# US Expat in UK - Detailed Tax query - FBAR, Streamline, etc.



## the3rdman

Hello all, 

I've been lurking around the tax forums for awhile, and now it seems I could use some assistance and was hoping you all might be able to help. I'll try to keep this as succinct as possible.

I moved to the UK in 2012 to take on a Master's course. At the time, I needed to pay for my tuition fees, as well as an advanced 6 months rental payment. As a result, I transferred quite a bit of money over from my US account in order to cover these costs. I did this twice. Once in September 2012, which was the equivalent of just over 10K, and once in September 2013, which was just over 12K. Both times, the transferred money did not stay long in my UK account, and the funds were used to pay off tuition and rent within the same banking month. This is *Issue #1*, which I'll come back to.

*Issue #2*

Whilst I was in school from the end of 2012 until January 2014, I worked in the UK, but didn't make enough to file a 2013 Tax return. However, I did file a 2012 Tax return, as I worked the majority of the year in US and was owed a refund. In March 2014, I got a job in the UK, and have been in the job ever since. I haven't been great when it comes to filing, but since I don't owe tax, I didn't think it would be an issue to file late. However, I did file my 2014 tax return to get into some sort of compliance, but have yet to file 2015 and 2016.

Although I filed 2014, for whatever reason, I don't think I filed a schedule B to indicate that I had a foreign bank account. I used an online software, but I can't seem to pull out if, in fact, I did file that Schedule B. I also notice that my income total on my 1040 showed as a negative. Though I haven't filed my 2015 return yet, I have rectified the issue that gives me a negative income instead of a "0" on my 1040 with credits factored in. 

Throughout all of this scrambling to get up to date on my recent tax returns, I've just learned what an FBAR is, and what the threshold for filing entails. This is *Issue #3*.Aside from the two times in 2012 and 2013, I have not gone over the $10K threshold again, as it's taken me quite awhile to save up money since being here. Last year, I came close, but the dip in exchange rate kept me below $10K. Recently, this year, I did surpass the threshold and had been planning on filing my first FBAR in the next tax deadline. However, throughout this whole process of FBAR filing, I was looking at old statements and found *Issue #1*, and began worrying about what to do next.

That being said, I'm looking for advice because this has become a huge worry for me. I want to comply, and I honestly did not know about the FBAR requirements, but can understand why they are in place. I just want to get back up to speed and compliance now that my situation in the UK is a bit more stable than it has been over the past few years. 

So, here are my questions:

1. What are my options? Should I get my 2015 and 2016 returns up to date with the Schedule B filled out properly? Answering Yes, I do have a Foreign Account, but No, I did not surpass the threshold? And then for my 2017 return, file my first FBAR as planned?

2. Should I file my 2013 tax return, solely for the purpose of filing a 2013 FBAR for that one instance that I went over the threshold?

3. Should I amend my 2012 tax return to include the late FBAR for the period in September 2012 that I surpassed the threshold?

4. Should I amend my 2014 tax return to reflect proper income as "0" in lieu of a negative amount? 

5. Should I look into the Streamlined Process which would include an amended 2014, and new 2015 and 2016 tax returns, as well as two FBARS for 2012 and 2013? Could I also include my unfixed 2013 tax return even though I had little to no income? Or, should I wait until next year when I was planning to file my first FBAR.

I apologize for the long winded message, but I wanted to be as thorough and detailed as possible. This whole situation is starting to stress me out, and I would just rectify it as best as possible. As much as it was hard work to start a life anew in the UK, it frustrates me that there were many tax issues to contend with in the US. Honestly, had I not randomly come across the FBAR requirement, I would have probably continued unaware for a good, long while. Just seems crazy that the penalties for not filing would essentially wipe me out financially. 

Thanks for taking the time to read this. Be well, everyone.


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## Nononymous

Relax. Honestly, this is so not a problem. 

I wouldn't worry about any of the old returns or FBARs. The IRS will be none the wiser. Obviously they haven't noticed yet.

I assume that your 2015 and 2016 earnings were well under the FEIE ($100k) so you would owe nothing. In that case you could submit returns for those years (with Schedule B) or just not bother. There's no penalty for late filing if you don't owe any money. If it makes you sleep better, send them in. If not, forget about it. No real need to deal with the whole streamlined program.

Otherwise just file a return and FBAR (when necessary) going forward. 

If you are planning on staying permanently in the UK, tax compliance will become more difficult and expensive as your affairs grow more complicated. Certain forms of tax-protected retirement savings may not be recognized by the US, plus of course the old Boris Johnson problem, US tax on capital gains from the sale of a primary residence. You may also encounter difficulties with banking and investment services. In the long run, you might find it best to acquire UK citizenship and renounce US citizenship. Staying off the radar without the protections of UK citizenship could be risky, if your net worth increases in years to come.

(on edit) PS The IRS is almost completely incapable of collecting penalties outside of the US. So don't worry about being wiped out.


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## Bevdeforges

I pretty much second what Nononymous has already said. One little clarification for you, though: Income tax returns and FBARs are two entirely separate reporting systems. Just because you filed a tax return does not necessarily mean you should have filed an FBAR, and just because you filed an FBAR does not mean you must have filed an income tax return.

Yeah, technically speaking if you filed a tax return and had a foreign account, you probably should have included a Schedule B, even if only to report that you have foreign accounts but the balance never exceeded $10,000. However I have yet to hear of anyone being questioned over the absence of a Schedule B on their tax return. 
Cheers,
Bev


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## the3rdman

Thank you both for the replies, and apologies for the late response.

I'll get up to date on my 15 and 16 tax returns, and then plan on supplying the FBAR for the first time next year.

