# Does Anyone know about stock and shares Isa?



## celticweb

Hi

i have more questions for you lovely people but might not get answers this time. I am sure you knowledgeable people would have stayed clear away from a stock and share Isa as they seem to be a problem, or so I am told.

How is this reported? I assume it goes on Fbar. 

Let's say it's gone up £1000 every year for the last 3 years, before that it didn't gain much. 

Are you having to report this as capital gains? so as an example if an Isa was bought for £5000 and is worth £6000 in 2012 and £7000 in 2013 and £8000 in 2014, is the gain £1000 a year or is it £1000 in 2012, £2000 in 2013 and £3000 in 2014.
The second scenario doesn't make much sense because you are reporting some of the same gains year after year? Hope that's not true. Totally confused and baffled, can't find definite answers online and this is giving me a migraine!
Or do you not report the gain at all until sold and just do the fbar.

thanks in advance.


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## BBCWatcher

One factor is whether the ISA is a PFIC (or collection of PFICs). Probably yes in the scenario you've described. If so then you'd make mark-to-market elections, so you'd have £1,000 per year of reported income in your scenario. You could also have an IRS Form 3520 (foreign trust) filing requirement. Yes, FinCEN Form 114 would apply.

In my view that sort of ISA is not worth the extra paperwork for most U.S. persons. If you're careful you should be able to choose an ISA requiring much less paperwork on the U.S. side.


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## celticweb

thanks but sadly too late for me now. I got my Isa years ago (and before I knew the filing rules). only just remembered I had it last week when trying to do a complete review of my finances to make sure nothing was forgotten.

It hasn't performed well at all except the last few years and of course the years i have to file catch-up!

Finding out about forgotten money is generally supposed to be a good thing unless you're an American abroad.

So maybe better to dump this in the near before it becomes a headache every year and invest in something more friendly?

thanks


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## celticweb

also I think the isa is made up of OEICs
thanks


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## BBCWatcher

celticweb said:


> Finding out about forgotten money is generally supposed to be a good thing unless you're an American abroad.


No, income and wealth are still good. Bill Gates (a U.S. person) has some annual paperwork to file, but he's worth about $75 billion. If you're getting 1,000 pounds per year from this ISA then that's still nice. One pound a year, less nice.



> So maybe better to dump this in the near before it becomes a headache every year and invest in something more friendly?


No, not actually -- at least not right away. You've already crossed the paperwork bridge, and you can't uncross it. You have plenty of time to consider whether to dump it -- until December 31, 2016, as a matter of fact, since tax year 2016 is already firmly in the history books with this holding.

If you're getting caught up via the IRS's Streamlined Program then you might be allowed to file IRS Form 8621 for each of the years you're filing (and going forward), make your mark-to-market elections, and let bygones be bygones. I don't remember the details, though, so just check that.

From a financial point of view mark-to-market treatment can actually work quite well, especially for "mere mortals" (those with substantially less income and wealth than Bill Gates). Once you figure out the paperwork, which you now have to figure out anyway, then going forward you're just regenerating the same forms with updated numbers for that year (and taking a quick glance at the "What's New?" part of the IRS's publications). That's easy, or at least much easier. Once you know the drill it's comparatively easy to repeat it.


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## BBCWatcher

As a rough analogy, dumping a stocks and shares ISA because you've discovered you have some U.S. paperwork to file is a bit like dumping your girlfriend after your wife has discovered you're having an affair.  Maybe that's the right move, maybe not, but you consider that move on its own merits and in view of the full situation. The affair, however, has already happened, and its consequences are unavoidable.

We see variations on this concept in this forum from time to time with people asking about dumping foreign bank accounts in order to avoid FinCEN Form 114 reporting requirements. (Why, I don't know. That's hardly an onerous form. I just filed mine for 2015, and it took all of 15 minutes for all my non-U.S. accounts.) But that doesn't actually work since all reporting/filing requirements already exist. Anything for 2016 (and past years) has already happened if the holding exists today. And sometimes dumping is the worst possible thing you can do, financially. Taxes, transaction costs, and opportunity costs often arise when money _moves_, not when it stays in one place. "No sudden movements, please."


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## celticweb

Hi
thanks for the information. 

I didn't mean to dump and not report, that would be foolish because it will clearly show intent to dump. and the whole idea of the streamlined is that it's not willful. so yes it wasn't willful that i didn't file but if i am seen to do something suspicious, then they might think the whole years of not filing are also suspicious.

I meant to dump this year to avoid further damage years going forward. so i have to pay capital gains now and that's it. the isa suffered in the last 10 years and has just started making money now. and it seems any gain will be taken by the IRS. It's just so unfair when you're a dual citizen and a UK citizen and this is a normal investment vehicle for us, and the only reason i can think of this unfair taxing of this is to encourage US people to invest in the USA, but how can I if I don't live there? and if I did, I am sure HMRC will give it a similar treatment here. 

