theOAP

JAJ, are you personally guaranteeing that no one in Canada will have a bank account closed as a result of FATCA? There's 1 million people that would appreciate hearing this.

They are Canadian banks, and the customers are Canadian residents. CRA must be advised of income from the accounts. Yes, it makes sense that the Canadian banks ask for a Canadian Social Insurance number.

That would be interesting. Both Congress and the IRS declare a person born of one USC parent abroad to be a US Person. If the person in your example (never had a US SS number, never applied for a passport, never had their birth recorded), today, wrote the IRS, explained the situation and asked for guidance, what would be the response? My guess is the IRS would respond that the person should immediately obtain a US SS number and file a tax return - now. Isn't that an indication of the US governments viewpoint of the individual's status?

Canada has an agreement with the IRS that persons in Canada filing a US 1040 can include a unique form (only for Canada) to declare special income. Nonetheless, a number of Canadians must still file a 3520 with Ogden, Utah to supply information. You may disagree with their actions, but that's what the IRS advises.

Some USCs abroad can use TT or TA to file their returns, but not all. In some cases, TT and TA either roll over in laughter or walk away when confronted with the situations of some USCs abroad.

The individual must become proficient in preparing their tax return, or if unable to grasp the situation, seek help from a professional. It is not unusual for a tax pro in the UK specialising in US/UK tax to charge $2,000 for a return. Been there, got the quote(s).

It's impossible to speculate since it's purely hypothetical. There is no measure other than the degree of US renunciations. Why? Because no jurisdiction on the face of this Earth (other than Eritrea and the USA) tax their citizens resident abroad on worldwide income at this time.

JAJ

Merely expressing an opinion. Canadian banks are so closely tied to the U.S. financial system that walking away from U.S. business (as some French and Swiss banks think they can) isn't an option, at least for most of them.

The IRS have nothing to do with the determination of who is and is not a United States citizen. A person who activates a dormant claim to citizenship is in the same category as any other overseas U.S. citizen who hasn't filed taxes. Usually the IRS will accept 3 years.


So what are these "situations"? We understand family trusts in the conventional sense of the term (and equivalent) require form 3520, as does receipt of gifts over certain thresholds. Both are unusual. I have never seen anything from the IRS "advising" that form 3520 is required for day to day financial products in Canada.


I find it difficult to believe that there are many such situations.


To return to the main topic of the thread, after you filter away all the exaggeration and scare stories, there are real and lasting tax obligations on U.S. citizens living overseas long term. Annual tax and information report filing, plus at least some of the time, additional taxes to pay. It shoudn't be surprising that a small proportion of U.S. citizens are choosing to renounce, rather than pay these taxes. This proportion will probably increase over time, before it reduces.

theOAP

With London, Paris, and Frankfurt all vying to be the financial centre of Europe, it came as no surprise (IMHO) that the UK, France, and Germany were among the first to agree to an IGA with the US.


In spite of our minor differences of opinions, I'm sure we both agree that being a US citizen abroad requires some unique considerations. Back to the first posts; if an individual plans to be in the US for only a limited amount of time and has the intention of returning to the UK (or elsewhere) and never returning to the US to live, some pause for thought is required before obtaining US citizenship. If they intend to make the US their base, whether intermittently or for convenience, and fully understand and accept the consequences should they return to the UK permanently, it could well be a satisfactory option for them. One should read and understand before acting in a knee jerk fashion.

As always I enjoy the debates, and always maintain a respect for your opinions.

WEBlue

Excellent advice! Where one wants to "end up" is the key here. OR where one wants to be able to freely spend large amounts of time (for whatever reason). If there's a chance that this will be the USA, maybe US citizenship is worth it. Otherwise, maybe not....

