windsong

Yes. This is exactly the issue that bothers me - on principle. What an absolutely dreadful and unfair law!

Giantaxe

The fact that people feel the need to renounce in the first place - for all the reasons outlined in that article - tells you there is something very awry with the US tax code.

nun

There is no tax penalty when you renounce US citizenship, but you do have to be up to date with your US taxes before the US will let you go. Form 8854 is required and it seems perfectly reasonable for the IRS to require you are up to date with taxes before you leave. If you have a network under $2M, had an annual a tax liability of less than about $150k and are up to date with your taxes the form is trivial. If not things do get complicated and you will have to pay tax on your US retirement funds before you leave.......which is a bit of a cheek I must admit, but planning and being aware of the rules goes a long way to making them not too onerous.

There are definitely issues with US taxation associated with the complexity of filing and potential fines for getting things wrong are the reasons many US citizens contemplate expatruation.

dunroving

I was just taking that information from the Web link (a lengthy blog written by a tax lawyer), and I put question marks after my statement because it really wasn't clear - but that is why blogs aren't the best source of information.

Giantaxe

The writer of that blog is an excellent source of information, imo. I don;t think there was anything inaccurate about his post, other than what he corrected based on people's comments.

dunroving

For the benefit of those who haven't followed the link, the first part of the blog said the following:

"Americans are giving up citizenship and permanent resident (“green card”) status in increasing numbers. It is a significant part of our law firm’s practice, and discussions with people in the Middle East were a major part of my visits to Beirut and Dubai on this trip.

People are giving up U.S. citizenship even though the rules from 2008 onward make it expensive to do so. The current tax rules can impose a substantial–and immediate–income tax on someone who gives up citizenship."

The bolded part is what I was referring to in trying to get at why Windsong was getting worked up. I'll let other folks interpret it in their own way.

nun

I agree about the blogger.....he is excllent. However, you have to read the entire blog to see that the expatriation tax will only be applicable to people with high net worth or who are not up to date with their taxes, and then it's not exactly a penalty, more of a grab by the IRS for deferred taxes on you money. This is an issue if you have US retirement accounts.....bottom line is if you want to give up your US citizenship keep up to date with your US taxes and do it before your net worth goes above $2 million.

Giantaxe

Yep, there is definitely a perverse incentive to renounce before the $2m threshold. It may sound a lot of money, but given the increasing prevalence of defined contribution benefit plans, I bet we see an increasing number of people taking this step.

Lorac05

That's what I thought and couldn't understand why Windsong was getting so upset!! I have never failed to file my US taxes and my net worth is way below $2 million so I hope that giving up my US citizenship should be fairly straightforward - I really wish I had never taken it to be honest

nun

The only thing that would cause me to hesitate renouncing US citizenship would be my US SS. Right now it would not be affected, but who's to know if in the future SS to non-citizens will be reduced more than that of citizens.

theOAP

Nun, I must be honest and say I've not looked that closely at 8854.........yet. For the Mark to Market, what's included?

I think the discussion is going in the right direction. If it's all your assets, you could reach 2 Mil quite quickly when the value of pension plans, your home, your savings/investments, etc. are all added together. If you're near retirement age and getting all the ducks in order, 2 Mil's not a lot, especially when the exchange rate starts jumping around.

So, what is included? Thoughts?......

Just to add, I think the blogger has a lot of good info on that site.

nun

Net worth includes everything; house, pensions, 401k, cash etc. Look at 8854 section V. You get a $650k capital gains tax allowance, but the annoying part is havng to pay tax on your 401k investments. If that's the case and you'll have a big income tax bill. There is also one question where you have to give up your rights under tax treaties.....with which I have a real problem

theOAP

I'm reading as we speak. I noted this bit:
　
"An interest in property includes money or other property, regardless of whether it produces any income or gain."
It then goes on to talk about anything that would be included in your estate if you died the day previous to expatriation (and is noted as per Charter 11).

So, automobiles, antiques (household possessions), pretty much anything that would be included in probate filings.

I got to the bit about patents, trademarks, copywrites, etc. I'd love to see Tina Turner's 8854.



Conclusion: Someone's building a new Berlin Wall, only it's not located in Berlin.

nun

Yes Tina's must be interesting......ie royalties from "What's love got to do with it", "Nutbush City Limits" etc etc.

The one bit of 8854 that does make my blood simmer it question 7a

Presumably if you pay tax on your IRAs you get a tax free basis so when you take distributions you only pay income tax on any gains made since expatriation. Under the treaty that tax free basis will be recognised by the UK, but you won't be able to claim zero withholding on a W-8BEN and you'll have 30% US withholding on the taxable part of the income that you'll have to claim back on a 1040NR.......so even if you do expatriate you'll still ahve to file US taxes.

So get all your expatriating done before your networth is more than $2 million. Then you can file a W-8BEN and be done with US tax on your US retirement accounts and you can move all other money to the UK.

dunroving

Sounds like a taxman's wet dream.