But you're right, maybe investigate a bit before dumping it.


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## BBCWatcher

celticweb said:


> I meant to dump this year to avoid further damage years going forward. so i have to pay capital gains now and that's it.


If it's a PFIC you should make mark-to-market elections anyway.



> the isa suffered in the last 10 years and has just started making money now.


Making money is a good thing!



> and it seems any gain will be taken by the IRS.


No, rather the opposite for most people.

First of all, if you get 10,000 pounds, and tax takes 10% of that (let's suppose), you still have 9,000 pounds in your pocket. Most people think having 9,000 pounds in your pocket is better than zero pounds. "Making money is a good thing."

Second, most U.S. persons living overseas -- about 91% of them -- have some amount of earned income, all eligible for the Foreign Earned Income Exclusion and Foreign Housing Exclusion. Then they have their personal exemption and standard deduction to play with. That's their zero percent tax bracket. Mark-to-market elections for PFICs frequently slide very, very nicely into that zero percent tax bracket. Which is perfectly lovely, of course. The mark-to-market elections also reset the cost basis every year, so when the assets are sold in the future there aren't capital gains left to tax -- or at least not much, and they too often slide into that zero percent tax bracket.

Paperwork? Yes. Tax owed? Not always, not even very often. For about 94% of U.S. persons living overseas the U.S. tax code means an annual paperwork exercise that results in zero (or less!) U.S. tax owed. If that's your situation, your stocks and shares ISA could be perfectly wonderful to keep holding. If that's your situation you'd just repeat the annual paperwork exercise and ride off into the sunset, paying no tax on either side of the ocean. And that's the most likely situation, although other situations are possible.



> It's just so unfair when you're a dual citizen and a UK citizen and this is a normal investment vehicle for us, and the only reason i can think of this unfair taxing of this is to encourage US people to invest in the USA, but how can I if I don't live there?


Rather easily. I do.

But slow down a minute there, partner.  If you move to -- oh, I don't know, let's pick a random example: South Korea -- would you expect the Korean tax authorities to just pretend that U.K. ISA doesn't exist, and that merely because it's U.K. tax advantaged it should be Korean tax advantaged, too, in equal measure? There is no such thing as an internationally, globally tax advantaged account. It's a unicorn. This isn't how it works. Your U.K. tax advantages stop at the border, whether physical (residence) or virtual (personhood, if applicable).

Now, that said, the U.S. tax code happens to be very kind to U.K. ISAs -- even stocks and shares ISAs -- for the majority of U.S. persons living overseas, i.e. of low and moderate (or even high moderate) income. There is some paperwork, true, but financially they still tend to work well for most. I don't get the option to "mark to market" ordinary U.S. investments. If I buy, say, 500 shares of General Electric, I don't get to reset their cost basis every year. Those 500 shares of GE would cost about $15,000 to buy at this instant, as I write this. If I held them for 10 years and they increased in value to $45,000, I'd pay tax on the $30,000 of gains when I sell the shares. (I'd also get some dividends along the way, but let's assume those slide under my personal exemption and standard deduction.) That $30K would definitely attract some U.S. capital gains tax -- that's too big to slide under a personal exemption and standard deduction, as long as the future tax rules are similar to today's. Alternatively, if that $30K could be transformed into $3K each year over 10 years, that'd be great! Those yearly gains would slide under a personal exemption and standard deduction (for most) and attract zero tax. But that's not how it works. The rules don't allow mark-to-market elections for GE stock.

In short, PFICs can work really well financially. It depends on your circumstances of course -- the closer you are to Bill Gates, the less well they work -- but they really can work. "It depends."

So, take your time, figure out the paperwork (which you've got to do anyway), and figure out how close to zero the tax bite is. _Then_ decide what, if anything, to do. But maybe they're perfectly wonderful assets to keep holding.


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## JustLurking

celticweb said:


> I meant to dump this year to avoid further damage years going forward. so i have to pay capital gains now and that's it.


If you do 'dump' anything, your best move will probably be to sell any OEICs and ETFs and re-invest in things that are not PFICs, but _keep everything still inside the ISA wrapper_. A cash holding or direct company stocks (though not ETFs) would suffice here. Also gilts directly, if your ISA platform offers them.

That way you get to keep your ISA intact but lose the execrable PFIC treatment. If you decide in future to renounce your US citizenship you will then be able to use the ISA wrapper and the money inside it without having to build it up again from scratch.

Be aware, though, that many UK providers and platforms no longer offer ISAs or other products to US citizens. You will need to be very careful when navigating this minefield.


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## iota2014

JustLurking said:


> Be aware, though, that many UK providers and platforms no longer offer ISAs or other products to US citizens. You will need to be very careful when navigating this minefield.


There was quite a lot of confusion among UK FIs when the FATCA IGA was being implemented, and some accounts were being closed. The dust seems to have settled, and it seems to be largely back to business as normal for US citizens tax-resident in the UK. Place-of-birth and tax-residence information is required when opening any account, so if a particular account is not open to US Persons the application should just be refused. I wouldn't call that a minefield.

