FATCA, NISA....losing touch with reality

As I sit here drooling + slowly trying to understand our situation.....my wife (UK) is sarcastically asking "Aren't you glad you married me"? This mornings insanity check is FATCA and NISA....I'm sure it will be something else this afternoon.

FATCA- Kind of like FBAR ($10K).....but with a $50,000 reporting amount on overseas accounts?

NISA- the new ISA.....but with a 15K Pounds yearly limit.....and it can be all cash instead of a max of 50% with the old ISA.

**Can I avoid FATCA if I am tax filing married separate.....and the UK account is only in my wife's name? Seems like this is what the rule is trying to prevent though......

I can see just leaving the high majority of our funds in the US and just pulling a little at a time over to top up our accounts in the UK, seems like it might be easier....and just hope the exchange rate doesn't go kaboom. Right now we are trying to move enough over to the UK by summer to cover us for renting and eventually buying. 250K+Pounds. I would assume FATCA would come into this....yes?

I just spent 2 hours typing out a complete answer to your query. It was finished.

I'm typing on an IPad. Because my little finger brushed over a damned advert, and the screen is sooooo sensitive, I lost the entire thing. I don't think I can do it again. Your query isn't being ignored.

Sorry

 And sorry for the rant, Leah, I know adverts pay for the site!

theOAP- Thanks. So far I haven't gone to the smaller IPad style devices yet. Likely sticking with the laptops. Just easier to work with.

Because I am extremely jealous of you folks who have good memories and are able to keep all this stuff organized in your heads (you and a number of other regular "brains"), I have started a file that I am slowly just trying to fill up with things I really need to know. I have the same issue with getting ready for the VISA hopefully this spring (another file). I borrowed a typing book from the typing teacher where I worked way back in the 80's and learned to type in 3 days....yet this stuff is proving a challenge. The Tower Tax lady probably went over my head with the options of flicking between Arising+Remittance etc. I need to keep it reasonably simple.....both for my benefit and possibly/eventually for my wife. Although just forcing myself into this stuff finally it is starting to click into a little more sense.

So far my check list has....
1. Arising or Remittance
2. Move what's left of the Vanguard mutual funds to ETF?
3. Possible advantages to putting ETF's into my wife's name? Moving it to UK
   Vanguard or just leave it in Dollars?
4. ISA/NISA- up to 15KPounds. Any advantage to putting that just into wife's name?
5. Govt TSP- Untouched by UK? Also likely to take out more than we need once I
   hit 59.5 and keep our accounts full in the UK....still thinking about that one. A lot
   of this will depend on #6.
6. File taxes separate or joint?
7. SSecurity- still working on this one. I don't think I will be able to avoid at least a
   bit of it being taxed once I start digging into my TSP in 2 more years (59.5).
   My wife should also get a spousal SS. Just trying to find a way to keep it minimal.
   Most years we will only spend 20-25KPounds.....we live fairly cheaply. 
8. With early retirement I already get my Govt pension and a temporary annuity(until
    I hit 62). How much of this gets zapped by UK taxes? A retired accountant friend
   says that any UK tax should get a write-off on the US taxes on a 1 to 1 rate.
9. How best to juggle US + UK taxes. Jeez.....that's a book all by itself.
10. FBAR- think I have that one ok
11. FATCA- I "think" I will have to do it if I have foreign accounts totaling $50k or
   more, I most likely will.
12. Foreign household allowance on US taxes. Only if working? 
13. All the things I don't even know yet.......

You really need to know if its "Arising or Remittance" to proceed with your planning. But you have indicated a desire to settle permanently with your UK citizen wife in the UK and set up home.......that sounds like a good argument for being taxed on an arising basis.

If you file your US taxes "married separately", you might well be able to avoid FBAR and FATCA as long as your UK assets are in your wife's name and she is an NRA for US tax purposes. This has UK investing advantages too as she will get the NISA and it will be tax free if it's just in her name.

Your US Government pensions will only be taxed in the US as long as you don't become a UK citizen. US SS will only be taxed in the UK. Any private things you have like IRAs will have taxes withheld at source in the US, you then pay tax on 90% of the amount in the UK and then you have to apply that UK tax and your 20% withholding on your US taxes and should get a massive refund.

Great!....this fills in a few more blanks. Although I have some points in red at the bottom if you can clarify.

You really need to know if its "Arising or Remittance" to proceed with your planning. But you have indicated a desire to settle permanently with your UK citizen wife in the UK and set up home.......that sounds like a good argument for being taxed on an arising basis. Seems less confusing than trying to figure out which is the best on a year by year basis.

