Form 8938 for Americans Abroad: Thresholds and What to Report

Form 8938 for Americans abroad: an introduction

Form 8938 for Americans abroad is the IRS statement of specified foreign financial assets, and you file it with your tax return once your assets pass a threshold. For filers who meet the presence abroad test, the thresholds start at $200,000 at year end or $300,000 at any time. Married couples filing jointly have double those figures. Many Americans in the UK file it alongside the FBAR.

This article explains who files, what counts and how to value it. Our guide to FBAR and FATCA reporting covers both reports together. Our FBAR and FATCA service prepares them each year.

What Form 8938 for Americans abroad is for

Form 8938 comes from the Foreign Account Tax Compliance Act, usually called FATCA. FATCA is the 2010 US law that requires reporting of foreign financial assets. The form itself rests on section 6038D of the Internal Revenue Code. It goes to the IRS with your Form 1040, unlike the FBAR, which goes to FinCEN. Our article on what FATCA is gives the background.

Who must file Form 8938 while living abroad?

You file if you must file a US income tax return and your specified foreign financial assets exceed your threshold. If you do not need to file a return, you do not file Form 8938 either.

The presence abroad test

The higher thresholds apply only if you meet the presence abroad test. According to the Instructions for Form 8938, there are two ways to meet it. First, you are a US citizen who is a bona fide resident of a foreign country for a period including a whole tax year. Alternatively, you are present abroad for at least 330 full days in any 12-month period ending in the tax year. Most Americans settled in the UK meet the first test, which opens up the higher thresholds of Form 8938 for Americans abroad.

The thresholds for filers abroad

If you are unmarried, you file when your assets exceed $200,000 on the last day of the year or $300,000 at any time. The same figures apply to married people filing separately. If you file jointly, the thresholds are $400,000 at year end or $600,000 at any time. Therefore, Form 8938 for Americans abroad applies to fewer people than the FBAR does.

The thresholds if you live in the US

By contrast, people living in the US have much lower thresholds. The instructions set $50,000 at year end or $75,000 at any time for single filers. Joint filers in the US have $100,000 or $150,000. These matter in the year you move back, because you may no longer meet the presence abroad test.

No return, no Form 8938

The instructions are clear on one point. If you do not have to file an income tax return for the year, you do not have to file Form 8938. However, most Americans with assets above the thresholds have enough income to need a return. So, in practice, the exception rarely applies to them.

Which UK assets count as specified foreign financial assets?

UK bank accounts, investment accounts, ISAs, pensions and directly held shares in UK companies usually count. The UK State Pension does not.

Accounts and investments

A specified foreign financial asset is a financial account at a foreign institution or certain foreign assets held outside an account. In the UK, that includes current accounts, savings accounts and stocks and shares ISAs. It also includes general investment accounts held with UK platforms. Shares in a UK company held directly, outside any account, count too.

UK pensions

Workplace pensions and personal pensions are reported as interests in a foreign pension plan. The instructions say you report the plan itself, not the assets inside it. The value is the fair market value of your interest at year end, if you know it or have reason to know it. Typically, an annual pension statement gives that figure.

What you leave out

The instructions exclude the foreign equivalent of US social security. Therefore, the UK State Pension is not reported. Additionally, assets you report on certain other forms need not be listed again. These include Form 3520, Form 5471 and Form 8621. However, you still note on Form 8938 how many of those forms you filed.

How do you value assets on Form 8938?

You report the maximum value of each asset during the year, converted to dollars at the year-end Treasury rate. For most accounts, the statements give you what you need.

Maximum value

The maximum value is the highest fair market value an asset reached during the year. For a bank account, it is usually the highest balance. For an investment account, a reasonable estimate based on periodic statements is generally accepted. Consequently, keeping monthly or quarterly statements makes the work much quicker.

Currency conversion

You work out the maximum value in pounds first. Then you convert it to dollars at the Treasury rate for the last day of the tax year. The instructions direct you to the Treasury Reporting Rates of Exchange. Notably, you use the year-end rate even if you closed the account earlier in the year.

Joint assets

Joint ownership changes the arithmetic. If you file jointly with your spouse, you count each joint asset once. If you file separately, each spouse generally counts half of a jointly owned asset towards the threshold. However, if your spouse is not a US person, the instructions treat the asset differently. In that case, you include the full value of the joint asset.

How does Form 8938 differ from the FBAR?

The FBAR has a much lower threshold and goes to FinCEN; Form 8938 has higher thresholds and goes to the IRS. Many Americans in the UK file both, and filing one does not replace the other.

Different thresholds and recipients

The FBAR is due when your foreign accounts together exceed $10,000 at any time in the year. The IRS FBAR page explains the rule. You file it electronically with FinCEN, separately from your return. By contrast, Form 8938 for Americans abroad is attached to Form 1040. The IRS publishes a comparison of Form 8938 and FBAR requirements that sets the two side by side.

