Tax Obligations - looking for advice/previous experience

Tax Obligations - looking for advice/previous experience

Author
Discussion

kilty2

Original Poster:

226 posts

170 months

Friday 12th September 2014
quotequote all
I have an endowment policy with Aviva (used to be Norwich Union) which I took out in 1992 as a means of paying off the mortgage on a flat I used to own in the UK 20 years ago.

I know that these went out of fashion (and never matured to expected values) but I have kept mine running and it is about to mature – the maturation value is actually pretty close to the value of the value of the purchase price of the flat.

I have read many threads on Ex-Pat forums about how to handle this with the IRS – but have not seen any definitive answers.

Any Ex-Pats out there who have experience of how to handle this?

Matt Harper

6,613 posts

200 months

Saturday 13th September 2014
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Have you notified the IRS of it's existence - FBAR?

kilty2

Original Poster:

226 posts

170 months

Saturday 13th September 2014
quotequote all
Not yet - not sure that it really qualified as an 'account' as such.

I have no problem paying my dues, the difficulty is that 1/3 of the payments were made while I was still a UK resident. Obviously in the UK, the mature value of the policy is tax free (life insurance tied to it etc). The IRS will obviously see things differently, I was looking for advice on how other ex-pats had handled a similar situation.

Matt Harper

6,613 posts

200 months

Saturday 13th September 2014
quotequote all
What is your status in the US?

Assuming that you are here either as a USC, LPR or on an employment based visa and are paying federal taxes - you are obliged to notify the IRS of any money you have - anywhere in the world, if the total exceeds $10k. The notification must be done by either your Fed tax return, or electronically, before June 30th each year by FBAR.
The penalties for not doing this can be ridiculously severe - including forfeiture of the entire amount unreported.

My suggestion is that the first thing you need to do is find a competent tax attorney with experience of FBAR late reporting (I can recommend one if you like).

I have my off-shore savings (derived from similar sources to your own) in an Offshore Limited Edition Deposit (OLED) run by a Jersey-based UK bank. When it matures I am going to transfer it to a personal IRA via my US bank.

If you intend at some point in the future to transfer your money into the US (and you haven't reported it), the US financial institution is obliged to if it exceeds $10k. Needless to say, you can leave it off-shore indefinitely - but you still have to report it and the more time that passes with the money unreported, the bigger the penalties you then face.


kilty2

Original Poster:

226 posts

170 months

Sunday 14th September 2014
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LPR, but probably going to become USC shortly. Who knows maybe I can bag a Scottish passport as well ;-)

I should be ok on the late FBAR - I have not received any tangible income from this endowment policy and the surrender value is "not guaranteed" so any income is not realised until I actually surrender the policy, or let it mature.

Until recently I have not been receiving statements (long story - but my UK finances have been managed by proxy) and I maintain a current account with RBS to service the 50 quid a month payments.

You now have me worried about a Group PPP than I have with Standard life (dormant of course). This is worth significantly more than my endowment - is this something that I have to declare as well? I don't even have access to this account until 2028 (big giveaway).


jeff m2

2,060 posts

150 months

Sunday 14th September 2014
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http://www.irs.gov/uac/Taxable-or-Non-Taxable-Inco...

A cursory glance it appears it would be taxable, but the cost of the policy can be deducted.
Sometimes it's better to "legalise" money, you never know when you might need it.

Watch out for the State tax, States are often not so generous with their allowable deductions.

Matt Harper

6,613 posts

200 months

Sunday 14th September 2014
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kilty2 said:
I should be ok on the late FBAR - I have not received any tangible income from this endowment policy and the surrender value is "not guaranteed" so any income is not realised until I actually surrender the policy, or let it mature.
I applaud your optimism, but it's not the income/interest/future surrender value the IRS are interested in. Blowing off FBAR will get you in a world of trouble if or when the IRS audit you. The truth is, they are more interested in the flagrant, wealthy tax evaders, but we all get tarred with the same brush. You should submit amended US tax returns for every year that you have been resident in the US and that asset has been in your possession/control. Then you need a tax attorney who absolutely knows what they are doing to submit the paperwork explaining why FBAR has been absent from your previous filings. The IRS had an FBAR amnesty that expired in 2011 - they are now pretty aggressive with non-disclosure of off-shore assets.

kilty2 said:
You now have me worried about a Group PPP than I have with Standard life (dormant of course). This is worth significantly more than my endowment - is this something that I have to declare as well? I don't even have access to this account until 2028 (big giveaway).
You still need to report that too.