The BE Wiki 'Pros & Cons to Getting US citizenship' says the same thing...

http://britishexpats.com/wiki/Pros_a...US_Citizenship

sunnysideup

Here's something no-one has mentioned - estate taxes. If you are a dual citizen and you have kids and assets in the US, but you live in the UK, your domicile is important when figuring out estate taxes, and depending on your assets, it might be useful for you to claim non-dom status which obviously you can only do by being a citizen of another country. If the UK determines you are domiciled, your US assets will be included in your estate. If you are non-dom, they will not. There is a big difference: UK estate tax threshold is about 300,000 pounds - anything beyond that is taxed at 40%. The US threshold $5 million. I have a healthy sum in my IRA and I would like my daughter to inherit it if I pop off before it's gone (actually I'm pretty sure I won't get through it all anyways). Right now there would be no estate tax on my IRA in the US, but a significant tax hit in the UK. It might be a fight to convince the UK your are non-domiciled, but maintaining US citizenship is obviously a must, and taking trips to the US and keeping virtually all of your assets stateside are good steps. Note that you don't have to be non-dom for UK income tax - you can choose to pay income taxes on all your worldwide income as if you were domiciled (the 'arising' basis instead of 'remittance' basis).

lgabriel73

don't forget that any money inherited from an IRA would still be taxable for your daughter it does fall under the inheritance tax and will be taxed as income.

JAJ

Except that this comment doesn't make sense. Inheritance Tax is not income tax. As far as I know, it would generally be liable to U.S. income tax (since it's deferred income) however it's not clear that it would be part of the estate for U.K. Inheritance Tax purposes. A good question for a tax professional.

JAJ

Except this isn't really true. Domicile and citizenship are not the same thing. A British born person, normally has a U.K. domicile and if that person moves to the U.S., becomes a U.S. citizen, and then returns to the U.K. then in general, that person will be U.K. domiciled.

Becoming a U.S. citizen may help to demonstrate loss of a U.K. domicile if remaining in the United States. It doesn't really stop most of those returning to the U.K. from retaining (or re-acquiring) a U.K. domicile.

As noted on another post, it's not clear whether your IRA would be subject to U.K. Inheritance Tax. Discuss with your tax/legal adviser. But it would normally be subject to U.S. income tax.

Again - take experienced legal advice if this is important to you, but if you have a U.K. "domicile of origin" you may have a real fight to convince HMRC that your domicile is elsewhere. Why? Because they don't have to show you have re-established a domicile in a U.K. jurisdiction. They only need to show you have abandoned any domicile in the U.S. state where you previously had it. Under laws in the U.K., if you abandon a domicile of choice and do not establish another domicile of choice, the domicile of origin automatically reverts.

Unless there's some particular tax treaty clause I'm missing, I don't see how being a U.S. citizen could defend against a claim of re-establishing domicile in the U.K. - at least for most people of U.K. origin.

lgabriel73

To clarify I was meaning inheritance tax in the UK and income tax in the US. Pretty much any type of inheritance is taxed in some way wherever you are.

sunnysideup

There is often confusion between terms. Inheritance tax is a tax on the person who receives assets from a deceased estate. Estate taxes are levied on the estate before it is distributed. The UK and USA have estate taxes (although some US states may also have an inheritance tax - Florida doesn't). After the estate is taxed, any beneficiaries have no further tax obligation. So no, I don't think my daughter will owe anything. In fact, I inherited part of my parents estate and it had no tax implications at all for me in the USA.

sunnysideup

Yes I agree it could be an uphill fight. But in my case the plan is to live in the UK for a few years, renting a flat. I have no family there or UK assets. I still have a house in the USA and I intend to return there. But if the worst were to happen while living in the UK... I guess it would be up to my daughter to argue the case. I only realized the big differences in estate tax recently. Maybe my plan to live in the UK will need to be reduced to less than 6 months a year or something like that.

lgabriel73

Any money she takes out of the Ira once you are gone is classed as income so she will have to pay income tax in the US. An Ira is not handle under estate rules in the US. You should check it out because there are clever ways that will help reduce the tax she pays.

lgabriel73

Assuming you have her as the beneficiary on the IRA account.

JAJ

I guess the question would be, if you have abandoned your ties to the U.K. and any intent to live in the U.K. again, why would you want to re-establish a residence? Is there a special circumstance, such as being posted temporarily to the U.K. by your U.S. employer?

Not saying what you want to do is impossible, but you really need to take legal advice if this is important, assess the risk of being deemed U.K. domiciled, and see what steps you can take to mitigate this risk.

toko

Again, thanks to all for responses ot our original inquiry.

To follow on form some of the more recent posts, how will my 401K and US company pension be taxed in the UK, either as a USC resident in the UK or as a 'non-USC, UK citizen? If non USC, will it be taxed at 40%? If as a USC resident in UK duting retirement, is the 401K exempt form 40% UK tax?

Thank.