Introduction: Why Dormant Bank Accounts Trip Up Wealthy American Filers
Forgotten, dormant bank accounts are the most common reason an otherwise diligent American in Britain ends up with a missed FBAR. You file every year, you list your current account, your savings and your brokerage account, and you assume the job is done. However, old accounts rarely announce themselves. A student passbook, a savings account opened for a signing bonus or an account in a former married name can sit quietly for a decade. Consequently, every FBAR you filed while it existed is incomplete.
At TaxYork, we see this pattern constantly among investment bankers, company owners and senior professionals. The amounts are rarely large. Nevertheless, the reporting failure is real, because the FBAR asks for every foreign account, not just the ones you use. This guide explains how dormant bank accounts are treated on both sides of the Atlantic. It also covers what happens when a UK bank hands your money to the Reclaim Fund, and how to correct the record in 2026 now that the old penalty-free route has gone.
How Dormant Bank Accounts Break an Otherwise Clean FBAR
The logic is simple. Once your foreign accounts together exceed $10,000 at any point in the year, you must list every foreign account you hold. Wealthy filers cross that line with their main accounts alone. Therefore, a forgotten account holding £300 is still reportable, and leaving it off turns a compliant report into an inaccurate one.
Furthermore, the omission tends to repeat with dormant bank accounts. An account forgotten in 2015 is usually forgotten in every year that follows. As a result, a single dormant balance can taint six open FBAR years and several Forms 8938. Where interest was credited, it can also taint a run of income tax returns in both countries.
Who This Guide Is For
This article is written for US citizens and green card holders living in the UK. It also serves dual nationals and accidental Americans who have recently discovered their US filing duties. In particular, it suits readers with substantial assets elsewhere, because their main accounts already push them over the reporting thresholds. If you are catching up on several years at once, our team handles US tax returns for expats alongside the FBAR work.
What Makes UK Dormant Bank Accounts Dormant, and Where the Money Goes
Before you can report an account properly, you need to know whether it still exists. In the UK, dormant bank accounts follow a statutory scheme that most American filers have never encountered.
The 15-Year Rule Behind UK Dormant Bank Accounts
A UK account is treated as dormant when there have been no customer-initiated transactions for 15 years. Interest credited by the bank does not count as your activity, so an account can keep growing while still ageing towards dormancy. Additionally, banks must first try to reunite you with your money, using address tracing, email, telephone and credit reference checks.
Importantly, dormancy does not close dormant bank accounts. Until the bank transfers the balance away, you still hold a deposit with a UK financial institution. Accordingly, for US purposes the account remains an open foreign financial account in every year it exists.
The Reclaim Fund Transfer
If the bank cannot find you, it may transfer the balance to Reclaim Fund Ltd. This not-for-profit body, owned by HM Treasury, administers the Dormant Assets Scheme. The fund keeps enough to meet future claims and releases the remainder to good causes. According to the government, the scheme has released £892 million so far.
The legal effect of that transfer matters. Under section 1 of the Dormant Bank and Building Society Accounts Act 2008, you lose your right to payment against the bank. Instead, you gain the same right against the reclaim fund. In other words, your money has not vanished, but it no longer sits in a bank account. Moreover, your right to reclaim is permanent, and repayment includes the interest the account would have earned, less any charges.
Tracing Forgotten Accounts Before You File
The free My Lost Account service lets you search more than 30 banks, all UK building societies and National Savings and Investments in one application. Institutions generally respond within 90 days. Similarly, Reclaim Fund Ltd explains that customers are repaid through their original bank, which then recovers the money from the fund.
For American filers holding dormant bank accounts, we recommend running this search before you prepare any catch-up submission. Otherwise, you risk correcting your FBARs once and then discovering a second forgotten account a year later, which is far harder to explain.
The FBAR Rules for Dormant and Forgotten Accounts
The FBAR itself, FinCEN Form 114, does not distinguish between active accounts and dormant bank accounts. Specifically, FinCEN's reporting guidance requires a US person to file when the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year.
The Aggregate Threshold Catches Every Small Balance
The $10,000 test is aggregate, not per account. Therefore, once your main London accounts cross it, every other account must appear on the form, however small. The IRS confirms in its guidance on reporting foreign accounts that the requirement turns on value, not on whether an account produced income.