Thanks again!


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## Nononymous

You're welcome. It's always nice - and sadly rare - for someone to come back later and acknowledge advice received and actions taken or planned.


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## Sydneycl

It true that FBAR is return separate from the annual income returns and filing the annual tax returns doesn’t imply one has filed the FBAR. On income tax, you qualify for US tax credits for the first $100k (adjusted for inflation annually)


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## underation

Sydneycl said:


> It true that FBAR is return separate from the annual income returns and filing the annual tax returns doesn’t imply one has filed the FBAR. On income tax, you qualify for US tax credits for the first $100k (adjusted for inflation annually)


Actually, because of treaty agreements, the US has to allow credit to a UK resident for tax paid to HMRC on UK source earned income. There is no $100K limit.

You may be thinking of the US Foreign Earned Income Exclusion.


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## Sydneycl

Yes, I was referring to FEIE


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## Bevdeforges

Sydneycl said:


> It true that FBAR is return separate from the annual income returns and filing the annual tax returns doesn’t imply one has filed the FBAR. On income tax, you qualify for US tax credits for the first $100k (adjusted for inflation annually)


Just to clarify - an overseas resident is entitled to an exclusion of earned income up to about $105K. This is NOT a "tax credit" but rather a way to exclude that amount from taxation. It applies ONLY to earned income - i.e. salary and wages, basically.

On the tax credit side, you can take a tax credit for income taxes (only) paid to a foreign government. This involves use of form 1116 and your income and taxes paid have to be broken down by type (i.e. earned income - as above - "passive" income from investments and certain other specific sources of income). This can get tricky because, just because you pay a tax based on your foreign income tax declaration, it doesn't mean that it counts as an "income tax" for purposes of the Foreign Tax Credit.


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## underation

Bevdeforges said:


> On the tax credit side, you can take a tax credit for income taxes (only) paid to a foreign government. This involves use of form 1116 and your income and taxes paid have to be broken down by type (i.e. earned income - as above - "passive" income from investments and certain other specific sources of income). This can get tricky because, just because you pay a tax based on your foreign income tax declaration, it doesn't mean that it counts as an "income tax" for purposes of the Foreign Tax Credit.


Is there a category of UK-source income for which the US refuses to grant credit for UK tax paid? I didn't think that was the case but I'm no expert, far from it.


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## Bevdeforges

underation said:


> Is there a category of UK-source income for which the US refuses to grant credit for UK tax paid? I didn't think that was the case but I'm no expert, far from it.


As long as it's "income tax" it counts for credit against US taxes. However, I think you have to apply the taxes against the same category of income. Only UK taxes paid on "earned income" can be used against taxes on earned income, and only taxes paid on investment income can be used as credits against tax on investment income. 

The problems arise when, for example, you have one of those "tax-free" accounts in the UK on which you don't pay income tax. You can't apply UK taxes paid on your salary income against any tax generated by the interest from the UK (or any other) bank accounts. 

Check the instructions for the 1116 form on that to be certain, but it's not nearly as straightforward as some would have you think.


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## underation

Bevdeforges said:


> As long as it's "income tax" it counts for credit against US taxes. However, I think you have to apply the taxes against the same category of income. Only UK taxes paid on "earned income" can be used against taxes on earned income, and only taxes paid on investment income can be used as credits against tax on investment income.


Yes, that's my understanding also.



> The problems arise when, for example, you have one of those "tax-free" accounts in the UK on which you don't pay income tax. You can't apply UK taxes paid on your salary income against any tax generated by the interest from the UK (or any other) bank accounts.


Yes - untaxed or low-taxed UK income is a sitting duck for US "top-up" taxation, if reported to the IRS as US-taxable. On the other hand, if the UK resident also has US investments, it may be worthwhile filing US tax returns, despite the cost of the top-up tax, in order to claim deductions and reduce the overall US tax bill. But no doubt it would be better to have US-only investments (and claim US FTCs only for earned income), or to have UK-only investments and not file US tax returns. IMO.


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## Bevdeforges

underation said:


> Yes - untaxed or low-taxed UK income is a sitting duck for US "top-up" taxation, if reported to the IRS as US-taxable. On the other hand, if the UK resident also has US investments, it may be worthwhile filing US tax returns, despite the cost of the top-up tax, in order to claim deductions and reduce the overall US tax bill. But no doubt it would be better to have US-only investments (and claim US FTCs only for earned income), or to have UK-only investments and not file US tax returns. IMO.


Yes, those are exactly the crazy sorts of decisions overseas taxpayers are forced into. Not to mention some of the other sorts of decisions that come up for those overseas US taxpayers who are married to non-resident aliens and have issues involving dead normal kinds of pension and investing options - even the need to report all bank accounts held jointly with a spouse who is not subject to US taxation.

Plus, there are banks and other financial institutions that will not open an account for anyone who is a "US person" thanks to all the FATCA stuff imposed on financial institutions.


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## underation

Bevdeforges said:


> Yes, those are exactly the crazy sorts of decisions overseas taxpayers are forced into. Not to mention some of the other sorts of decisions that come up for those overseas US taxpayers who are married to non-resident aliens and have issues involving dead normal kinds of pension and investing options - even the need to report all bank accounts held jointly with a spouse who is not subject to US taxation.


US citizens with cross-border income. In the UK, it's pretty normal to have UK investments and savings accounts, and pay tax on the interest only to the UK.



> Plus, there are banks and other financial institutions that will not open an account for anyone who is a "US person" thanks to all the FATCA stuff imposed on financial institutions.


Indeed.:mad2:


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