ISAs _per se_ are exempt from FATCA reporting, so it shouldn't be hard to find one without USP restrictions. Some products (ISA-wrapped or not) might not be open to US Persons. Check t&c's.

It would be sensible (IMO) to assume that any account held by a USP might be reported by the FI, since it would be easier and cheaper to report all than to report a subset.


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## BBCWatcher

Just to repeat, PFICs _can_ be financially tax advantageous due to "bracket smoothing" effects with mark-to-market elections. That part is not "execrable."


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## JustLurking

BBCWatcher said:


> Just to repeat, PFICs _can_ be financially tax advantageous due to "bracket smoothing" effects with mark-to-market elections.


Only if you take a particular definition of 'advantageous'.

For UK citizens who are _not_ also US citizens, mutual funds and ETFs held in an ISA are free of both UK dividend tax and US capital gains tax. If you're a US citizen who can also squeeze these through mark-to-market then they _may_ also be US tax free.

In this case though, your 'advantageous' translates merely to getting back to even with one's peers. That is to say, 'not disadvantageous relative to all non-US citizens'.

There is also a large cost to getting back to par, this being an unfortunate mountain of costly and/or time consuming paperwork.


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## JustLurking

iota2014 said:


> Some products (ISA-wrapped or not) might not be open to US Persons. Check t&c's.


Example: try opening any account (SIPP, ISA, or trading) with Interactive Investor.

It asks if you were born in the US, if you hold US citizenship, and if you hold a green card. Answer affirmatively to any of these and you are instantly rejected:


> "_You have entered details which would classify you as a US Person. Unfortunately, our service does not extend to US Persons. We regret that we are unable to accept your application._"


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## iota2014

Yes, a rejection. A rejection is not the same as a minefield. It doesn't land you with an unexpected problem. Look elsewhere, or choose a different kind of account. Or ditch the US citizenship.


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## celticweb

This ISA account is an old account so to get back to market to market, i am told i have to sell (pretend sell) then pay capital gains and start again. Doesn't sound that great unless of course some of the things BBCWatcher said will smooth things over.

I am no Bill Gates but I am not living hand to mouth either and fall squarely in the middle classes. 

Again for me it all comes down to Freedom, freedom to live, invest in peace based on your residence and something US citizens don't have. I don't expect to go to Spain and for them to honor the ISA. you can only invest as resident in the UK anyway but I also don't expect another country that i live outside of it's borders since age 13 to have a say in my investments now. But that's the law. So have to go along for the ride and try to limit the damage as much as possible.


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## iota2014

Phil Hodgen discusses ISAs in a blog entry at HodgenLaw PC - International Tax

Worth a read.


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## maz57

celticweb said:


> Again for me it all comes down to Freedom, freedom to live, invest in peace based on your residence and something US citizens don't have. I don't expect to go to Spain and for them to honor the ISA. you can only invest as resident in the UK anyway but I also don't expect another country that i live outside of it's borders since age 13 to have a say in my investments now. But that's the law. So have to go along for the ride and try to limit the damage as much as possible.


If you want your financial freedom and want to "limit the damage as much as possible", then get to work renouncing your US citizenship. The US government has made things much worse for US expats over the last decade and that trend will almost certainly continue. US politicians love to demonize expats as rich, tax evading scum and like to show off by passing legislation that "proves" their commitment to cracking down on such criminals.  Unfortunately you and other ordinary expats wind up being collateral damage. The US' CBT tax system is the real culprit here; no one can serve two tax masters.

Once upon a time the US might have been the "land of the free" but those days are gone forever. As a US citizen unless you move back to the US, that citizenship will be a millstone around your neck.


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## celticweb

Thanks for the link to the article. It doesn't look that promising. Luckily it's not a big fund.

and yes the plan right now is to renounce. I think compliance issues are going to get worse in the future, not better. It's not an emotional decision anymore for me. I spent over 30 years here in the UK without making use of US citizenship and doubt I will need it for the next 30 years.

It's something I would not normally had done if I lived in a country that followed the resident rule and it's not even about tax or filing. I don't care about filing a few papers or even paying a bit of tax but compliance is much more than that. You have to live life differently as a US person abroad. You are not living as a US person or a UK person. You are living as a person in limbo, getting no benefits from either citizenship. I feel like I have no citizenship now, I'm British but I can't have the same benefits as other British people and I am also a US person and without the benefits of other US people. I don't even benefit from Homeland Security in the US. It's not a nice feeling and changes my identity. i want to go back to what I was before the Fatca letter. 

Having said that until the day I go to renounce, I have time to change my mind. I will always feel sad I had to do it and it won't take away happy childhood memories, I just can't live life in limbo.


