# Stocks & Shares ISA and Aviva pension scheme - PFICs?



## Jayem4416 (5 mo ago)

Hi there, I'm an accidental dual UK-US citizen doing the streamlined foreign offshore procedure, lived in UK since I was a baby and only recently learned about tax reporting obligations due to FATCA letter from my bank (have never worked in US and have no accounts/abode there). Among my UK savings accounts is a Stocks & Shares ISA which I'm quite concerned about as I'm hearing a lot about PFICs? Can someone please explain how I would find out whether this ISA is a/contains PFICs and what I should do about it? I also have an Aviva pension pot through my job that both me and my employer pay into - I believe I have to report this on the FBAR even though I won't recieve any payments from it for about 20 years - is there any chance this is also a PFIC? I have seen some terrifying and confusing posts about ISAs and PFICs and would be grateful for any clear and calm explanation/advice. Thanks very much!


----------



## Harry Moles (11 mo ago)

Why are you filing anything at all? If you're an Accidental American you are far better off staying out of the US tax system. Receiving the dreaded FATCA letter is no reason to rush into the streamlined program.


----------



## Moulard (Feb 3, 2017)

Indeed, and even if you provided your UK financial institution with your Social Security Number and indicated that you are a US person, and they passed that onto HMRC and HMRC passed it onto the IRS under the terms of the IGA there is absolutely no evidence that the IRS can process the information that is recieved.

Indeed there is evidence that they are absolutely drowning in data that they cannot process, is internally inconsistent and would have very little way to be crosschecked and verified.

Remember you can do all of that without entering the US tax system and still keep your UK financial institution happy.

There may be a perfectly valid reason to enter the streamlined procedure, but, on its own, simply getting a letter from a UK financial institution is probably not one of them.


----------



## Harry Moles (11 mo ago)

As far as I'm aware, ISAs are excluded from FATCA reporting - much like RRSPs and TFSAs in Canada, and equivalent tax-protected investment schemes in other countries. So the IRS won't know a thing about them unless the poor US citizen abroad panics and reports them.

And even if they were reported under FATCA, and the IRS had the capacity to process that data - which it does not - and somehow decided that a UK resident owed it money, the IRS has no ability to coercively collect those funds.


----------



## Jayem4416 (5 mo ago)

Thanks both for your responses, much appreciated! Assuming I do file (to assuage my stress over this whole situation), and only report basic dividend interest from the shares ISA on the 1040 (excluded anyway from tax as my gross adjusted income after FEIE is below the standard deduction), plus report the account on the FBAR, how likely is it that the IRS/Treasury (?) will ask me for further filing based on the ISA potentially being related to PFICs (I'm still very hazy on whether it is or not)? Or will they just accept what I send them and look no further, since I owe no tax, have relatively low assets and if, as you suggest, the ISA itself is not being report to them by the bank under FATCA? Thank you, I hope those Qs make sense


----------



## Jayem4416 (5 mo ago)

(To add - I've read a lot of conflicting info on how UK ISAs may or may not be treated by the IRS and am concerned that even just having "ISA" on the name of an account listed on the 1040 schedule (for interest/dividend reasons) or on the FBAR might trigger penalties for not filing PFIC forms, even if they're not needed)


----------



## Harry Moles (11 mo ago)

Given that they aren't reported under FATCA, the only way the IRS will know something is an ISA or a PFIC is if you tell them yourself. But honestly, unless you're planning an imminent move to the US, you should not consider filing anything. US tax compliance will not reduce your stress levels. There's no real benefit to doing so except possibly one day receiving the $3200 pandemic stimulus benefit cheque.


----------



## Jayem4416 (5 mo ago)

Thanks Harry, just a few more questions, sorry:

Assuming my bank will start reporting details of non-ISA accounts under FATCA (I don't want to lie on that form & pretty sure they already have some info anyway that I'm a dual citizen), presumably I will need to start filing FBARs as I'm over the 10k threshold?
Can I file FBARs but not tax returns and still be able to use the streamlined offshore procedure if the IRS ever contacts me to ask about tax returns? Basically, if the IRS contacts an 'expat' due to bank FATCA reporting, is that person still eligible for the streamlined procedure, or does any IRS contact exclude you from being able to say you're non-willful?
Is it ok to just suddenly start filing FBARs going forward without going through a streamlined procedure or is this a red flag?
Thanks!


----------



## Bevdeforges (Nov 16, 2007)

If the IRS contacts you for anything other than a routine request for additional information it's probably already too late to go Streamline. But the chances of them actually looking at the information you file is still somewhere between slim and none unless you're into seriously high income brackets.


----------



## Jayem4416 (5 mo ago)

Thank you Bevdeforges, so you would say it's best to do the streamlined procedure in full now and not worry about the IRS digging into ISAs?


----------



## Bevdeforges (Nov 16, 2007)

Jayem4416 said:


> Thank you Bevdeforges, so you would say it's best to do the streamlined procedure in full now and not worry about the IRS digging into ISAs?


If you're asking what I would do in your situation - I'd skip the whole process and maybe start filing going forward if I had some thoughts of perhaps taking advantage of the US nationaity down the line (i.e. for a job, schooling, or just the possibility of living in the US at some point). Otherwise, I'd skip the whole thing and simply stay off the IRS radar. But that's me - and you have to make the decision based on your circumstances and plans.


----------



## Harry Moles (11 mo ago)

What Bev said. Don't file a thing unless you have plans to move to the US or otherwise "take advantage" of your US citizenship.

Once you've started filing FBARs you can't use the streamlined program. Once the IRS finds you - don't worry, it won't - you can't use the streamlined program. Be aware that if you are a UK citizen and you have no assets in the US, there is absolutely nothing the IRS can do to harm you. So what's the Incentive to file anything then? 

