Does the penalty base cover three years or six?

Both, depending on the asset. Foreign financial accounts that should have been but were not reported on an FBAR enter for each of the six years in the covered FBAR period. Foreign financial assets omitted from Form 8938, and accounts or assets whose gross income was not reported, enter only for each of the three years in the covered tax return period. UK company shares therefore feed three years, while an unreported UK bank account feeds six.

Is my UK stocks and shares ISA reportable, and does it go in the base?

Almost always yes to both. GOV.UK confirms the ISA is a UK wrapper capped at 20,000 pounds for the 2026 to 2027 tax year, but that exemption has no US effect. An account at a financial institution outside the United States is a foreign financial account, and whether it produced taxable income has no effect on the FBAR requirement. An unreported ISA is a category (a) account and enters the base at its 31 December value.

Do UK SIPPs and workplace pensions get the same carve-out as Canadian plans?

No. The exclusion under Rev. Proc. 2014-55 for an eligible individual under section 4.01 applies to Canadian registered plans only. There is no parallel relief for a UK SIPP, personal pension or workplace defined contribution scheme. Whether the plan enters the base is decided by compliance status, not by a treaty position on income: if it should have been reported on the FBAR or Form 8938 and was not, it counts at its 31 December value.

Does the base include the stock in my UK company or the company's bank accounts?

Under IRS FAQ 4, the penalty base includes the stock in the corporation, and not the underlying financial accounts, unless the entity is a disregarded entity for federal income tax purposes, in which case the underlying accounts enter instead. The same principle applies to a foreign partnership. FAQ 5 permits any reasonable valuation method, naming the Form 5471 balance sheet, but no valuation discounts may be taken.

What happens if I fail the 330-day non-residency test?

You are directed into the domestic procedures and the 5 percent penalty applies. Those procedures expressly require that the individual fail the applicable non-residency requirement, which for a US citizen means no year among the most recent three with 330 full days outside the United States and no US abode. The foreign procedures impose no miscellaneous offshore penalty at all, so the rolling three-year window is worth testing carefully before conceding.

IRS Streamlined Filing: The 5% Penalty Base

Q: Is the 5% penalty based on the highest balance at any time or the December 31 balance?

December 31. IRS Streamlined Domestic Offshore FAQ 6 directs the filer to enter the value of the taxpayer's personal financial interest in each asset as of December 31 of the applicable year, add the totals for each year, and select the highest aggregate amount as the base. Peak intra-year balances belong on the FBAR, where records must show the maximum value during the year, but they never enter the penalty base.

Under the IRS Streamlined Filing Compliance Procedures, the Title 26 miscellaneous offshore penalty is 5 percent of the highest aggregate balance or value of the foreign financial assets that are subject to the penalty during the years in the covered tax return period and the covered FBAR period. That highest aggregate figure is built from year-end values. You take the 31 December balance or value of every asset that belongs in the base, for each year in the covered period, add those year-end figures together within each year, and then select the highest of those annual totals. The penalty is 5 percent of that one number, charged once.

That last point is where most of the material published on this subject goes wrong. A number of pages that currently rank well tell readers the base is the highest balance the accounts reached at any point during the six-year lookback, and then illustrate the calculation with a balance that peaked mid-year. That is not the method the IRS describes. The Streamlined Domestic Offshore FAQs at irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures-for-us-taxpayers-residing-in-the-united-states-frequently-asked-questions-and-answers instruct the filer to enter the value of the taxpayer's personal financial interest in each asset as of December 31 of the applicable year, add up the totals for each year, and select the highest aggregate amount as the base for the 5-percent penalty.

For a US person with a UK asset profile, the difference is not academic. Sterling balances swing on bonus dates, property completions and pension contributions, and the whole computation then has to be converted into US dollars at a year-end rate that itself moves. In the returns we prepare for clients coming back from London, the year-end method and the peak method routinely produce five-figure differences on the same portfolio. Below we set out the mechanic exactly as the IRS states it, then run a full six-year UK illustration with sterling balances, dollar conversions and the resulting penalty.

How is the 5% penalty calculated under IRS Streamlined Filing?

The Streamlined Domestic Offshore Procedures, set out at irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-united-states, are the branch of the programme for taxpayers who fail the applicable non-residency requirement. A qualifying submission consists of amended returns for the most recent three years for which the US return due date, or properly applied for extended due date, has passed, and delinquent or amended FBARs for the most recent six years for which the FBAR due date has passed. Tax, interest and the miscellaneous offshore penalty are all paid with the package.