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## iota2014

celticweb said:


> ...the plan right now is to renounce. I think compliance issues are going to get worse in the future, not better. It's not an emotional decision anymore for me. I spent over 30 years here in the UK without making use of US citizenship and doubt I will need it for the next 30 years.
> 
> It's something I would not normally had done if I lived in a country that followed the resident rule and it's not even about tax or filing. I don't care about filing a few papers or even paying a bit of tax but compliance is much more than that. You have to live life differently as a US person abroad. You are not living as a US person or a UK person. You are living as a person in limbo, getting no benefits from either citizenship. I feel like I have no citizenship now, I'm British but I can't have the same benefits as other British people and I am also a US person and without the benefits of other US people.


As a dual citizen, I had benefits that aren't available to most US or UK citizens, e.g. I had the absolute right to vote or work or live or visit in either or both countries. I've made use of all those rights, in each country, at various times.

I've traded in the US rights, plus $2350, in return for getting free of the onerous US tax obligations. Not a deal that's available to the average US-resident taxpayer.



> I don't even benefit from Homeland Security in the US. It's not a nice feeling and changes my identity. i want to go back to what I was before the Fatca letter.


I'm quite grateful to the bank that made me aware of CBT/FATCA, and I told them so. It's better to know than not to know.

One positive thing that has come about as an unintended effect of FATCA is that renunciation doesn't shock one's US relatives, these days. That was a real deterrent, for me, and I suspect for many. I could have renounced many years ago, but my family would have taken it very badly, and I didn't want to upset them, and it didn't seem necessary. Nowadays, no one is surprised or shocked, once you explain the tax situation.



> Having said that until the day I go to renounce, I have time to change my mind. I will always feel sad I had to do it and it won't take away happy childhood memories, I just can't live life in limbo.


Good luck reaching a speedy decision that you feel happy with.


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## celticweb

Hi Iota

I agree with your post and yes I am glad I found out now. 

But the part about the relatives is still hard for me to explain. My sister is shocked that I would even consider it. You know how it is, people know US people that worked abroad and had no problems. But these people were just US citizens on temporary assignment in the UK and didn't spend their whole adult life there and these events were not recent. 

Explaining how it works for relatives is hard. The banking problems (closing of banks) actually gets more sympathy. Not sure how wide spread that is yet but I know it's happening to US people banking with financial institutes that don't want to comply with Fatca. 

One thing I did find out though from a friend is that someone she knows had to step down as director of a UK company because she was a US citizen and had signatory rights on the company account. 

In the end, this Fatca was enacted without regard for its effects on the millions of U.S. citizens living abroad. Being an American overseas has become a liability in my view. And it's a shame, because Americans overseas can play an important public-diplomacy role and now they are having to contemplate renouncing.


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## celticweb

My sister is also a dual citizen but she married an American so lives in the USA. Her UK citizenship causes her no problems at all, she has no UK source income. Unlike my reverse situation. However she's on the west coast in Orange County California and might be worth keeping US citizenship for me to retire there some day. That place is so beautiful.


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## iota2014

Sounds like you're still weighing up your choices, which is very sensible. If you renounce it's final, so it's worth thinking long and hard before taking the plunge. A bit like marriage, or do I mean divorce


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## celticweb

Yes I am still weighing up. However my UK partner is adamant that I renounce because he has seen the affect this is having on me. And he can't understand the logic of citizenship based tax. it's not even because we have joint accounts or anything. if we did, he would have had my name removed from the account. In no shape or form does he want any of his business going to the IRS and he's right.


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## Bevdeforges

As long as you have no joint accounts there is no particular reason to report anything about your partner to the IRS (nor to the Treasury Dept. if you have an obligation to file an FBAR/FinCEN). If you're married to your partner, you should be filing as "married, filing separately" - but that's not that different from filing as "single." 
Cheers,
Bev


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## Bevdeforges

As long as you have no joint accounts there is no particular reason to report anything about your partner to the IRS (nor to the Treasury Dept. if you have an obligation to file an FBAR/FinCEN). If you're married to your partner, you should be filing as "married, filing separately" - but that's not that different from filing as "single." 
Cheers,
Bev


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## iota2014

I think the logic of citizenship-based taxation is to fetch money to America. It's a sense of justice that's lacking. But there you are, that's the American dream.


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## celticweb

es there's no joint accounts for now however he feels our lifestyle will be restricted now because we have to make decisions based on my tax situation. For example now we definitely can't get a joint account. we can't start a business together (something we always wanted to do in later years) and I'm sure there's more. 

Citizenship tax would work better if the two systems were more compatible and it was a straight forward swap, same tax year, same pensions, everything recognised.

The problem my partner sees is that I have essentially been declared guilty of financial crimes unless I can prove otherwise and he's disgusted with that and doesn't think I should stay a citizen of a country that treats their citizens in this manner. Yes guilty of a good faith misunderstanding that all countries operated a resident based tax system, yes guilty of ignorance of the rules but financial crimes? And he sees the whole thing has an invasion of privacy. To keep peace, i may just renounce.