If you file your US taxes "married separately", you might well be able to avoid FBAR and FATCA as long as your UK assets are in your wife's name and she is an NRA for US tax purposes. This has UK investing advantages too as she will get the NISA and it will be tax free if it's just in her name. If this is so....makes it much easier for me to plan things. I need to keep a bank account in both our names, plus the usual bills etc to make the VISA people happy. But I can keep a smallish amount there and keep the large amounts in her name. She won't have any kind of a pension coming in for a long time so the interest is no problem with her staying in the "no tax" zone. This is a BIG clarification that makes planning easier. 

Your US Government pensions will only be taxed in the US as long as you don't become a UK citizen.No problem.  US SS will only be taxed in the UK. Any private things you have like IRAs will have taxes withheld at source in the US, you then pay tax on 90% of the amount in the UK and then you have to apply that UK tax and your 20% withholding on your US taxes and should get a massive refund. I know the TSP will automatically be hit on withdrawal of 20% which I think they take out when I request that money.....should get 5% of that back on the taxes since I will be in the 15% bracket. Can you explain the paying tax on 90% of the amount?

1. SS only taxed in the UK? How's that?
2. I know the TSP will automatically be hit on withdrawal of 20% which I think they take out when I request that money.....should get 5% of that back on the taxes since I will be in the 15% bracket.
3. Can you explain the paying tax on 90% in the UK of the TSP amount? If I take out $10K....IRS gets 20% before I see anything, I should get $500(5%) back at tax time. UK would tax 90% of the $10k? $8K? What % of UK tax would I have to pay...0% or 20%? Would I get the UK Personal Tax Allowance(10KPounds)...in which  case I wouldn't have to pay any on that money unless it was well over $15,000 (10KPounds). 

I'm thinking it makes sense to try to keep financial stuff from each country separate and file "married filing separately" but what happens legally in the event of one partner's demise/incapacitation?  E.g. all UK income from pensions, etc. goes into UK current account and the account holder (UKC) is ill for extended period and unable to cope with financial stuff.  Or home is in UKC spouse's name only and upon his/her death, would there not be problems for surviving spouse?

Great!....this fills in a few more blanks. Although I have some points in red at the bottom if you can clarify.

1. SS only taxed in the UK? How's that?
2. I know the TSP will automatically be hit on withdrawal of 20% which I think they take out when I request that money.....should get 5% of that back on the taxes since I will be in the 15% bracket.
3. Can you explain the paying tax on 90% in the UK of the TSP amount? If I take out $10K....IRS gets 20% before I see anything, I should get $500(5%) back at tax time. UK would tax 90% of the $10k? $8K? What % of UK tax would I have to pay...0% or 20%? Would I get the UK Personal Tax Allowance(10KPounds)...in which  case I wouldn't have to pay any on that money unless it was well over $15,000 (10KPounds). 

1 - Taxation of US social security paid to a UK resident is covered in Article 17 of the US-UK Tax Treaty. Further, you can have the benefits paid into a UK account. Yes, the exchange rate will affect the net amount you receive each month, but no bank fees/transfer fees or paperwork to worry about. Plus you know the exact amount to report on your UK tax return (90% of what you receive).
2 - not commenting on the TSP, as it's not something with which I have experience.
3 - Yes, you do get the full UK Personal Tax Allowance once resident. If your income is less than the allowance, you pay no tax. Filing a return is required however if you have foreign income, including social security, interest, pensions, whatever.

If you break all this stuff down into smaller bits, and get an understanding of each component of your 'financial life', it's not as onerous as it might initially seem. You do have to have a tolerance for paperwork though.

I do all of our 'tax stuff' and tell DH to "sign here". He has always refused to even try to understand any of it, here and when we lived in the US. No matter what I say, he just won't. His decision, but I don't have a clue what he will do if something happens to me. I've set up files to make it as easy as possible for someone to sift through...but... ?

"It's a new dawn
It's a new day
It's a new life
For me
And I'm feeeeeeeeeeeling good"

This fat fingered old git is now back on the laptop. Engage brain (what's left), and try again.

I'm thinking it makes sense to try to keep financial stuff from each country separate and file "married filing separately" but what happens legally in the event of one partner's demise/incapacitation?  E.g. all UK income from pensions, etc. goes into UK current account and the account holder (UKC) is ill for extended period and unable to cope with financial stuff.  Or home is in UKC spouse's name only and upon his/her death, would there not be problems for surviving spouse?

