FATCA, UK Defined Benefit Pension, lump sum vs transfer value - HELP!

[QueenOfBlades 224]

I have a U.K. Defined Benefit pension with Centrica. I have never filed this on the FBAR (see: various threads on here from me in 2013 panicking about FBAR).

 

I requested a benefit statement from this pension before I moved to the US, and it was around £10,000. Moving on a K1 and getting married, that was nowhere near the $100,000 reporting threshold for FATCA so I never worried about it.

 

My ex husband and I divorced in 2018, so the FATCA limit would have dropped down to $50,000. It doesn’t apply to 2019 because I married my USC wife so the limit went back up. 
 

Here’s where I’m confused. I paid about £10,000 into this defined benefit scheme over the course of 5 years. If I do ‘retirement illustrator’ and choose lump sum, the cash amount is around £10,900, which matches about what it should be and was told to me when I left and froze the pension. 
 

But the ‘transfer value’ says £51,000. What on Earth? That’s nothing close to the actual cash amount I actually ‘own’. My understanding is that it’s like an incentive to get rid of you from the scheme. Centrica (British Gas) is doing pretty horribly right now closing down multiple offices, so I imagine they’re trying to bump off as many of us defined benefit pension people as possible. Things are so shaky with them at the moment though that they might not even be around when I retire.

 

So what do I do about FATCA? Does the incentive count toward my reporting threshold or it doesn’t because it’s not actually my money and just a carrot they’re using to get rid of me? Again, it doesn’t apply to my 2019 taxes because the limit increased but if I missed it for 2018, I need to correct it.

 

P.S. my mum in the U.K. sent me a cash gift of $15,900ish through PayPal. I saw this comes off some lifetime allowance thing somewhere? What do I do with that? I was married to my USC spouse at the time if that matters.

 

Thank you.

[Wuozopo 4,293]

@QueenOfBlades

 

i don’t completely understand your pension issue, but to me it sounds like your pension cash value is £10,900. I would not do FATCA if it was me. 
 

Foreign gifts received is covered by the IRS https://www.irs.gov/businesses/gifts-from-foreign-person

Your gift from Mum was under $100k and was not from a corporation so nothing to report In my opinion.

 

[Tesco 70]

Are you taking a distribution from your pension?

If so state the amount in the 0-50k field (as relevant)

If no, state 0-50k field and check the box that indicates that no tax item is reported.

You need to file FinCEN 114. Remember to add all assets that are not in the U.S. If they total more then $10k. Unlike normal bank accounts, U.K pensions can be hard to value. Just select the 'max value unknown', unless you defiantly know the highest value for the calendar year. Be sure to use the correct exchange rate reporting methods for the 8938 and FinCEn114.

[QueenOfBlades 224]

@Wuozopo

 

I don’t know whether the lump sum amount of £10k ish is what I should have used or if FATCA was triggered because of the £51k “transfer value”. 
 

@Tesco

I’ve never filed either. I actually had a huge thread about that years back below.

 

I have been married ever since I got here so nowhere close to the $100,000 reporting threshold for FATCA - the only exception to this was 2018. When I left the U.K., I was told my lump sum value is around £10,000, so I never thought of that as getting anywhere near the FATCA threshold either. Then I looked at my account recently and it said transfer value £51,000, but fund value was still around £10,000. I don’t know what I would report. The £10,000 is based on what I paid in and retiring aged 65, the higher figure is what their estimate is of what the entire value of my pension would be if I kept it for the rest of my life plus incentive to leave. The market is causing high transfer values right now, plus they’re a gas company so they’re trying desperately to get people off of these defined benefit plans. But I have no signatory authority over the defined benefit pension plan. Any action would need to be approved by their trust board, there’s thousands of members and if I moved >£30k of value out, I would need an advisor anyway per U.K. law. The pension has been frozen since I left with no contributions and no distributions. No one can touch their money until they’re 55 unless you leave the company like me/take their enticement to drop your defined benefit plan. Even then, I think that is only allowed as a transfer value into another similar type of pension.
 

I haven’t filed FBAR for the reasons discussed in the below thread. 
 

It is a defined benefit plan which I have no signatory authority over at all. Everything has to be signed off by the trustee, trustee makes the rules, the trustee is a big pension administrator. I have no set benefit that I know of and can’t even find an account number. The minimum age I can retire at is 55 under the scheme and I would only be entitled to £7,000 under current valuation, which doesn’t hit a requirement for FBAR or FATCA. The trustee states clearly that all estimations of benefits are not guaranteed and that I may not get anything if the company flounders. Which given how they’re doing, wouldn’t surprise me. 
 

 

 

 

[Tesco 70]

The 8938 is concerned with income, the FinCEN, being a U.S. Dept of the Treasury form wanting to know how much you have outside the country.