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## JustLurking

Bevdeforges said:


> ... you should be filing as "married, filing separately" - but that's not that different from filing as "single."


When comparing these two filing statuses, beware the possibility of a marriage tax penalty.


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## iota2014

celticweb said:


> Citizenship tax would work better if the two systems were more compatible and it was a straight forward swap, same tax year, same pensions, everything recognised.


The OECD is (allegedly) working towards a unified taxation system (not CBT-based). But even if such is proposed, America might opt out, just as it opts out of CRS and FATCA reciprocity.



> The problem my partner sees is that I have essentially been declared guilty of financial crimes unless I can prove otherwise and he's disgusted with that and doesn't think I should stay a citizen of a country that treats their citizens in this manner. Yes guilty of a good faith misunderstanding that all countries operated a resident based tax system, yes guilty of ignorance of the rules but financial crimes? And he sees the whole thing has an invasion of privacy. To keep peace, i may just renounce.


I think there has been widespread astonishment among other countries at the way the US seems to have no compunction about labelling its citizens as dishonest unless we can prove otherwise. On the other hand, the other developed economies quite like seeing America using its muscle to threaten the banks. What can you do, they're all playing the same games. Best to not take it personally and work out what's your best option, and go for it.


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## Bevdeforges

JustLurking said:


> When comparing these two filing statuses, beware the possibility of a marriage tax penalty.


The marriage tax penalty has been around for a LONG time in different forms. Sometimes even for US residents.



> The problem my partner sees is that I have essentially been declared guilty of financial crimes unless I can prove otherwise and he's disgusted with that and doesn't think I should stay a citizen of a country that treats their citizens in this manner. Yes guilty of a good faith misunderstanding that all countries operated a resident based tax system, yes guilty of ignorance of the rules but financial crimes? And he sees the whole thing has an invasion of privacy. To keep peace, i may just renounce.


This is one of those things that we get ourselves into when we meet and choose "partners" of any variety. The tax implications of being together are only one aspect of a relationship (particularly an international relationship).

You have to decide whether or not you feel strongly enough about your situation and your relationship to renounce based on your partner's reactions. There are also considerations such as: how stable is the relationship? (What if you renounced "for your partner" and then you split up? There's no going back.) I'm not advocating for one or the other - just to think through all the possible consequences before doing anything you can't undo.
Cheers,
Bev


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## celticweb

I know about married filing single but don't know about the marriage tax.

My relationship is very strong, we have been together 20 years. You can never say never but I don't see us splitting up. 

This thread has gotten a bit off topic but as I said renouncing is nothing to do with filing papers or paying a bit of tax. It's about the loss of freedom and burden of compliance. Right now the accountant is meant to finish everything by end of May. I will be renouncing in the late Summer. so just have next year tax to do and I'm out.


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## celticweb

what i meant is do 2016 tax which has to be done next year and then freedom awaits me.


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## iota2014

Be warned tho - it's not total freedom, for anyone with a US birthplace. You have to prove you're not a US citizen all over again, every time you want to open an new account, and some FIs will ask you to sign an IRS form, complete with penalty-of-perjury jurat. So the IRS never completely goes away.

But if you weren't born in the US, and you don't have any other US "indicia", you're okay.


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## celticweb

I was born in the USA, and that's the reason I got the Fatca letter.

Thank you and yes what you say makes sense and will probably happen but I don't mind having to deal with forms proving I'm not a US citizen. I certainly don't ever want to deal with any forms again because I am. 

I read somewhere that 73% of Americans abroad want to renounce now compared to 10 years ago which was only something like 10%. That's a huge difference. it doesn't mean the whole 73% are going to renounce, some will but the others would like to even if they choose not to in the end because of their personal circumstances.


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## iota2014

Presumably, at some point, most of those wanting to renounce and able to renounce will have done so.


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## Nononymous

celticweb said:


> I read somewhere that 73% of Americans abroad want to renounce now compared to 10 years ago which was only something like 10%. That's a huge difference. it doesn't mean the whole 73% are going to renounce, some will but the others would like to even if they choose not to in the end because of their personal circumstances.


I too would be very happy to lose my US citizenship, but my personal analysis of costs of renunciation versus the risks of non-compliance suggest that it's not currently worth doing anything.

Costs: $2350 plus tax compliance hassle plus - who knows? - possibility that I would actually owe the IRS some money for something. (I'm pretty sure the IRS won't owe me any money for having a kid etc.)

Risks: Very low because Canadian banks aren't being very diligent about FATCA, the IGA excludes tax-protected savings accounts from reporting anyway, and as things now stand the US government can't collect money from Canadians in Canada.


