How the U.S. Taxes Aviva (Friends Life) Personal Pension Plans
In many countries outside the U.S., a Personal Pension is a common type of investment vehicle. From the perspective of the IRS, (typically) a personal pension is not considered a qualifying pension plan that may receive preferential tax deferral treatment under one of the bilateral tax treaties — since it is not an “employer” pension plan.
Whether or not the personal pension meets one of the IRS exclusions or exceptions for U.S. Tax — it is still reportable on the FBAR and Form 8938 — and possibly other forms such as a Form 3520-A and/or Form 8621 PFIC.
Personal Pension & U.S. Tax & Reporting
One common example we have dealt with at Golding & Golding is the UK and an Aviva account. A person may invest their earnings in to an account, and the account is referred to as a personal pension.
This type of pension is distinct from an Employment pension, which is generally:
- Employee Deferrals with Employer Match
- Pre-Tax Dollars
- Exempt from immediate taxation
Is a Personal Pension Taxable?
Yes. Generally, unless an exception or exclusion applies, a personal pension is taxed on the growth (accruals) even if the income is not distributed.
In other words, unless the investment meets the technical definition of a qualifying retirement account (and is therefore exempt), the income within the fund does not received deferred treatment — and become immediately taxable.
The reason this can become a major problem, is because usually the fund grows tax-free overseas — so there are no foreign tax credits to apply.
Whether or not it is taxed, the personal pension must be reported to the IRS annually, when the threshold requirements are met.
5 Common Forms
The following is a summary of five (5) common international tax forms. If these forms are not properly filed (and have not been properly filed in the past), it may lead to significant fines and penalties — unless you submit to one of the approved IRS offshore disclosure programs:
Common International Tax Forms You May Have Missed
The following is a list of the more common forms you may have missed:
FBAR (FinCEN 114)
The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.
The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does the total amount exceed $10,000 (USD)?
If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.
This form is used to report “Specified Foreign Financial Assets.”
There are four main thresholds for individuals is as follows:.
- Single or Filing Separate (in the U.S.): $50,000/$75,000
- Married with a Joint Returns (In the U.S): $100,000/$150,000
- Single or Filing Separate (Outside the U.S.): $200,000/$300,000
- Married with a Joint Returns (Outside the U.S.): $400,000/$600,000
Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:
- Gift from a Foreign Person: More than $100,000.
- Gift from a Foreign Business: More than $16,076.
- Foreign Trust: Various threshold requirements involving foreign Trusts
Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:
- Category 1: U.S. shareholders of specified foreign corporations (SFCs) subject to the provisions of section 965.
- Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
- Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
- Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
- Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).
Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).
The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.
*There are some exceptions, exclusions, and limitations to filing.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.