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Renunciation of US Citizenship & tax filing advice for Son

Renunciation of US Citizenship & tax filing advice for Son

Old Aug 21st 2020, 3:00 pm
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Default Renunciation of US Citizenship & tax filing advice for Son

Hi we moved back to the UK in 2012. My husband & I renounced our citizenship in 2016 but the kids were under 18 and had to wait.
Now one of them has just graduated and is about to start his first job so wants to renounce before it starts getting complicated!
The difference between him and us is that he has never needed to file taxes before - anywhere, as he was either at school or at Uni and not earning.
So the question is, will he still need to file 5 years of back tax reports (stating $0 on each) to show compliance or will he just need to file for the year in which he renounces - assuming the embassy resumes renunciation applications soon?
TIA
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Old Aug 22nd 2020, 1:47 am
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

You don't have to file if you had zero (there is actually a defined, non-zero, minimum amount, that may be as high as about $4k. IIRC) taxable income.
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Old Aug 22nd 2020, 1:26 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Thanks Pulaski.
I've seen online that there is a $12k+ threshold before you need to start filing, a bit like our Personal Allowance, but I remember one of the questions being something about needing to be tax compliant for 5 years but it seems he can say yes and this first filing would also be his last - hopefully - assuming the US Embassy opens up again before the end of the year!!
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Old Aug 22nd 2020, 4:35 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Filing a tax return is actually pretty easy, and unless you earn over $100k there can be no tax consequence, and as tax rates are generally higher in the UK you can use UK taxes paid to entirely satisfy any US taxes due.

Therefore I would recommend that he hold off for a couple of years, before he slams the door shut on the opportunity he may have in future to live and work in the US. At the moment the door is wide open for him, and that is an opportunity that huge numbers of British citizens dream about.
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Old Aug 22nd 2020, 9:37 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

I understand about the Foreign income exclusion, it's just the faff of having to file taxes, as it's done automatically here in the UK (PAYE) plus at a completely different time of year! The biggest irritation though is the reporting of foreign accounts. Total invasion of privacy, and bang out of order.
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Old Aug 22nd 2020, 9:57 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Giving up US Citizenship is a serious step. Spend some time thinking about it. Consider the number of people in the UK and elsewhere who are desperate to get to the USA !
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Old Aug 22nd 2020, 10:17 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

I understand what you are saying. There are always the "what-ifs". We lived there for 17 years - he doesn't want to return. He's spent the last 8 years thinking about it.
If a job takes him out there then he is happy to got the H1b route - or whatever the work visa is called. Not being US citizens was no barrier to us finding work out there. Being US citizens has caused many more barriers since being back though.
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Old Aug 23rd 2020, 1:20 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Originally Posted by SadInStates View Post
I understand what you are saying. There are always the "what-ifs". We lived there for 17 years - he doesn't want to return. He's spent the last 8 years thinking about it.
If a job takes him out there then he is happy to got the H1b route - or whatever the work visa is called. Not being US citizens was no barrier to us finding work out there. Being US citizens has caused many more barriers since being back though.

I would really like to hear the barriers if you have time to give a quick summary. I want to move back and stupidly became a USC without thinking enough about it.
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Old Aug 23rd 2020, 3:46 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Originally Posted by SadInStates View Post
Being US citizens has caused many more barriers since being back though.
Would you mind expanding a bit of what barriers you've encountered in the UK as US citizens?
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Old Aug 23rd 2020, 5:21 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

I’ve encountered mostly financial barriers as a USC living in England. Here are a few due to the fact that all your worldwide income is taxed regardless of where you live, plus you have to report all of your foreign bank accounts every year.

UK Stock and bond funds are treated as PFICs and taxed punitively by the IRS.

ISA’s are not tax free when filing US taxes so interest is taxable and stock and bond funds in a ISA are treated as PFICs.