This is where dormant bank accounts cause trouble for wealthy filers. A retail saver with one forgotten account below $10,000 may have no filing duty at all. In contrast, a client with £2 million in active accounts must list a dormant £150 passbook every single year.
Zero Balances and the Maximum Value
Several ranking pages claim that an account with a zero balance all year need not be reported. That is not what the official instructions say. The FinCEN line-item instructions state that if the calculated value is negative, you enter zero as the maximum account value. The account itself still appears on the report.
Consequently, emptied dormant bank accounts that were never formally closed still belong on your FBAR. Closed accounts are different. You report them for the year of closure at their maximum value during that year, and then they drop off.
Converting Sterling Balances Correctly
You report the maximum value of dormant bank accounts in US dollars, rounded up to the next whole dollar. For this purpose, use the Treasury Reporting Rates of Exchange for the last day of the calendar year. For 2025, that rate was 0.743 pounds to the dollar. Notably, this differs from the IRS yearly average rate you use for income. Our note on which exchange rate to use on US and UK returns explains in detail.
Children's Accounts and Joint Accounts
Many forgotten accounts were opened for children. Under the FinCEN instructions, a child is responsible for their own FBAR, but a parent or guardian must file where the child cannot. As a result, an accidental American who inherited no paperwork but was given a childhood savings account may have reporting years stretching back to their teens.
Joint dormant bank accounts need equal care. Each US owner generally reports the full account value, not a share. Therefore, an old joint account with a former spouse or a sibling can appear on two separate FBARs. It must appear on yours even if the other holder uses the money.
After the Reclaim Fund Transfer: The Reporting Grey Area
No competitor page we reviewed addresses what happens to FBAR reporting once a UK bank transfers dormant bank accounts to the reclaim fund. Yet this is exactly the position many long-standing expats are in.
The Year of Transfer Is Straightforward
In the calendar year the transfer happens, the account existed for part of the year. Accordingly, you report it for that year at its maximum value before transfer. That part of the analysis is not controversial.
A Claim Against a Reclaim Fund Is Not Obviously an Account
After the transfer, you hold a statutory right to repayment from a Treasury-owned fund rather than a deposit with a bank. FinCEN has never issued guidance on this arrangement. A right of that kind does not fit neatly within the bank, securities or other account categories in the FBAR regulations. Accordingly, there is a reasonable argument that it drops off the FBAR from the following year.
However, a reasonable argument is not a certainty. Therefore, we recommend that clients document the transfer date and the legal position in their files. Where a catch-up submission is being made anyway, disclosing the position openly in the explanatory statement costs nothing and removes any later suggestion of concealment.
Why Form 8938 May Still Apply
Form 8938 casts a wider net than the FBAR. It covers specified foreign financial assets, which can include financial instruments and contracts held with foreign counterparties. A monetary claim against a UK fund may therefore remain reportable on Form 8938 even where the FBAR position is arguable. The IRS comparison of Form 8938 and FBAR requirements shows how differently the two regimes define reportable assets.
For single filers living abroad, Form 8938 applies once specified foreign assets exceed $200,000 at year end or $300,000 at any time during the year. Married couples filing jointly abroad face thresholds of $400,000 and $600,000. Clearly, most high-net-worth readers exceed these figures before counting any dormant bank accounts at all.
The Income Side: Interest, the Foreign Tax Credit and HMRC
The reporting failure is only half the problem. Many dormant bank accounts continue to earn interest, and both countries tax that income whether or not you ever saw it.
US Tax on Interest You Never Touched
The United States taxes its citizens on worldwide income. Interest credited to your account is income in the year the bank credits it, even if you never withdraw a penny. Consequently, each year of interest on dormant bank accounts is a small omission on Schedule B. Schedule B also asks directly whether you held a foreign account.
When a reclaim fund later repays your balance with interest, the added interest is generally taxable when paid. Additionally, converting a long-held sterling balance into dollars can produce a currency gain, which we cover in our guide to foreign currency gains on GBP accounts.