The miscellaneous offshore penalty is 5 percent of the highest aggregate balance or value of the taxpayer's foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. The highest aggregate balance or value is determined by aggregating the year-end account balances and year-end asset values of all foreign financial assets subject to the penalty for each year in the covered period, and then selecting the highest aggregate figure from among those years. It is one rate, applied to one year, once.

In practice the computation runs in this order, and it is the order in which we build the schedule that supports Form 14654:

Fix the two covered periods: three tax return years, six FBAR years. The three-year window sits inside the six-year window, so the most recent three years are covered by both.
For each of the six years in the covered FBAR period, list every foreign financial account, as defined by the FinCEN Form 114 instructions, in which you have a personal financial interest and which should have been but was not reported on an FBAR.
For each of the three years in the covered tax return period, add every foreign financial asset, as defined by the Form 8938 instructions, in which you have a personal financial interest and which should have been but was not reported on Form 8938.
For each of the three years in the covered tax return period, add every foreign financial account or asset for which gross income was not reported on the Form 1040 for that year.
Value each item at 31 December of the applicable year, taking only the value of your personal financial interest, and enter zero for any asset in any year in which it was already compliant.
Convert each 31 December sterling figure into US dollars, total each year separately, identify the highest annual total, and multiply that single figure by 5 percent.

The certification itself is made on Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures, revision 9-2017, available at irs.gov/pub/irs-pdf/f14654.pdf. Among other things it requires the taxpayer to certify that the miscellaneous offshore penalty amount is accurate, which is precisely why the schedule behind the number matters as much as the number.

Is the penalty based on the highest balance at any time, or the December 31 balance?

It is the December 31 balance. IRS Streamlined Filing FAQ 6 for the domestic procedures is explicit: the filer enters the value of the taxpayer's personal financial interest in each asset as of December 31 of the applicable year, adds up the totals for each year, and selects the highest aggregate amount as the base. There is no peak-value test anywhere in the computation of the penalty base.

The confusion has an obvious source. The FBAR rules do use a maximum-value concept. Reporting is triggered where the aggregate value of the foreign financial accounts exceeded $10,000 at any time during the calendar year reported, and the record-keeping requirement at irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar is to retain records showing the maximum value during the year for each account. That maximum value belongs on the FinCEN Form 114. It does not belong in the penalty base. Writers who have not separated the two rules import the FBAR maximum into the streamlined computation and overstate the penalty.

Take a single account to see the size of the error. Assume, purely as an illustration, a UK savings account that received the proceeds of a London flat sale in June and held 480,000 pounds for four months before the funds were applied to a US property purchase, closing the year at 41,000 pounds. At an assumed year-end rate of 1.22 US dollars to the pound, the year-end figure that belongs in the base is $50,020. The peak figure a competitor's method would put in is $585,600. The same distortion, applied across a whole portfolio, is quantified in the worked example below.

Which years does the base cover, three or six?

Both, depending on the asset. This is the asymmetry almost no page explains properly, and it is the single most useful thing a US-UK filer can understand about the computation. FAQ 6 builds the base from three categories with two different lookbacks:

Category (a), six years: for each of the six years in the covered FBAR period, all foreign financial accounts, per the FinCEN Form 114 instructions, in which the taxpayer has a personal financial interest that should have been but were not reported on an FBAR.
Category (b), three years: for each of the three years in the covered tax return period, all foreign financial assets, per the Form 8938 instructions, in which the taxpayer has a personal financial interest that should have been but were not reported on Form 8938.
Category (c), three years: for each of the three years in the covered tax return period, all foreign financial accounts and assets for which gross income was not reported for that year.

The practical consequence for a UK profile is sharp. A UK current account, savings account, stocks and shares ISA, SIPP or workplace pension that is a foreign financial account for FinCEN purposes and was left off the FBAR sits in category (a) and therefore feeds all six years. Shares held directly in a UK limited company are not a foreign financial account on the FBAR, but they are a specified foreign financial asset for Form 8938 purposes under the reporting summary at irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers. Those shares therefore enter under category (b) for the three covered tax return years only, and never for the earlier three.