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## Bevdeforges

Nononymous said:


> I too would be very happy to lose my US citizenship, but my personal analysis of costs of renunciation versus the risks of non-compliance suggest that it's not currently worth doing anything.
> 
> Costs: $2350 plus tax compliance hassle plus - who knows? - possibility that I would actually owe the IRS some money for something. (I'm pretty sure the IRS won't owe me any money for having a kid etc.)
> 
> Risks: Very low because Canadian banks aren't being very diligent about FATCA, the IGA excludes tax-protected savings accounts from reporting anyway, and as things now stand the US government can't collect money from Canadians in Canada.


This is, I believe, the situation of probably the vast majority of those who claim they would "like to" give up their US nationality. Personally, I thought the old fee of $450 was outrageous. Then there are other related considerations for those with ties back to the Old Country (such as sources of income like Social Security benefits one may need in one's old age or just the convenience of having one or more bank accounts back in the States).

It's not only Canada that is not cooperative with IRS collection methods, and for some types of income, particularly from outside the US, the IRS simply doesn't have the resources to track it all. So you plays the game and you takes your chances.
Cheers,
Bev


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## celticweb

What is swaying me over the edge to renounce is that I am due to receive an inheritance at some stage in the future. I have an elderly parent. I would love to never receive such an inheritance but it's a fact of life that we all must go at some stage. what's that quote "Nothing is certain but death and taxes".

The renunciation fee doesn't bother me however once I receive the inheritance, it may push me over the threshold for the exit tax. I did the numbers with the immigration solicitor and without the inheritance, I'm safe for now. Otherwise I might have watched and waited a few years. I may still do that in the end but I am finding the process stressful. The accountants all seem over worked and I am not knowledgeable enough to do the returns myself.


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## iota2014

If I were making the decision today, I'd renounce but not bother with the filing.


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## celticweb

yes but wouldn't one become a "covered expatriate” by not filing? We have to certify we compiled for 5 years before. That might make travel difficult to the USA. It's best to cut the cord without future repercussions.


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## iota2014

celticweb said:


> yes but wouldn't one become a "covered expatriate” by not filing? We have to certify we compiled for 5 years before. That might make travel difficult to the USA. It's best to cut the cord without future repercussions.


Yes, it all depends on one's circumstances. I'm not going back to America, and I don't have any US assets except a very small SS pension, so there's not much they could do about it if they even noticed. Which is unlikely since I haven't filed for decades.

When I first started looking into this haystack I sort of assumed the IRS - the tax agency for the richest and most powerful nation on earth - would be reasonably _au fait_ with modern technology. If I'd realized they were still using magnetic tape, and just getting to grips with XP, I would have assessed the risks rather differently.


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## JustLurking

celticweb said:


> The renunciation fee doesn't bother me however once I receive the inheritance, it may push me over the threshold for the exit tax.


I may have lost track of things, but weren't you born a dual US/UK citizen?

If yes then provided you also meet a few residency conditions -- and again, from past postings it looks like you probably do, or will -- you should be exempt from the exit tax. You'll still have to run the 8854 gauntlet of certifying this, that and the other to get that exemption. But it could take some time pressure off, in that you'd no longer have to worry about a sudden inheritance throwing a spanner in the works.


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## Nononymous

iota2014 said:


> If I were making the decision today, I'd renounce but not bother with the filing.


I'm leaning that way myself. Can always do the tax stuff retroactively if they start causing grief.


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## maz57

Because I never filed any of that Form 8854 gobbledegook , I suppose the IRS would consider me to be a "covered expat", if they have even noticed I have gone missing. So what. I don't wake up every morning worrying about the IRS and its stupid forms. If I were a billionaire I might worry but I am reasonably certain that is a "problem" I'll never have.


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## iota2014

I have a theory they're just collecting penalty-of-perjury jurats, ready for use if the opportunity arises. 

No filing, no jurats.

I've given them just one - the one on the 8854. I won't be giving them any more.


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## celticweb

Yes I am a dual citizen at birth, US citizen because born there to British Parents. Thanks for pointing that out. this definitely helps me relax and take my time more with the decision. It's only because my sister is there that I would not risk being covered expatriate.

I might wait until next year in that case. I really need to think this one through.

To get back to the subject of this thread, my current Isa isn't going to cause me a lot of problems right now because it hasn't performed that well, hasn't distributed income to me and is worth under $25,000. Apparently if it's under $25,000 you don't have to report on the form unless making an election but it does need to go on Fbar. But when I sell, I will be punished unless I make an election. Have to get advise about that if I am keeping US citizenship.

Also I am change the person I am working with, that's causing the anxiety because my expectations aren't being managed well. so I have been talking to other accountants, for those doing the streamlined I spoke to one who said out of 250 streamlined done this year, 4 got audited but they agreed in the end with the original return. so they do audit some but I think we all knew that anyway. what the criteria is for auditing i do not know.


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## BBCWatcher

iota2014 said:


> I think the logic of citizenship-based taxation is to fetch money to America.


Only partly.

Here's the plain fact: there is a genuine, global fairness and equity problem when wealthy people establish tax residence in tax havens. Monaco and Andorra really exist, and they're chock full of wealthy Europeans "resident" there who are not paying taxes to the countries that treated them so well (and often still do), to help them to become so fabulously wealthy.