Missed UK Tax Returns on Forgotten Interest
On the British side, the personal savings allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers receive nothing, as HMRC's guidance on tax-free savings interest confirms. Most of our clients pay additional rate tax, so every pound of interest on a forgotten account is taxable at 45 per cent.
Furthermore, you must register for Self Assessment if your savings and investment income exceeds £10,000. Where you already file, the forgotten interest simply belongs on your return. Leaving it off means your UK returns are also incomplete. HMRC expects you to correct them through its route to tell HMRC about underpaid tax from previous years.
The Foreign Tax Credit and the NIIT Gap
Here is the good news. Because UK tax at 45 per cent exceeds the US federal rate on the same interest, the foreign tax credit usually eliminates the US income tax. Therefore, the US tax cost of forgotten interest is often close to nil.
However, the 3.8 per cent net investment income tax is not reduced by UK tax for most US citizens abroad. As a result, a small NIIT balance remains. On dormant bank accounts the figure is trivial, but it confirms that the returns, and not only the FBARs, need amending.
What the IRS and HMRC Already Know About Dormant Bank Accounts
Many clients assume a forgotten account is invisible. In reality, dormant bank accounts are often already on file with both tax authorities.
FATCA Reporting Does Not Stop at Dormancy
UK banks report accounts held by US persons to HMRC, which passes the data to the IRS under the FATCA agreement. Dormancy does not remove an account from that regime. Indeed, HMRC's manual on reporting tax identification numbers under FATCA contains specific provisions for dormant accounts. If your bank ever recorded a US address, birthplace or phone number, balances on dormant bank accounts may already sit in an IRS database. Our guide to a FATCA letter from your UK bank explains what those indicia trigger.
The Six-Year FBAR Window and the Open-Ended Return
Under 31 U.S.C. § 5321, the IRS has six years from the FBAR due date to assess a penalty. As at September 2026, calendar years 2020 to 2025 remain open. Our analysis of the FBAR statute of limitations sets out the dates in full.
Income tax is more dangerous. Under section 6501(c)(8) of the Internal Revenue Code, a missing or incomplete Form 8938 can keep the whole return open. The assessment period runs until three years after you supply the information, unless the failure was due to reasonable cause. Consequently, dormant bank accounts can hold a tax year open long after the FBAR window has closed.
The Penalty Exposure in Numbers
The non-wilful FBAR penalty is up to $16,536 per report for penalties assessed from January 2025. Following the Supreme Court's decision in Bittner, it applies per report rather than per account. Wilful penalties reach the greater of $165,353 or 50 per cent of the balance. Therefore, six incomplete FBARs create a theoretical non-wilful exposure of almost $100,000, even where the forgotten account held a few thousand pounds.
Fixing Missed FBAR Reporting on Dormant Bank Accounts in 2026
The correct fix depends on whether you missed only the reporting or also the income. In either case, act before the IRS or HMRC contacts you.
The Delinquent FBAR Route Has Gone
Until 1 July 2026, the IRS offered the Delinquent FBAR Submission Procedures for people who had reported all their income. The IRS withdrew that webpage without announcement, as we explain in our note on the end of the Delinquent FBAR Submission Procedures. Nevertheless, the examiner guidance in Internal Revenue Manual 4.26.16 survives. It still tells agents not to assert penalties where the failure was non-wilful, reasonable cause existed and the late reports are correct.
Amended FBARs With a Reasonable Cause Statement
Where you filed FBARs but left dormant bank accounts off, you file amended reports through the BSA E-Filing system. The instructions require you to complete a new FBAR in full, tick the amended box and quote the original BSA identifier. Additionally, we attach a short explanation of how the account was discovered and why it was missed.
This route suits clients whose forgotten accounts produced no untaxed income, or whose interest was fully covered by UK tax and genuinely immaterial. However, it offers no formal penalty protection, so the quality of the reasonable cause narrative matters.
When the Income Was Also Missed
If the account earned interest you never reported, you have unreported income as well as missing information returns. For non-wilful non-residents, the IRS Streamlined Filing Compliance Procedures remain available and carry no miscellaneous offshore penalty. That route requires three years of amended returns and six years of FBARs, and it brings the Form 8938 problem to a clean end. Our pillar page on IRS Streamlined Filing explains eligibility in depth.