Mapped year by year across the illustration used below, where Year 1 is the earliest covered FBAR year and Year 6 the most recent covered tax return year, the grid looks like this:

Year 1: category (a) only. Current account, savings account, stocks and shares ISA, SIPP and workplace pension all enter as unreported FBAR accounts. The UK company shares do not enter at all.
Year 2: category (a) only. Same five accounts. Company shares still outside the base.
Year 3: category (a) only. Same five accounts. Company shares still outside the base.
Year 4, the first covered tax return year: all three categories are live. The five accounts enter under (a); the UK company shares now enter under (b); and the ISA, SIPP and savings interest that never reached the Form 1040 also fall within (c). An asset is counted once for the year, not once per category.
Year 5: as Year 4, with that year's 31 December values.
Year 6: as Year 4, with that year's 31 December values.

A worked UK example: six years of 31 December values

The IRS runs its own example at FAQ 12, and it is worth stating first because it is authoritative. In that example, year-end balances of a checking account of $10,000, a savings account of $20,000 and a Canadian retirement plan of $100,000 give a highest aggregate of $130,000 and a penalty of $6,500, being $130,000 multiplied by 5 percent. Remove the Canadian plan and the revised base is $30,000, giving a penalty of $1,500, a reduction of $5,000. Those figures are the IRS's own. What follows below is our illustration, and the figures in it are invented for teaching purposes.

The facts assumed are a US citizen who lived and worked in London for several years, returned to the United States, and now cannot point to any one of the three most recent tax years in which she was outside the United States for 330 full days without a US abode. The assumptions behind the schedule are these:

All figures are an illustration only. No client figures are used and none of the balances are real.
Assumed 31 December GBP to USD rates, stated as assumptions rather than published rates: Year 1 at 1.25, Year 2 at 1.35, Year 3 at 1.20, Year 4 at 1.38, Year 5 at 1.22, Year 6 at 1.26. A real submission uses one documented year-end rate source, applied consistently across all six years, and keeps the source in the file.
Assets: a UK current account, a UK savings account, a stocks and shares ISA, a SIPP, a workplace defined contribution pension, and 100 percent of the shares in a UK limited company that is a regarded corporation for US federal income tax purposes, not a disregarded entity.
She also owns a UK rental flat directly. It is excluded from the base entirely, for the reason given further down.
Every account was omitted from the FBAR in every one of the six years, and the company shares were omitted from Form 8938 in each of the three covered tax return years.

The per-year 31 December aggregates then run as follows. Sterling components are listed in the order current account, savings account, ISA, SIPP, workplace pension, and then company shares where they apply:

Year 1: 18,000 pounds, 45,000 pounds, 62,000 pounds, 180,000 pounds, 40,000 pounds. Aggregate 345,000 pounds. At an assumed 1.25, that is $431,250.
Year 2: 22,000 pounds, 60,000 pounds, 71,000 pounds, 205,000 pounds, 52,000 pounds. Aggregate 410,000 pounds. At an assumed 1.35, that is $553,500.
Year 3: 16,000 pounds, 38,000 pounds, 68,000 pounds, 198,000 pounds, 61,000 pounds. Aggregate 381,000 pounds. At an assumed 1.20, that is $457,200.
Year 4: 25,000 pounds, 52,000 pounds, 84,000 pounds, 232,000 pounds, 74,000 pounds, plus company shares of 150,000 pounds. Aggregate 617,000 pounds. At an assumed 1.38, that is $851,460.
Year 5: 21,000 pounds, 41,000 pounds, 91,000 pounds, 246,000 pounds, 86,000 pounds, plus company shares of 165,000 pounds. Aggregate 650,000 pounds. At an assumed 1.22, that is $793,000.
Year 6: 19,000 pounds, 35,000 pounds, 97,000 pounds, 258,000 pounds, 97,000 pounds, plus company shares of 140,000 pounds. Aggregate 646,000 pounds. At an assumed 1.26, that is $813,960.

The highest aggregate is Year 4 at $851,460. The miscellaneous offshore penalty is 5 percent of that figure, or $42,573. It is charged once, on that one year, and not per year or per account. Every other year on the schedule is worked out and then simply not used, but it still has to be worked out, because you cannot identify the highest year without computing all six.

Now apply the peak-value method the poorer sources describe. If the savings account had held 480,000 pounds in Year 5 following the flat sale described earlier, and each asset were taken at its intra-year high, the Year 5 peak aggregate would be 1,089,000 pounds, or $1,328,580 at the assumed 1.22 rate. Five percent of that is $66,429. Against the correct year-end figure of $42,573, the filer would have overpaid $23,856 and certified an inaccurate penalty amount on Form 14654. Note also that the overpayment is smaller than the raw difference on the savings account alone, because the correct method puts the base in a completely different year. That is the sort of interaction only a full six-year schedule surfaces.

