becks_r

Yeah, I don't exactly know how he did it, but it sounded like it was a lot of money he was going to give up to US taxes and he was most unhappy about it.

Pulaski

It wouldn't surprise me if, after looking at the mechanics and consequences renouncing US citizenship, he may have quietly dropped the plan.

mrken30

Unfortunately there is an exit tax which applies to those whose net worth is $2 million or more, or whose annual income tax average for the past five years is $145,000 or more (as of 2008 and adjusted annually for inflation each year). One exception applies to people who were born with dual citizenships. For the exit tax, a 15% tax applies to capital gains above $651,000, and tax on other assets like a retirement account, would be at the normal income rate up to 39.6%. These assets are taxed as if the individual were selling or withdrawing their monetary funds from the accounts on the last day of their American citizenship.

If you are below these thresholds its an easier decision.

becks_r

Well I know he was holding back on selling his house until he looked into everything. Also, he was looking at another option of transferring the house into his wife's name only before selling it as his wife is British. But I'm not sure what he did in the end, just that he told me about it when I mentioned looking into US citizenship. He seems to have been on a very long holiday since retiring, so haven't been in contact. But I will know more when I go back to UK in sept....

mrken30

Hopefully not for tax evasion

becks_r

I think just because he can, lucky guy!!

Neillc37

Nobody mentioned the all important 'unlimited marital deduction'. A non-citizen spouse faces estate taxes on what is inherited from a dead partner.
If you ever look at estate planning and have saved a few bob this is going to come up.

mrken30

For a nonresident non-citizen ("nonresident alien" or "NRA") the applicable exemption continues to be limited to $60,000. Thus, estate tax is due when a nonresident alien's estate transfers U.S. situs assets above $60,000.

Pulaski

Some non-citizen spouses of victims of the 9/11 attacks got badly bitten by the IRS, not least on life insurance and compensation payouts.

Steve_

That sounds as though his principal residence was subject to capital gains tax, in the US there is an exemption for the first $250,000 of gain and its $500,000 for married couples. So yes, if you lived in the same house for 30+ years in the UK you could get hit with that.

Generally speaking though CGT rates in the US are lower than in the UK and there is a foreign tax credit available, so you would pay no US tax effectively. The case you've described though is a somewhat unusual exception because there is no tax to claim a credit against.

Bear in mind there is an estate tax treaty with the UK, which effectively gives a non-US citizen resident in the UK a unified pro-rata tax credit between IHT and the US estate tax. So if you were British and you lived in the UK and you owned say, a property in the US that was worth $1 million, it would be completely exempt from US estate tax because the estate tax limit is $5.43 million for individuals. You might get hit with UK IHT on it though. (Most likely you would unless it was your only asset).

One of those times when it's really important to file the paperwork correctly. More information at: https://www.irs.gov/pub/irs-pdf/i706na.pdf

johnwoo

Would US resident alien spouse pay death taxes if the property was joint ownership?

Steve_

The difference if the spouse is an LPR is that they can't claim the joint credit, so the limit would be the single person exemption available to the decedent, so $5.43 million or whatever it is now. So usually still not a problem, although it can be a problem in jurisdictions which copy the federal law but have a much lower estate tax limit, e.g. New Jersey.

Yet another reason to get citizenship ASAP.

mrken30

and if the noncitizen spouse dies first, assets left to the spouse who is a U.S. citizen do qualify for the unlimited marital deduction.

If your spouse becomes a U.S. citizen by the time your estate’s federal estate tax return is due, he or she will qualify for the unlimited marital deduction. The return is generally due nine months after death, but the IRS may grant a six-month extension. Because it takes a long time to get citizenship—for most people, there is a waiting period before you can apply, and it takes at least several months after you apply—this isn’t an option for most people