UK investment bonds and life policies on the FBAR

When is a life policy a financial account for the FBAR

When it has a cash value. The FBAR definition of a financial account includes an insurance policy with a cash value and an annuity policy with a cash value. A policy you can surrender for money, in whole or in part, has a cash value. A policy that only pays out if the insured person dies has none.

The IRS manual on the FBAR (opens the official IRS page in a new tab) adds two points. No income needs to be paid out for the policy to be reportable, so a bond that is left to grow untouched is caught as much as one paying regular withdrawals. And the cash value of the policy is treated as the account value. The death benefit, which on an investment bond is often a little above the fund value, plays no part in the FBAR.

A policy issued by an insurer outside the United States is a foreign account. That covers a policy from a UK insurer and an offshore bond from an insurer in the Isle of Man, the Channel Islands or Ireland alike. Its highest value in the calendar year counts towards the aggregate test, and if all your foreign accounts together exceeded $10,000 at any time, the policy is listed with the rest.

• Onshore investment bond from a UK life company: generally reportable
• Offshore bond from an insurer outside the UK: generally reportable
• Endowment policy, including an old mortgage endowment: reportable while it has a surrender value
• Term life cover or critical illness cover with no surrender value: generally not reportable
• Whole of life policy: depends on whether the contract builds up a cash value

Which UK policies have a cash value

Most investment-type policies do, and most protection-only policies do not. An investment bond is bought with a lump sum that is invested in funds, and the policyholder can cash it in at any time for its surrender value. That right to cash makes it a financial account, even though it is sold as life insurance.

UK bonds are usually unit-linked or with-profits. A unit-linked bond moves with the funds chosen, and a with-profits bond grows through bonuses declared by the insurer. Both normally quote a surrender value on request and on each statement. Endowments work in a similar way over a fixed term. All of them are reportable for as long as they have a value that can be drawn.

Protection policies are different. Level or decreasing term cover, family income benefit and many guaranteed whole of life plans pay only on a claim and give nothing back if cancelled. Some older whole of life policies were written on an investment basis and do build up a cash value. The policy schedule or a letter from the insurer will say whether a surrender value exists.

What value goes on the FBAR for an investment bond

The highest cash value during the calendar year, converted to dollars at the Treasury rate for 31 December and rounded up. The IRS manual treats the cash value as the account value, so the figure is the surrender value the insurer would pay, not the premium paid in and not the death benefit.

The FBAR asks for a reasonable approximation of the greatest value in the year, and periodic statements may be relied on if they fairly reflect it. For a unit-linked bond in a volatile year, a single anniversary valuation may not reflect the peak, and a valuation request or online history gives a better figure. The method is the same as for a bank account, as our post on the FBAR maximum value and exchange rate explains.

On FinCEN Form 114, the type of account is Other, with a short description such as life insurance policy with cash value. The financial institution is the insurer, the account number is the policy number, and a jointly owned bond is entered at its full value with the joint owner's details.

Take a US citizen working in Leeds who put an inheritance into an onshore investment bond several years ago on the advice of a UK adviser. She takes a small regular withdrawal and has a current account and a cash ISA. On her FBAR she lists the bond under Other at its highest surrender value in the year, alongside her two bank accounts at their own peaks. The bond's death benefit appears nowhere.

Does an investment bond go on Form 8938 as well

Yes, once that form's own threshold is met. The Form 8938 instructions (opens the official IRS page in a new tab) define a financial account to include any cash value life insurance or annuity contract maintained by a foreign insurance company or other foreign financial institution, so a UK bond is a specified foreign financial asset in the same way as a bank account.

Form 8938 applies only where a tax return is required and the asset total passes the threshold. For tax year 2025, a US person living abroad and not filing jointly files when specified foreign financial assets exceed $200,000 at year end or $300,000 at any time, and the joint figure is $400,000 at year end or $600,000 at any time. The bond counts at its maximum value alongside every account, ISA and pension.

The instructions value assets at fair market value and allow a financial account's maximum value to be taken from periodic statements, unless you know or have reason to know the statements do not reflect it. In practice we use the same surrender value figures for both reports. The IRS comparison of Form 8938 and FBAR requirements (opens the official IRS page in a new tab) is a useful check on the differences, and our page on Form 8938 covers the form.

How does the US tax income inside a UK bond

That is a separate question from reporting, and it needs a review of the contract. US law has its own definition of a life insurance contract in section 7702 of the tax code. A UK bond sold as life insurance is not automatically treated as one for US tax, and the answer shapes when any growth is taxed.

Section 7702 requires a contract to be life insurance under the applicable law and to meet one of two actuarial tests linking the cash value to the death benefit. Single premium investment bonds, with a small margin of life cover over the fund value, are the kind of contract where the tests need checking. Where a contract that is life insurance under the applicable law fails them, the statute treats the yearly income on the contract, broadly the growth in its surrender value, as ordinary income of the policyholder each year.

The UK taxes the same bonds in its own way. HMRC's helpsheets on gains from UK and foreign life insurance policies describe chargeable event gains, taxed as income when a bond is surrendered in whole or in part, matures or ends on a death. Withdrawals within an allowance of one twentieth of each premium a year are deferred, up to the amount paid in. UK policies carry a basic rate tax credit that foreign policies normally do not, and gains on foreign policies go on the SA106 foreign pages (opens the official HMRC page in a new tab).

• Whether the contract meets the US definition of life insurance
• Whether US income arises each year or only when money is drawn
• Whether the UK and US charges fall in the same year, which affects foreign tax credits

Is there a US excise tax on premiums paid to a UK insurer

There can be. The US charges a federal excise tax on premiums paid on policies issued by foreign insurers, reported on Form 720 under IRS No. 30. The form lists life insurance, sickness and accident policies, and annuity contracts as one of the categories, at a small percentage of each premium.

The Form 720 instructions say the person who pays the premium to the foreign insurer, or to a nonresident such as a foreign broker, pays the tax and files the return. Failing that, the obligation falls on whoever issued or sold the policy or is insured under it. For a US citizen who wrote a cheque to a UK life company, the payer is usually the policyholder.

The US-UK tax treaty (opens the official IRS page in a new tab) covers this excise tax. Article 7 says it is not imposed on policies whose premiums are receipts of an insurance business carried on by an enterprise of the United Kingdom, unless the policy is part of a conduit arrangement. A bond from a UK-resident insurer entitled to treaty benefits may therefore fall outside the charge. An offshore bond from an insurer in the Isle of Man or the Channel Islands is not covered by the UK treaty, and its position needs separate review.

What to gather if you hold UK bonds or policies

The policy schedule, the latest statements with surrender values, and a record of every premium and withdrawal. Those papers answer the reporting question for the FBAR and Form 8938, and they are the starting point for the US tax review and the excise question.

A policy bought on UK advice may have been left off earlier FBARs. Leaving it off was a reporting failure, and the correction route depends on whether income was also missed on the tax returns. Our foreign income and FBAR reporting service covers the annual reports, and the private client service covers larger holdings. Where treaty positions are taken, our treaty relief service and the page on the US-UK tax treaty explain the disclosure.

We prepare the FBAR, Form 8938 and Form 1040 from one schedule of accounts and policies, so the values agree. The document checklist in our client portal lists what to send, and our post on whether a UK pension is reportable on the FBAR covers the other long-term savings most people hold. The full set of account rules is in our guide to FBAR and FATCA for UK residents.