What exchange rate do you use, and can it change the base year?

It can, and this is a uniquely UK-facing problem that no competing page addresses. Every figure entering this computation is a 31 December sterling balance that has to be expressed in US dollars, so the base year is decided by sterling balances and the year-end rate together, not by sterling alone.

Look again at the illustration. Measured in sterling, the largest year is Year 5 at 650,000 pounds. Measured in dollars, the largest year is Year 4 at $851,460, because the assumed year-end rate in Year 4 is 1.38 against 1.22 in Year 5. A filer who eyeballs the sterling column, picks Year 5 and multiplies $793,000 by 5 percent arrives at $39,650 and understates the certified penalty by $2,923. The reverse error is just as common and costs the client money instead. The discipline is simple: convert every year first, then compare, and never rank the years in sterling.

Two working rules follow. Use a single, documented year-end rate source and apply it to all six years rather than mixing sources between years. And retain the rate evidence with the schedule, because the certification on Form 14654 is a certification that the penalty amount is accurate, and accuracy here is a function of the conversion as much as of the balances.

What assets go into the base, and which stay out?

FAQ 2 gives the cleanest exclusion rule in the whole programme: any asset, tax compliant or non-compliant, that was not the kind of asset reportable on either FBAR or Form 8938 is not included in the penalty base. Directly held foreign real property is not reportable on either form, so a UK rental flat held in the taxpayer's own name sits entirely outside the base, however large it is and however badly the rental income was reported. The unreported rental income still has to be picked up on the amended Form 1040 and taxed with interest, but it does not create a penalty base entry.

FAQ 1 draws the second boundary. The penalty is not intended to reach assets in which the taxpayer had no financial interest, such as an employer's account over which the taxpayer had only signature authority, or portions of assets in which the taxpayer had no personal financial interest. The IRS applies the principles of the OVDP FAQs 31 through 33, 35.1, and 38 through 41 in working this out. For a UK finance professional who is a signatory on a corporate treasury account, that account is reportable on the FBAR but does not enter the 5 percent base.

The third boundary is the one that catches people out, and it is expensive. Under FAQ 3, assets reported on delinquent Forms 3520 or 5471 are not excluded from the penalty base. The Form 8938 duplicate-reporting relief applies only to timely filed Forms 3520 or 5471. Filing a stack of late Forms 5471 as part of the same catch-up does not pull the underlying asset out of the base. Only forms that were filed on time do that. It is counter-intuitive, it runs against the instinct that filing the form fixes the problem, and it is worth modelling before the package goes out.

Do UK SIPPs and workplace pensions go in the base?

There is no UK carve-out. The Canadian relief is real and specific: under Rev. Proc. 2014-55, an eligible individual within section 4.01 gets Canadian registered plans excluded from the 5 percent penalty base, and IRS FAQ 12 exists precisely to give effect to it. That relief is Canadian. It does not travel. There is no parallel exclusion for a UK SIPP, a UK personal pension or a UK workplace defined contribution scheme, and any page that implies otherwise is not reading the procedure.

It is also important to keep two separate questions apart. Whether the UK plan attracts US tax on its inside build-up is a treaty question under the UK-USA Double Taxation Convention signed in 2001, which entered into force on 31 March 2003. Whether the plan enters the penalty base is a compliance question: was it a foreign financial account that should have been but was not reported on the FBAR, and for the three covered tax return years, was it a specified foreign financial asset that should have been but was not reported on Form 8938. A treaty position on income does not remove an unreported account from the base. Compliance status does.

For most of the UK files we prepare, the pension is the largest single line on the schedule, which means the penalty is dominated by an asset the client never thought of as an offshore account at all. In the illustration above, the SIPP alone accounts for 232,000 pounds of the 617,000 pound base year.

Does the base take the stock in my UK company or the company's bank accounts?

FAQ 4 answers it directly. Where the taxpayer owns a foreign corporation, the penalty base includes the stock in the corporation, and not the underlying financial accounts, unless it is a disregarded entity for federal income tax purposes. If the entity is disregarded, the underlying foreign financial accounts are the reportable items and they enter the base instead. The IRS states that the same principle applies to assets held in a foreign partnership.

For a UK limited company that is treated as a corporation for US purposes, that means one line on the schedule for the shares, not six lines for the company's sterling and dollar bank accounts. If a check-the-box election has made the company disregarded, the schedule flips and the company's own accounts come in. Getting that classification right before building the base is not a detail, because the two answers can differ by a wide margin in either direction.