Correcting the UK Side at the Same Time
Finally, correct HMRC in parallel. Untaxed interest on dormant bank accounts belongs on your Self Assessment returns. HMRC can generally look back four years for innocent errors and six years for careless ones. Fixing both countries together keeps your figures consistent and supports the non-wilful narrative on the American side.
Case Study: A Forgotten Savings Account and Six Incomplete FBARs
The following illustrative example draws on the kind of situation we handle regularly. Names and details are changed.
The Discovery
Daniel is a 44-year-old US citizen and managing director at a London investment bank. He has lived in Britain since 2010 and has filed US returns and FBARs every year. Those reports listed his current account, two savings accounts and a brokerage account worth over £2 million in total. In 2010 he opened an instant-access savings account with a building society and deposited a £22,000 signing bonus. His last transaction on it was in March 2011.
In August 2026, while preparing a mortgage application, Daniel ran a lost-account search. The account was still open. Its balance at 31 December 2025 was £26,180, having earned around £285 of interest that year.
The Exposure
At the Treasury year-end rate of 0.743, the account's 2025 maximum value was $35,236. Because his other accounts already exceeded $10,000, the account belonged on every FBAR he had filed. Six years, 2020 to 2025, remained open, creating a theoretical non-wilful exposure of $99,216. The account also belonged on his Forms 8938.
The income tax was small. The £285 of 2025 interest translated to about $375 at the IRS average rate of 0.759. His US federal tax at 37 per cent would be $139. However, UK tax at 45 per cent came to £128, roughly $169, so the foreign tax credit eliminated it. The only true US cost was about $14 of NIIT per year. However, Daniel had also left the interest off his UK returns, so roughly £128 a year of British tax was unpaid.
The Resolution
Interest income had gone unreported and his Forms 8938 were incomplete. Therefore, our team prepared a Streamlined Foreign Offshore submission with three years of amended returns and six amended FBARs. The additional US tax and interest came to under $100 in total. At the same time, we disclosed the untaxed interest to HMRC for the open years, which cost around £700 including late-payment interest.
Ultimately, Daniel paid less than £800 across both countries to close a six-figure theoretical exposure. More importantly, his return years are no longer held open by an incomplete Form 8938, and the mortgage lender's source-of-funds review raised no further questions.
How TaxYork Can Help
TaxYork provides comprehensive US and UK tax preparation for Americans in Britain, dual nationals and accidental Americans. When a client discovers dormant bank accounts, we trace every remaining account first, reconstruct the balances and interest year by year, and convert each figure at the correct rate. We then prepare amended FBARs, Forms 8938, amended 1040 returns and UK Self Assessment corrections as one coordinated package.
Furthermore, we prepare Streamlined submissions where unreported income makes them the right fit, and reasonable cause statements where only the reporting was missed. Our specialists also handle FBAR penalties for wealthy Americans in Britain when a notice has already arrived.
Conclusion
Forgotten UK money rarely creates a large tax bill. Nevertheless, dormant bank accounts create a reporting failure in every FBAR year they existed, and the penalty framework is built around reports, not balances. Wealthy filers are the most exposed, because their active accounts already push them over every threshold.
Therefore, trace your dormant bank accounts now and report the maximum value of each one at the correct rate. Then correct both your US and UK returns where interest was missed. Above all, do this before a FATCA data match or an HMRC letter reaches you first.
Contact Us
If you have discovered a forgotten UK account, or you want certainty that your past FBARs are complete, book a consultation with our US-UK specialists. You can also email hello@taxyork.com or call 020 3488 8606. We will review your accounts, quantify your exposure and prepare every correction you need.
Disclaimer
This article is provided for general information only and does not constitute tax, legal or financial advice. Tax rules in the United States and the United Kingdom change frequently, and their application depends on your individual circumstances. The case study is illustrative, and the figures are simplified. You should obtain professional advice before acting on any information in this article. TaxYork accepts no liability for any loss arising from reliance on this content. Official sources referenced include FinCEN, the IRS and HMRC.