If your bank reports some non-ISA accounts, big deal. The IRS does not look at the data or try to find missing FBARs. The best approach to FATCA is to conceal US citizenship - yes, by telling a lie to your bank. Fortunately UK passports only shown town/city of birth, not country. If your birthplace sounds even halfway British, you may be able to get away with not disclosing US citizenship. (I'm not sure how strict banks are in the UK, but if they allow you to open accounts with other ID that does not show place of birth, even better.)


----------



## Harry Moles (11 mo ago)

Jayem4416 said:


> so you would say it's best to do the streamlined procedure in full now and not worry about the IRS digging into ISAs?


I'm not sure I understand what you mean here. If you do streamlined "in full" then presumably you've properly declared your ISAs with potential PFIC and all that. 

Personally I think it's better to declare nothing than to make a "partial" declaration that conceals information.

If you do nothing then you always have the excuse that you were completely unaware of US tax obligations. (This whole argument being hypothetical, of course, because the IRS won't find you, doesn't care about you, and cannot harm you.) If you file but selectively ignore some of your assets because of potential cost and complexity of declaring them, that's a bit harder to explain.


----------



## JustLurking (Mar 25, 2015)

Just to clarify a couple of things around PFICs for the OP ...

A PFIC is any non-US domiciled fund or fund-like thing. UK OEICs and unit trusts, UCITS ETFs (typically domiciled in Ireland), UK investment trusts, and even a few things that look like UK individual shares are all PFICs. The US hates foreign (to it) funds, and taxes them punitively compared to other investments. Over time, the PFIC tax can consume 100% of your gains.

A UK ISA is not _itself_ a PFIC. However, since the US views ISAs as simply an ordinary unwrapped and taxable account, US tax pain ensues if that ISA contains any PFIC funds. A cash ISA and a stocks-and-shares ISA containing only single company stocks would avoid PFIC tax pain. Still US taxable, but no special PFIC punishment. A stocks-and-shares ISA containing any funds or ETFs would however almost certainly be a PFIC tax trap. UK investors cannot easily use US domiciled funds or ETFs, meaning that any funds or ETFs in an ISA will spell US tax trouble.

A UK pension is also not _itself_ a PFIC. And because of the US/UK tax treaty and IRS regs, any funds that a UK pension holds that would be PFICs if held outside the pension are fine inside it. So a UK pension is the one place where US citizens living in the UK have reasonable investing freedom.

Strictly, both may be subject to FBAR and (if applicable) FATCA reporting. In practice, the IRS will generally not get any information from the ISA or pension providers, so no "third party" reporting. All down to what you tell them yourself, then.

Finally, many UK ISA providers, and some pension providers, point-blank refuse accounts to any US citizens (a prime example being Vanguard UK). So if your ISA provider doesn't (yet) know of your US citizenship, scour their T&Cs carefully for any US citizenship refusals before telling them. Either that, or conceal your US citizenship as best you can.


----------



## Jayem4416 (5 mo ago)

Thanks all, I really appreciate your advice on all this!


----------



## Jayem4416 (5 mo ago)

Bev and Harry, you say that any contact with the IRS makes someone ineligible for the streamlined procedure - if someone's bank reports accounts under their FACTA obligations, and the IRS decides to look into it because they don't have corresponding FBARs for that person, firstly: would the IRS send the person a letter informing them of reporting obligations/possible penalties, in which case I assume streamlined procedure could still be used, or would the IRS just immediately commence an audit? Thanks, I know I'm splitting hairs a bit, just trying to gauge risks. This whole thing makes me very nervous, even though I owe no tax and am definitely not a big fish in terms of savings.


----------



## Bevdeforges (Nov 16, 2007)

Jayem4416 said:


> and the IRS decides to look into it because they don't have corresponding FBARs for that person, f


Have never heard of this happening except in the case of someone whose tax returns (in the upper income ranges) were being audited. That seems to be the only time the IRS bothers to compare tax returns to FBAR filings. I have yet to hear of anyone having their FBAR filings compared to what the foreign banks submit to the IRS - in part because (so far) the banks only report year end balances of the accounts that match FATCA reporting criteria (which is not at all the same as the FBAR reporting criteria for individuals).

In any event, it is definitely NOT a routine "check" between tax returns filed and FBAR reports on file. The IRS computer system is WAY too old and creaky for them to even attempt that sort of thing.


----------



## Harry Moles (11 mo ago)

The IRS has admitted that it lacks the capacity to even look at FATCA data. There is no effort to check for missing FBARs. I won't presume to know what will happen in 10 or 20 years, but I don't see that changing anytime soon.

The IRS cannot audit someone who has not filed a return - there is nothing to audit. If the only thing putting you on the radar is FATCA, the odds of your being contacted are currently zero. And even if that unlikely event happened, so what? The IRS knows only the year-end balance and earnings of some reportable non-ISA accounts, and nothing else. Nothing at all about your earned income. Furthermore, they cannot collect penalties from you in the UK.

Ultimately it's your personal decision. If you are likely to stay awake nights worrying about this, then either renounce your US citizenship (fee is $2350, you don't need to do any tax filing but if you can still score the $3200 stimulus benefit then why not, it covers the cost) or spend the rest of your days doing US tax returns. Be aware that you don't just face the time/money cost of filing each year, but you won't benefit the from ISAs because the US considers them taxable, and of course there's the possibility of complex PFIC reporting for certain types of investments.

If you wish to not file, it's worth making an effort to conceal your US citizenship from financial institutions, both to avoid FATCA and to enjoy the full range of investment services. Your US birthplace may make this difficult, but it's still easier to do this in the UK than in Europe, due to looser ID requirements.


----------



## Jayem4416 (5 mo ago)

Thanks everyone for your advice!


----------