On valuation, FAQ 5 is unusually generous in one direction and unusually firm in the other. Any reasonable method of valuing the stock may be used, and the IRS specifically names the balance sheet on the Form 5471 as an example. But no valuation discounts may be taken on foreign financial assets subject to the 5-percent penalty. For a closely held UK trading company, that means the minority and marketability discounts a business owner would expect to apply are simply unavailable here. In the illustration above, the 150,000 pound, 165,000 pound and 140,000 pound share values are the Form 5471 balance sheet figures at each 31 December, taken without discount.

How do compliant years and compliant assets enter as zero?

This is the rule with the greatest practical leverage, and it is stated plainly in FAQ 6: for any year in which a foreign financial account was FBAR compliant, and for the most recent three years in which a foreign financial asset was both Form 8938 and Form 1040 compliant, the amount entered on the form will be zero. Compliance is tested per asset and per year, not for the portfolio as a whole.

Return to the illustration and change one fact. Suppose the SIPP had in fact been reported on the FBAR in all six years, and on Form 8938 and the Form 1040 in the three covered tax return years. It then enters at zero in every year. The revised aggregates become $206,250, $276,750, $219,600, $531,300, $492,880 and $488,880. Year 4 is still the highest, at $531,300, and 5 percent of that is $26,565, against $42,573 on the original facts. One asset's compliance status moved the penalty by $16,008.

FAQ 7 takes the same logic to its extreme. Where the most recent three years are fully compliant, there are no assets in the penalty base for those years at all. The filer computes the aggregate year-end values for the three prior years in the covered FBAR period, pays 5 percent of the highest of those, and attaches the certification to a Form 1040-X for the most recent year showing a zero change in tax, marked Streamlined Domestic Offshore in red ink. That is the route for the reader who owes no additional tax and only missed FBARs.

How are joint UK accounts and non-signing spouses handled?

UK couples hold joint current accounts, joint savings and jointly subscribed company shares as a matter of course, and the base does not simply take the account balance. FAQ 1 limits the base to the value of the taxpayer's personal financial interest, and expressly excludes portions of assets in which the taxpayer had no personal financial interest. The FBAR still reports the whole account, because reporting and the penalty base are different tests, but the Form 14654 schedule carries only the taxpayer's share.

Where a spouse or former spouse will not sign, FAQ 14 provides the route. A joint amended return may be submitted with only one signature, so long as it shows a net increase in tax, with SDO FAQ 14 written in red ink in the spouse's signature area. It is not available for a return showing a net decrease in tax or an increase in credit. For separating couples with UK accounts still in joint names, that provision is often the difference between a package that can be filed and one that cannot.

Why am I in the domestic procedures rather than the zero-penalty foreign ones?

Because of a residence test that rolls forward every year, and this is the transition the search results treat as two static boxes. Under the Streamlined Foreign Offshore Procedures at irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states, a compliant taxpayer will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties. The miscellaneous offshore penalty is not imposed at all. Zero. The domestic procedures, by contrast, expressly require that the individual fail to meet the applicable non-residency requirement. Failing that test is the gateway into the 5 percent regime, not a disqualification from streamlined relief.

For US citizens and lawful permanent residents, the non-residency requirement is met if, in any one or more of the most recent three years for which the US tax return due date has passed, the individual did not have a US abode and was physically outside the United States for at least 330 full days. For individuals who are not US citizens or lawful permanent residents, the test is whether in any one or more of the last three years the individual did not meet the substantial presence test of IRC section 7701(b)(3). The IRS also notes that neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States necessarily means that the individual's abode is in the United States, which leaves more room on the abode question than most readers assume.

The timing point is the one that costs money. The three-year window rolls forward. A person who left London and moved back to the United States may well have had a clean 330-day year in the past, but as each filing season passes that year drops out of the window that can be tested, and the same underlying UK assets that would have produced a zero-penalty foreign filing produce a 5 percent domestic filing instead. Other gateway conditions apply on both sides. The taxpayer must have a valid Taxpayer Identification Number and must not be under IRS civil examination or criminal investigation, and under FAQ 17 a taxpayer who is eligible for a Social Security number but does not have one may not use the Streamlined Filing Compliance Procedures, with a submission made without a valid SSN not eligible for the favorable penalty provisions. The domestic procedures also require that the taxpayer have previously filed a US tax return, if required, for each of the most recent three years, because they take amended Forms 1040-X only and not delinquent original returns. The general overview sits at irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures.