So, if you have no distribution from the pension, (not sure if you do or not), then you'd simple select the 0-50k box. Do you have any other assets outside the U.S. that would get close to the filing thresholds? If no, then you must figure out the value of your pension, (cash surrender value). If less then $50k, then no 8938 needed. Keep in mind that if you are filing MFJ, include any assets from your spouse that would be outside the U.S. or joint accounts. It's an income form, not asset, so if it's worth a $1m and no distribution then no need to file.

If you're pension truly has no account number and you have no control over it, then it would be like your U.K OAP, which is not reportable on the FBAR. I don't completely understand how you have such a differential in value. Perhaps you had the 2SP, contracted out, but this seems to add an unnatural amount, beyond this.  Again, if you have over 10k, you need to file the FBAR and report joint accounts and signature authority. If you have less then $10k outside the U.S and absolutely no control over the pension, I would say you're clear on this form too. Hope this helps.

[QueenOfBlades 224]

I just found an old email about the FBAR, so it seems I just have my 2018 return to worry about with the FATCA now. Upon further investigation, I know a bit better why I missed it. I was planning to get re-married before the end of 2018, and I was engaged to a USC. There has never been an end to a tax year that I wasn’t married to a USC other than 2018 - because of her chronic health issues, we got married a week too late, first week of Jan 2019. Just missed the 2018 tax year when the threshold would have been higher. Sigh.

 

This is from the IRS themselves from the “FBARQuestions@irs.gov” e-mail address; specifically, the “BSA Compliance Dept” in one of their federal buildings. Useful for any future people with foreign defined benefit/contribution plans to see it in plain English.

 

 

[razorontour 72]

On 3/1/2020 at 4:33 AM, QueenOfBlades said:

I just found an old email about the FBAR, so it seems I just have my 2018 return to worry about with the FATCA now. Upon further investigation, I know a bit better why I missed it. I was planning to get re-married before the end of 2018, and I was engaged to a USC. There has never been an end to a tax year that I wasn’t married to a USC other than 2018 - because of her chronic health issues, we got married a week too late, first week of Jan 2019. Just missed the 2018 tax year when the threshold would have been higher. Sigh.

 

This is from the IRS themselves from the “FBARQuestions@irs.gov” e-mail address; specifically, the “BSA Compliance Dept” in one of their federal buildings. Useful for any future people with foreign defined benefit/contribution plans to see it in plain English.

 

 

Hi there, this is from the IRS's own website:

But, you don’t need to report foreign financial accounts that are:

• Correspondent/Nostro accounts,
• Owned by a governmental entity,
• Owned by an international financial institution,
• Maintained on a United States military banking facility, 
• Held in an individual retirement account (IRA) you own or are beneficiary of,
• Held in a retirement plan of which you’re a participant or beneficiary, or
• Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.

The two emboldened items describe both defined benefit and defined contribution pension arrangements. So the advice from the IRS agent would appear to directly contradict their own website. I'm inclined to attached more weight to the website, personally.

[razorontour 72]

Oh and re your transfer value being a lot higher than you expect, I would need a bit more precision on the terminology to help. But in any case, the cash amount you "paid" into the scheme is not that closely related to the transfer value. The way these DB schemes work is that the scheme provider will project into the future (based on a number of assumptions) how much they would need today if they want to be reasonably sure of meeting retirement payments to you. That cash amount is roughly equal to the transfer value. One way of thinking about it that if you took that 50k and invested it today in relatively safe assets (government bonds), you would expect that you would be able to meet the equivalent cash payments that Centrica would have been paying to you in retirement.

[razorontour 72]

On 2/27/2020 at 2:58 AM, Tesco said:

The 8938 is concerned with income, the FinCEN, being a U.S. Dept of the Treasury form wanting to know how much you have outside the country.

So, if you have no distribution from the pension, (not sure if you do or not), then you'd simple select the 0-50k box. Do you have any other assets outside the U.S. that would get close to the filing thresholds? If no, then you must figure out the value of your pension, (cash surrender value). If less then $50k, then no 8938 needed. Keep in mind that if you are filing MFJ, include any assets from your spouse that would be outside the U.S. or joint accounts. It's an income form, not asset, so if it's worth a $1m and no distribution then no need to file.

If you're pension truly has no account number and you have no control over it, then it would be like your U.K OAP, which is not reportable on the FBAR. I don't completely understand how you have such a differential in value. Perhaps you had the 2SP, contracted out, but this seems to add an unnatural amount, beyond this.  Again, if you have over 10k, you need to file the FBAR and report joint accounts and signature authority. If you have less then $10k outside the U.S and absolutely no control over the pension, I would say you're clear on this form too. Hope this helps.

I don't think that's quite right. Both Form 8938 and FBAR are trying to capture asset values, not income. See here for a comparison between the two reporting requirements. Whether the assets are income-producing or generate a tax claim is not relevant. https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

[Tesco 70]

The 8938 asks income reported too, (part III below). FBAR, maximum values only.

 

 

Edited April 10, 2020 by Tesco