When contributing to an employer pension plan don’t contribute more than the employer match otherwise it becomes a foreign grantor trust in the eyes of the IRS




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Old Aug 23rd 2020, 5:28 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Originally Posted by Ukoneday View Post
I would really like to hear the barriers if you have time to give a quick summary. I want to move back and stupidly became a USC without thinking enough about it.
That's what we did. I really wish we hadn't taken out citizenship, but needed to renew our GCs and figured citizenship would eliminate the need and expense to do it very 10 years. Then 4 years later circumstances changed and back we came!

'Barriers' is perhaps the wrong word - certainly there are mental/imaginary barriers ie don't tell potential employers as it might make them think it's an added complication they don't need, but I personally have had problems opening a savings account post 2014 and then another hassle when they did something a few years alter and I had to tell them I was no longer a US citizen. Citizenship wasn't an issue with banks when we returned so none of the family's accounts opened before 2014 needed to know.

It's more the on-going stress of having have that blasted tax date in constantly in the back of your mind and worrying about accidentally missing it- not to mention the huge penalties it incurs if you do, because America no longer registers in your everyday mind anymore, the filing of account info which is in my opinion an unnecessary invasion of privacy designed to keep you under their thumb, the expense of having to get an American passport if you wish to travel to America, worrying about the complications that will arise if your aging non-US relatives make gifts/bequests to you - it all just feels like unnecessary stress and millstone around your neck. Others may feel differently, but this is how it feels to us after being back for 8 years, with no intention of returning there to live

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Old Aug 23rd 2020, 10:28 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Thank you both (DL and SIS) for sharing.
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Old Aug 23rd 2020, 10:32 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

If I moved back to the UK and had no nexus with the US moving forward, I would undoubtedly renounce. Really, the fact that many people want to get into the US would have no bearing on my decision.
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Old Aug 23rd 2020, 10:32 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Originally Posted by SadInStates View Post
That's what we did. I really wish we hadn't taken out citizenship, but needed to renew our GCs and figured citizenship would eliminate the need and expense to do it very 10 years. Then 4 years later circumstances changed and back we came!

'Barriers' is perhaps the wrong word - certainly there are mental/imaginary barriers ie don't tell potential employers as it might make them think it's an added complication they don't need, but I personally have had problems opening a savings account post 2014 and then another hassle when they did something a few years alter and I had to tell them I was no longer a US citizen. Citizenship wasn't an issue with banks when we returned so none of the family's accounts opened before 2014 needed to know.

It's more the on-going stress of having have that blasted tax date in constantly in the back of your mind and worrying about accidentally missing it- not to mention the huge penalties it incurs if you do, because America no longer registers in your everyday mind anymore, the filing of account info which is in my opinion an unnecessary invasion of privacy designed to keep you under their thumb, the expense of having to get an American passport if you wish to travel to America, worrying about the complications that will arise if your aging non-US relatives make gifts/bequests to you - it all just feels like unnecessary stress and millstone around your neck. Others may feel differently, but this is how it feels to us after being back for 8 years, with no intention of returning there to live
yes - thank you for sharing ....
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Old Aug 24th 2020, 3:27 pm
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Default Re: Renunciation of US Citizenship & tax filing advice for Son

Originally Posted by durham_lad View Post
I’ve encountered mostly financial barriers as a USC living in England. Here are a few due to the fact that all your worldwide income is taxed regardless of where you live, plus you have to report all of your foreign bank accounts every year.

UK Stock and bond funds are treated as PFICs and taxed punitively by the IRS.

ISA’s are not tax free when filing US taxes so interest is taxable and stock and bond funds in a ISA are treated as PFICs.

When contributing to an employer pension plan don’t contribute more than the employer match otherwise it becomes a foreign grantor trust in the eyes of the IRS
Thank you Durham_lad, I must have missed your reply while I was posting.

Oh my goodness - I didn't know about ISA's and work pensions - must tell my son at once as he's starting his first job next month and is planning on opting into the employer pension scheme and opening up a LISA!!!
It really is a pita being a US citizen living abroad. We had none of this being UK citizens in the US!
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