What must the non-willfulness narrative say, and where does the package go?

Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake, or conduct that is the result of a good faith misunderstanding of the requirements of the law. The Form 14654 certification must state that you are eligible for the streamlined domestic offshore procedures, that all required FBARs have now been filed, that the failure resulted from non-willful conduct, and that the miscellaneous offshore penalty amount is accurate.

FAQ 13 sets out what the narrative itself has to cover. It must explain the source of funds in all the foreign accounts and assets, the taxpayer's contacts with the account including withdrawals, deposits and investment or management decisions, any reliance on a professional adviser with that person's name, address and telephone number and a summary of the advice given, and any inadvertent no answer given on Form 1040 Schedule B, line 7a. Where a married couple files together and each spouse has different reasons, each spouse's reasons must be given separately. Thin narratives are the most common weakness in packages assembled without help.

The submission is mailed to Internal Revenue Service, 3651 South I-H 35, Stop 6063 AUSC, Attn: Streamlined Domestic Offshore, Austin, TX 78741, with Streamlined Domestic Offshore written in red at the top of each return. Where a completed submission contains an error, FAQ 16 provides for corrected amended returns and an amended Form 14654 marked amended in red ink, with the returns marked Amended Streamlined Domestic Offshore.

Can an over-inclusive base be fixed after filing?

It can, and FAQ 12 shows the IRS doing exactly that. In the IRS's own example the original base of $130,000 produced a $6,500 penalty; removing the Canadian retirement plan produced a revised base of $30,000, a penalty of $1,500 and a $5,000 reduction, claimed on Form 14708 and mailed to Internal Revenue Service, 3651 South I-H 35, Stop 4305 AUSC, Attn: Streamlined Unit, Austin, TX 78741.

The detail worth generalising is what the IRS says next: the revised highest aggregate year may be for a different year than the year originally certified. Remove one asset from the schedule and the base can move to a different year entirely, exactly as the SIPP variation above moved the totals. So the remedy is not simply to subtract the asset and recompute one line. It is to rebuild all six years and reselect the highest. The same discipline applies whether you are correcting a filed package under FAQ 16 or building one for the first time.

What does the 5 percent actually buy?

A taxpayer who complies with the domestic procedures will be subject only to the Title 26 miscellaneous offshore penalty and will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties. For a client with six years of unfiled FBARs across five or six UK accounts, that trade is usually the entire point of the exercise, and for a high-net-worth filer the arithmetic is worth stating plainly.

The 5 percent is charged once, on one year, not per year and not per account.
It is paid in a single remittance with the tax and interest due on the amended returns.
It replaces accuracy-related penalties, information return penalties and FBAR penalties for the covered years.
It is not imposed at all under the foreign procedures, so the non-residency test is worth testing carefully before conceding the domestic route.
It is computed from 31 December values, so the base can often be reduced legitimately by fixing the compliance status of the single largest asset, as the SIPP variation showed.
It cannot be reduced by valuation discounts on shares in a UK company, however defensible those discounts would be in any other context.

One UK-specific point deserves a closing note. The ISA is a UK exemption, not a US one. GOV.UK confirms at gov.uk/individual-savings-accounts that in the 2026 to 2027 UK tax year the maximum that can be saved in ISAs is 20,000 pounds, that there are four types of ISA, being cash, stocks and shares, innovative finance and the Lifetime ISA, and that you must be 18 or over to open one. None of that protects the income from the US return, and the FBAR rules are blunt on the point: an account at a financial institution located outside the United States is a foreign financial account, and whether the account produced taxable income has no effect on the filing requirement. FBARs are due 15 April with an automatic extension to 15 October. Form 8938 thresholds then depend on where you live, being more than $50,000 on the last day of the tax year or more than $75,000 at any time for a single filer in the United States and more than $100,000 or $150,000 respectively for joint filers, against more than $200,000 or $300,000 for a single filer abroad and more than $400,000 or $600,000 for joint filers abroad. A stocks and shares ISA of any real size therefore tends to be reportable, non-compliant and squarely inside the 5 percent base.

If you are working through a streamlined domestic package on a UK asset profile, the schedule behind Form 14654 is the whole job. Our streamlined filing compliance and FBAR preparation pages at us-uktax.com set out how we build and evidence that schedule, from 31 December valuations and exchange-rate documentation through to the Form 5471 balance sheet figures for a UK company and the non-willfulness narrative that has to sit alongside them.