What also sucks balls is that they tax you on the sterling/USD exchange rate too. i.e. if you exchange GBP50k and turn it into US$80K, they assume a $30K capital gain which they want their slice of.

This can be tricky stuff, so get some advice - but don't just do nothing, unless you enjoy living dangerously.

As a postscript, have a read on www.britishexpats.com in the US section. There is a poster on there called "Nun", who is VERY expert on these matters. Hope this helps.

unrepentant

21,212 posts

255 months

Monday 22nd September 2014
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Matt Harper said:
kilty2 said:
I should be ok on the late FBAR - I have not received any tangible income from this endowment policy and the surrender value is "not guaranteed" so any income is not realised until I actually surrender the policy, or let it mature.
I applaud your optimism, but it's not the income/interest/future surrender value the IRS are interested in. Blowing off FBAR will get you in a world of trouble if or when the IRS audit you. The truth is, they are more interested in the flagrant, wealthy tax evaders, but we all get tarred with the same brush. You should submit amended US tax returns for every year that you have been resident in the US and that asset has been in your possession/control. Then you need a tax attorney who absolutely knows what they are doing to submit the paperwork explaining why FBAR has been absent from your previous filings. The IRS had an FBAR amnesty that expired in 2011 - they are now pretty aggressive with non-disclosure of off-shore assets.

kilty2 said:
You now have me worried about a Group PPP than I have with Standard life (dormant of course). This is worth significantly more than my endowment - is this something that I have to declare as well? I don't even have access to this account until 2028 (big giveaway).
You still need to report that too.

What also sucks balls is that they tax you on the sterling/USD exchange rate too. i.e. if you exchange GBP50k and turn it into US$80K, they assume a $30K capital gain which they want their slice of.

This can be tricky stuff, so get some advice - but don't just do nothing, unless you enjoy living dangerously.

As a postscript, have a read on www.britishexpats.com in the US section. There is a poster on there called "Nun", who is VERY expert on these matters. Hope this helps.
We're supposed to declare personal pension plan's as well? I never have, I have quite a bit of cash in the UK and I always make a full declaration of that but I have never decared an interest in any pension plans. I assumed I would just declare the income from them when they eventually start paying out, as I will with the state pension. I had an accountant do my return the first year as it was complicated and he never mentioned anything about declaring pension plans.

Viper_Larry

4,319 posts

255 months

Monday 22nd September 2014
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This has put the wind up me a bit. When I did my taxes erlier in the year, she mentioned I needed to declare UK interests by 30th June, but I completely forgot about it, until now. I have a house in the UK (rented out), I have Premium Bonds (more than £10k) and a car (£30k) I am currently trying to sell, along with Pension plans. Should I be completing this FBAR thing ASAP?

ETA: I'm in the US on a L1b Visa for 5 years

Edited by Viper_Larry on Monday 22 September 21:40


Edited by Viper_Larry on Monday 22 September 21:45

Matt Harper

6,613 posts

200 months

Tuesday 23rd September 2014
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Viper_Larry said:
This has put the wind up me a bit. When I did my taxes erlier in the year, she mentioned I needed to declare UK interests by 30th June, but I completely forgot about it, until now. I have a house in the UK (rented out), I have Premium Bonds (more than £10k) and a car (£30k) I am currently trying to sell, along with Pension plans. Should I be completing this FBAR thing ASAP?

ETA: I'm in the US on a L1b Visa for 5 years

Edited by Viper_Larry on Monday 22 September 21:40


Edited by Viper_Larry on Monday 22 September 21:45
The car doesn't count - the income from rental, the premium bonds and the pensions do. You have missed the FBAR filing date, so just sending the forms in 3 months after the fact will likely attract penalties. Consult with your accountant - if they are unfamiliar with FBAR filing, find a tax attorney who is. I can recommend one, but she's based in FL.

Matt Harper

6,613 posts

200 months

Tuesday 23rd September 2014
quotequote all
Delinquent FBAR Submission
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

Viper_Larry

4,319 posts

255 months

Tuesday 23rd September 2014
quotequote all
Thanks for the advise Matt - I've contacted a UK/US specialist I got as a recommendation from the ex-pat forum you mentioned above. Hopefully they can sort this for me with not too much of a penalty!