The U.S. doesn't have this problem, or at least it doesn't have much of it. That's a good thing. And the lack of that problem just _might_ have something to do with the fact the United States is the world's #1 economy and doing quite well in comparison to other developed economies. _Productive_ wealthy people -- Elon Musk, for example -- keep on contributing. The proof is in the success, folks, and it's hard to argue with that.

We can _certainly_ quibble about the details and execution of the U.S. tax system -- for everybody, importantly -- but I don't think there's much argument on principle, that there's a real "leakage" defect in a pure CBT at least in terms of what most people would view as a fair and equitable tax system that allocates revenue raising burdens based on ability to pay. It's not a coincidence that governments around the world are making it harder and harder to end tax residence.

By the way, the United States does not have an inheritance tax with one narrow exception. So I'm not sure what the concern is there. If you're a U.S. person you can inherit as much as anybody wants to bequeath you, completely U.S. tax free. If the Sultan of Brunei wants to leave 10% of his estate to you, no problem -- you'll pay zero U.S. tax on that inheritance. The only exception is if the person who died and left you their estate is a "Covered Expatriate," meaning a former U.S. citizen (some of them), and you are a U.S. person. _Then_ there is an inheritance tax. But otherwise the inheritance tax rate is a whopping zero. There is a tiny reporting requirement when you inherit a big enough estate from a non-U.S. entity: Form 3520 Part IV. It's less than a single page long. The main purpose of Form 3520 Part IV, as far as I can tell, is just to check whether you received an inheritance from Osama Bin Laden (for example). In which case you might not be keeping that inheritance since there's an outstanding claim (or several) on the estate. However, if the estate wasn't stolen (actually or effectively), have fun inheriting as much as you want, tax free.

The U.S. does have an estate tax, but it does not have an inheritance tax except for that narrow exception noted above.


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## iota2014

celticweb said:


> Also I am change the person I am working with, that's causing the anxiety because my expectations aren't being managed well. so I have been talking to other accountants, for those doing the streamlined I spoke to one who said out of 250 streamlined done this year, 4 got audited but they agreed in the end with the original return. so they do audit some but I think we all knew that anyway. what the criteria is for auditing i do not know.


Just speculating: criteria for auditing professionally prepared returns might be different from the criteria for auditing DIY returns. The clientele would certainly be different, with more complicated situations involving more money. The accountant's own track record might also have something to do with it.

You might want to consider trying out one of the free or cheap tax software programmes, to see what the software would do. Compare that with what the accountant is proposing to do, and if it's different, ask them why.


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## celticweb

I spoke to my accountant today and he is well on track to finishing and the good news is that he thinks i will owe no tax. It's just me being anxious expecting the letter from the IRS every day and when i don't hear anything i panic. 

I am going to stay with him, someone else might find tax owing! I am going to check the tax software out for future years. I can even use these returns as a guide. For the first time I wanted to use someone. I just don't feel knowledgeable enough and don't want to risk an audit due to a mistake I made. I might even prepare a return that makes me owe tax!

He doesn't think the Isa needs reporting right now but we need to make a decision for 2015. I will follow BBCWatcher advise for that and make a market to market election. Accountant says to decide by the end of this year.

Regarding why I was worried about inheritance. It was for the exit tax, not inheritance tax. When I inherit my dad's estate, quite a bit of property will come with it. I already have two properties. If I get any more it could well push me over the exit tax threshold. I haven't researched that properly but then i was reminded that dual citizens from birth won't have to pay the exit tax.


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## BBCWatcher

So then there's nothing to worry about, is there?


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## celticweb

Nope no worries now unless laws change. Good news for me because I didn't want to rush off to renounce just yet. I would rather ponder a big decision like that.


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## BBCWatcher

celticweb said:


> Nope no worries now unless laws change.


Or circumstances change. Which is a strong argument in favor of possession of multiple citizenships, actually. The United Kingdom faced an existential threat as recently as 1941. Or the Yellowstone Caldera could blow its top three hours from now. Having options in an uncertain world is, all by itself, nice.


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## celticweb

That's actually so true. I am sure a lot of people in Europe during World War 11 would have been relieved to have been dual citizens with one of the citizenship being US citizenship at the time so they had the option to escape the war.

The main hassle I can see for a UK citizen having to comply with US tax obligations is the difference in the tax year. I wouldn't ever be able to make the June deadline to file because a lot of my documents are ready until June, mainly the P11D. I can request it early I suppose. My work place doesn't give this out until end of June/beginning of July. So i have to do self-assessment in July for the rental property because I have to wait until I have all my documents from the tax year for my paid job to file. Therefore the ideal time for me to do my US tax is August the earliest. I do self assessment in July, get that back end of July then file the US straight away. But then I'm late every year even if I ask for an extension, it's not great if you wind up owing tax some years because you still have to pay interest on late.

