounts they own in the United Kingdom — and therefore have to file an annual FBAR. Due to the fact that the term FBAR starts out with the term “Foreign Bank,” there is a misconception that only foreign bank accounts have to be reported — but that is incorrect. There are a broad range of different types of offshore accounts that need to be reported each year for taxpayers who meet the threshold requirements for reporting. At the current time, the threshold requirements is if the total value of all the foreign accounts in annual aggregate total exceed more than $10,000 on any day of the year.
5 Common Reportable Financial Accounts
Here are five common types of reportable financial accounts from the UK
Bank Accounts & FBAR
As you would probably imagine, US Account Holders with foreign bank accounts in the UK have an FBAR reporting requirement for their bank accounts. The term “bank accounts” essentially includes all types of bank accounts at all different types of institutions.
Investment Accounts & FBAR
Investment accounts are also reportable on the annual FBAR. For example, if a person has a stock account or fund account at Barclays, Lloyds or any of the other thousands of institutions throughout the UK — the account must be reported. One important factor keep in mind is that it does not matter whether or not the account generates income or not.
Remember, the FBAR it’s not actually a tax form — it’s just enforced by the IRS.
*Investment accounts with a PFIC component will (usually) require additional reporting.
Employer Pension & FBAR
When a person has a pension from an employer that is located in the UK, the pension account is also reportable on the FBAR. It does not matter whether or not a person is receiving distributions or whether the pension is covered by the treaty. The pension is considered a financial account and reported on the annual FBAR.
Personal Pension/Life Insurance & FBAR
Many Taxpayers who are originally from the UK — or previously worked in the UK may have taken out a personal pension early in their career. The investment may be wrapped in an insurance policy or something similar and contain an account number, policy number or other identification number.
This is a type of an investment account that would need to be reported on the FBAR. For many of our clients, these investments may only contain a fund or two, and the taxpayer has not touched the investment for many years — but still, it must be included on the FBAR.
ISA and FBAR
ISAs are used for tax deferred purposes in the UK. There are many different types of ISAs, including Cash ISAs and Investment ISAs. The ISA is a reportable account that is included on the FBAR. As with the other type of accounts above, this type of account is included — even if there are no distributions and no tax consequences at the time of reporting (since ISAs grow tax free in the UK).
FBAR has Broad Reporting Requirements
In conclusion, when a US person has foreign accounts, they may have significant reporting requirements depending on the cross-section of their investment portfolio. The reporting is not limited to bank accounts; it includes several other types of accounts such as investment accounts, pension accounts, and foreign life insurance. If a person is out of compliance for prior years they should consider one of the FBAR amnesty programs before submitting the current year FBAR.
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