THIS.

Stroke, dementia, Alzheimer's,....  Inheritance tax issues when married to an NRA. (All of the sudden, I'm not feeeeeeeling so good.)

In this house, we operate on a policy of 'Don't ask, don't tell'. I have no idea what my wife's financial affairs are (because she won't tell me!). She has no idea of mine. If something were to happen to her, I can ferret through the paperwork (she has told me where to look) and sort things out.

If something were to happen to me, she knows where to look. She's a sharp cookie. She can sort out everything for the UK side. As for the US side........not a chance. Never. Type of home ownership (joint tenants, tenants in common)? A lot of unanswered questions. We're going to have to get serious about this,......one day.

We do have Wills.

We keep one joint account. It's actually an instant access savings account. I put all the money into it. There's a fair amount, enough for her to survive on for at least a year or two, after costs to get rid of my remains. If something happens to her, I'm OK on my own funds alone. As for IRS/FBAR reporting, well that's the cost of having the audacity of wanting to live somewhere other than the US. Suck it up.

I have no idea what happens to the IRS reporting if I'm incapacitated or dead. My wife has never understood why I continue to file US tax returns. "You're British, it's British funds, the funds were earned in Britain, you pay British tax on them, tell the US to eff off."

Is "go pound sand" a reasonable cause argument for not filing with the IRS?

I suspect not.

 

There's one other topic that is important to any discussion relating to the OP's situation, and that is financial planning.

I would add to the following statement I made earlier:

We keep one joint account. It's actually an instant access savings account.... As for IRS/FBAR reporting, well that's the cost of having the audacity of wanting to live somewhere other than the US. Suck it up.

We keep one joint account. It's actually an instant access savings account. It's a larger account and earns little interest, but is required for our situation. As for the loss of normal and obvious financial planning, both in the US and the UK, well that's the cost of having the audacity of wanting to live somewhere other than the US. Suck it up.

On US Social Security being taxed only in the UK:
From the US/UK tax treaty, the technical explanation:
"Accordingly, a U.S. citizen who is a resident of the United Kingdom will not be subject to U.S. tax on any U.S. social security benefits,...."
Page 65.
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf

On US Social Security being taxed at only 90% of the gross amount remitted to the UK if taxed in the UK on the arising basis (US SS is a foreign pension):
"Taxable pension income
Section 575 (as amended by IT(TOI)A 2005) provides that the taxable amount of a foreign pension is 90% of the actual amount arising in the tax year unless the income is charged in accordance with Section 832 of IT(TOI)A (relevant foreign income charged on the remittance basis)."
http://www.hmrc.gov.uk/manuals/eimanual/EIM74500.htm

All the above is in my opinion only. I may be wrong.

A simplified explanation of paying tax in the UK on the arising basis is straight forward. In effect, you agree to declare all 'taxable' (does not include ISA's, for example) income you have received during the UK tax year, sourced from anywhere in the world.

If you elect the arising basis, you will be allowed the 'personal allowance' (roughly £10,000/year, see details) and an allowance on capital gains (see details).

If you are over age 62, you will be entitled to the 'winter fuel payment' of £100 to £300/year/household. (It depends on circumstances. It's normally £200/year) It is tax free in the UK, but not in the US.
https://www.gov.uk/winter-fuel-payment/overview

In December, if you receive the UK State pension, you will receive a 'bonus payment' of £10. It is tax free in the UK, but not in the US.

An explanation of the 'remittance basis' is here:
http://www.hmrc.gov.uk/international/remittance.htm

If you elect the remittance basis, you are not entitled to the personal allowance, nor the allowance on capital gains (see details).


All the above is in my opinion only. I may be wrong.

FATCA (FORM 8938)

***FBAR relates to foreign accounts, 8938 relates to foreign assets.

Form 8938 relates to "specified foreign financial assets". An obligation to file Form 8938 will depend on 4 factors, relating to the aggregate value of all the foreign assets of the taxpayer(s):

1) The filing status of the taxpayer(s). (Married filing jointly, married filing separately, etc.)
2) The aggregate value of foreign assets on the last day of the tax year.
3) The highest aggregate value of assets during the tax year.
4) The tax residence of the taxpayer (in the US, or abroad).

A US taxpayer, resident in the US, filing a US return as 'married-separately', with the highest aggregate foreign asset value for the tax year occurring on the last day of the tax year, will have a filing threshold of $50,000.