Or file US early and then refile an amendment? But the UK has the right to tax my income first I believe, it's earned here. This creates a problem because I am basically dealing with tax the whole summer. and if two US returns need to be filed, that;s three tax returns a year! It gives me a headache just to think about this. 

Maybe stop working to solve the problem (except that's not really a practical option). I wish these countries would try to coordinate their tax years together.


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## BBCWatcher

There's zero interest on zero tax owed, which is how things seem to be going so far. Estimated tax payments take over from there. IRS Form 4868 gets you a filing extension to October 15.


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## Bevdeforges

The other approach is to rely on your own accounting records - and use a strictly "cash basis" method for crediting the taxes. That means you'd take the FTC on the UK income tax you paid during calendar year 2015 (i.e. for the 2014 - 2015 UK tax year) on your 2015 US return. That at least avoids having to mess with filing an amendment every year.
Cheers,
Bev


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## celticweb

Hi Bev

Pay slips are no problem if it was just the pay, i have copies of my pay slips for the whole period of 2015. The thing is I haven't done the self assessment for the rental income for 2015-2016. My UK accountant needs the information from my job (P60, P11D) to work out what tax I owe on the rental. My PAYE code takes into consideration that i have rental income but there is always a bit of UK tax to pay anyway.

My US tax accountant says he can't file the 2015 US tax return with me having completed the 2015-2016 UK self assessment and I can't do that until I have all my documents. so it's a real hassle now every year. I am sure I need UK tax credits on the rental to off set any US tax. 

If I were to leave my job, it would be easier, just rental income and that i can do April because not waiting for any documents and then US tax afterwards by June. It seems to be a bit of a mess for me as things stand.


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## Bevdeforges

> i have copies of my pay slips for the whole period of 2015. The thing is I haven't done the self assessment for the rental income for 2015-2016. My UK accountant needs the information from my job (P60, P11D) to work out what tax I owe on the rental.


Re-read what I said. You can use the tax you actually paid for the UK 20*14*-2015 on your US 2015 taxes. (OK, it might be tricky in the transition year.) 

Here in France, we don't file our taxes for year N until May of Year N+1. And then we don't get the assessment of what we owe until August or September.

What some folks do - and it's legit - is to file the US returns for Year N, using the tax assessment they received in September of year N-1 for the tax credit (since that is the actual tax paid in year N). It can be used for your whole tax bill and is easier than constantly going back to amend.
Cheers,
Bev


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## BBCWatcher

Bev provided a good answer: cash basis. To elaborate, you pretty much ignore the "odd" U.K. tax year. Whenever the U.K. tax is paid is what counts as input into your IRS Form 1116 (Foreign Tax Credit).

So let's suppose for example you have pay-as-you-go U.K. income tax payments of 100 pounds per month on some income stream. You pay those every month. You also, around about June each year, pay a "top up" amount for the prior U.K. tax year of another 100 pounds. No problem. Considering U.S. calendar year (tax year) 2015, you report 100 pounds per month for January through December, 2015, plus the June, 2015, 100 pound payment. Total foreign tax: 1300 pounds. (Converted to U.S. dollars obviously.) It doesn't matter that the June payment related in part to tax owed (accrued) in calendar year 2014. The IRS lets you use strict cash basis accounting here. So just "go with the flow." Simple.

On edit: I see Bev added some elaboration just before I did. I'll add that Singapore doesn't have pay-as-you-go at all -- you pay income tax during year X for income received in year X-1. So cash basis accounting is really the only viable method here.


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## celticweb

Thank you for the helpful advise. I wish I was better at this stuff. I will have to read these last two posts a few times until I get it.

It's so good to be able to come on here and get practical advise. I never would have survived the Fatca letter without this forum.

I am hoping I can have all the US tax done by June 15th. I have to send an email again to the accountant on Tuesday requesting we work in the way you described. then do 2015/2016 self assessment as I usually do in July. and have the rest of the year finished with tax.


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## celticweb

read this again and now i get it! yes this is how i want to work.
hope my accountant agrees. 
thank you.


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## Bevdeforges

celticweb said:


> read this again and now i get it! yes this is how i want to work.
> hope my accountant agrees.
> thank you.


It may help to tell your accountant that you want to go to a strict cash basis. What you have been doing (or were planning on doing) is an accrual basis.

Cash basis means that you record/report a transaction based on the date that the cash/money transferred, not the date that the underlying transaction happened. Simple example - if you work the month of December, 2015 but are not actually paid (i.e. you don't get your paycheck) until January 5, 2016, then on a cash basis, you report that paycheck as part of your 2016 tax declaration. If you're on the accrual basis, then you report it as "earned" in 2015 because that's when you did the work that entitled you to the pay.

Cash vs. accrual basis is a common distinction in accounting, so telling him you want to do this on a strictly cash basis may clarify it for him.
Cheers,
Bev


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