Different deadlines

The FBAR is due on 15 April, with an automatic extension to 15 October. Form 8938 follows your tax return, including any extension. Our article on the FBAR deadline explains the dates.

Different scope

Some assets appear on one report but not the other. For example, shares held directly outside an account appear on Form 8938 but not on the FBAR. Conversely, accounts you can sign on but do not own can appear on the FBAR only. Therefore, we prepare both from one list of everything you hold.

What are the penalties for not filing Form 8938?

The basic penalty for missing Form 8938 for Americans abroad is $10,000, with more if you do not file after an IRS notice. Missing the form can also keep your whole return open to assessment.

Failure to file

The instructions set a $10,000 penalty for failing to file a complete and correct form by the due date. If you still have not filed 90 days after an IRS notice, a further $10,000 applies for each 30 days, or part of 30 days. The IRS comparison page puts the potential maximum at $60,000. However, the penalty does not apply if you show reasonable cause.

The accuracy penalty

If you underpay tax through a transaction involving an undisclosed foreign asset, a 40% accuracy-related penalty can apply. For example, untaxed interest on an unreported UK account could attract it. Criminal penalties are also possible in serious cases.

The statute of limitations

The statute of limitations is the period in which the IRS can assess more tax. Under section 6501, if you fail to file Form 8938, the period for that year can stay open until three years after you do file it. Moreover, if you omit more than $5,000 of income from foreign assets, the IRS has six years to assess.

What if you never filed Form 8938?

You bring Form 8938 for Americans abroad up to date with the returns it belongs to, usually through the Streamlined procedures. The form is not filed on its own.

The Streamlined route

The Streamlined Filing Compliance Procedures require complete returns for the last three years. Those returns include every required information return, such as Form 8938. For non-wilful filers abroad, the foreign offshore version carries no penalty when all instructions are followed. Our guide to IRS Streamlined filing explains eligibility.

PFIC funds alongside Form 8938

Many UK funds count as passive foreign investment companies, which need Form 8621. Because Form 8621 counts as duplicative reporting, those funds may not need listing again in full. Our article on PFIC rules for UK funds explains the overlap.

Which situations catch Americans in the UK out?

Three come up again and again: ISAs, a British spouse and the year of a move. Each changes how Form 8938 for Americans abroad is worked out.

ISAs

An ISA is a UK savings or investment account with tax-free status in the UK. GOV.UK explains how ISAs work. However, the US does not recognise that tax-free status. Therefore, an ISA is a specified foreign financial asset like any other account. Moreover, the funds inside a stocks and shares ISA are often PFICs, which brings Form 8621 into play as well.

A British spouse

Many Americans in the UK are married to someone who is not a US person. In that case, you usually file as married filing separately. Your threshold is then $200,000 at year end or $300,000 at any time. Importantly, the instructions say you include the full value of an asset owned jointly with a spouse who is not a specified individual. As a result, a joint account with a British spouse counts in full towards your threshold. This point is often missed when people work out Form 8938 for Americans abroad for themselves.

The year you move

In the year you move to or from the UK, you may not meet the presence abroad test. Consequently, the lower thresholds for US residents can apply. Furthermore, accounts opened or closed during the year still count for that year. We check the test for each year separately, because it changes the answer.

Where to find the form

The IRS page about Form 8938 links to the current form and instructions. Additionally, the IRS FATCA page explains the wider regime, including the account data UK banks pass to the IRS through HMRC. Because UK banks report US account holders, the IRS can match their data with Form 8938 for Americans abroad. That is one more reason to file it accurately.

An example: a couple in London

Consider a typical case. Laura and James are both US citizens living in London and filing jointly. At year end, they hold £180,000 in savings, a joint ISA worth £60,000 and pensions worth £200,000. Their highest combined value during the year was slightly higher.

First, they convert each maximum value at the year-end Treasury rate. Next, they add the totals. Their combined assets exceed $400,000 at year end, so they file one joint Form 8938. They list each account, the ISA and both pension plans. Separately, they file FBARs, because their accounts exceed $10,000. This is an illustrative example, not a real client.

How US UK Tax Experts can help

US UK Tax Experts prepares Form 8938 for Americans abroad as part of the annual US return. We build one list of accounts, pensions and investments and use it for both the FBAR and Form 8938. Additionally, we prepare the UK return from the same figures, so interest and gains agree across both countries. If you have missed years, we bring the forms up to date through the appropriate route.

Conclusion

Form 8938 is the IRS report of foreign financial assets, filed with your return. Americans in the UK who meet the presence abroad test have higher thresholds, but pensions and ISAs push many over them. Value each asset at its highest point, convert at the year-end rate and file the FBAR as well. Then both reports tell the same story.

Contact us

If you need help with Form 8938 for Americans abroad, email hello@usuktaxexperts.com or use our contact form. Tell us roughly what you hold in the UK and whether you have filed before. We reply within one working day.