US taxpayers, resident in the US, filing a US return as 'married-joint', with the highest aggregate foreign asset value for the tax year occurring on the last day of the tax year, will have a filing threshold of $100,000.

A US taxpayer, resident in the UK, filing a US return as 'married-separately', with the highest aggregate foreign asset value for the tax year occurring on the last day of the tax year, will have a filing threshold of $200,000.

US taxpayers, resident in the UK, filing a US return as 'married-joint', with the highest aggregate foreign asset value for the tax year occurring on the last day of the tax year, will have a filing threshold of $400,000.

Filing thresholds can trigger from $50,000 to $600,000. (The latter being the highest value attained during the year for taxpayers filing married-joint, resident in the UK, but who have below the $400,000 threshold of aggregate assets for the last day of the year. See details.)
http://www.irs.gov/pub/irs-pdf/i8938.pdf

Regarding joint accounts owned with an NRA (non-US filing), if filing married-separately from the UK, the joint US filing owner includes the entire value of the jointly owned asset to determine the total value of all of that joint owner's specified foreign financial assets.

All the above is in my opinion only. I may be wrong

There is some good stuff here from you folks....

1. My pension is technically $1279 a month. But if I wanted to keep my Govt health insurance (I most certainly did....at just over $300mth for both of us) it gets paid directly before any money comes to me. I get $962mth in the bank at the moment. There might be a point in the future where I wish to drop it and just go with National Health....they always did pretty well for me while I was living there. Does the UK want to know the $1279 number.....or the $962 number?

2. If the SS is only taxed in the UK, does that mean it won't be counted as income in the US? I believe you are normally supposed to count 50% of the SS towards your income on US taxes.

3. My TSP money is supposedly ignored by the UK....fine, I'll just pay the taxes in the US as I suck the money out each year. So I don't have to declare any of that income on the UK taxes? Once I sell off some more Vanguard after the first of the year we will only have about $150K left.....and $63K or so of that is ROTH...so also ignored. Capital gains on what is left shouldn't be enough to worry about.

Once we sell the house this spring (hopefully) and move back our account in the UK should be pushing 300kPounds. After the first year or so that should be pretty well destroyed if we buy a house (180-230K range) and a little Hyundai i10, and furniture etc. But some of that I need to leave alone so I can keep meeting the VISA cash requirements 2 more times. Still thinking about having one joint account and then one to stash most of it in my wife's name.....we'll see. We will need a new Will when we move back. If my wife chokes to death on Minstrals when she gets back, that hopefully solves the issue of where the money is.

vadio- my wife is the same way. Her ex had gotten them into money problems way back and she was a money scrooge after that....kept track of everything because she didn't trust him. She sits politely while I try to explain what I'm trying to do.....but her eyes glaze over and she starts drooling. The good thing....I guess she trusts me. The bad thing.....I can screw up with the best of them

Starting to think theOAP might have the right idea on just sucking it up. Analysis paralysis on trying to figure out the right thing might end up killing me.

1. Will the health insurance cover you in the UK? (You seem to indicate it has in the past.) If so, you treat it as additional insurance, just like buying a BUPA policy in the UK for additional coverage. You will be covered by the NHS (subject to terms of your UK visa). If it is a US Government pension, and you are not a UK citizen, will it be taxed in the UK? You need to research this further. If it is taxed in the UK, my guess, and this is only my opinion and I may be wrong, is the $1279 figure.

2. US SS PAYMENTS MADE TO YOU IN THE UK ARE NOT TAXED IN THE US. PERIOD. FULL STOP. NO QUESTION. THEY GET ZILCH, NADA, ZERO, NOTHING, ZIP, EFF ALL. THE UK GETS TAX ON 90% OF WHAT IS SENT TO YOU. PERIOD. FULL STOP!

On form 1040, line 20a, you put the amount paid by SSA for the tax year. On line 20b, you put $0.

2. US SS PAYMENTS MADE TO YOU IN THE UK ARE NOT TAXED IN THE US. PERIOD. FULL STOP. NO QUESTION. THEY GET ZILCH, NADA, ZERO, NOTHING, ZIP, EFF ALL. THE UK GETS TAX ON 90% OF WHAT IS SENT TO YOU. PERIOD. FULL STOP!

But only if you elect into the Treaty on each return; as the treaty is elective. You do not have to elect to claim its benefits; you may decide to pay more tax - for example realistically simply to reduce the risk of possible IRS audit.