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US -> UK Expatriation tax ... SWAGs requested

US -> UK Expatriation tax ... SWAGs requested

Old Jul 13th 2023, 6:32 pm
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Question US -> UK Expatriation tax ... SWAGs requested

When I last posted to BE about this 9 years ago, I'd just retired, was contemplating a move back to the UK (LTR,) and was just under the threshold for covered persons. Time has flown by, growth happened, and I am now covered! Now, in my 70s, that form 8854 makes my eyeballs spin! There's probably a pain-point where the exit tax would make me stay here, so I'm seeking clarity.

I invite all who feel comfortable doing so, especially those who've been through this, to offer a Scientific Wild-Ass Guess as to what the tax might be for this financial situation: $1.8M IRAs + $1M Cash and Roth IRAs, with all taxes paid. Showing math will earn brownie points ... oh wait, there are no brownie points!

Obviously if I do repatriate, professionals would be engaged.

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Old Jul 13th 2023, 7:08 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Well I am no expert but it’s not too hard to calculate. Cash and Roth IRAs won’t be taxed. The IRA will be taxed as well as any other income in the year you exit. Any other investments you may hold that are normally subject to capital gains tax when sold will be subject to capital gains as if you had sold them in the year you exit. You don’t need to sell them but they will be taxed as if you had, and that includes your house.

The short answer is A LOT.

The longer SWAG answer is whatever you would normally pay in tax on your income for that year, plus 37% (or whatever is the highest tax band in the year you exit) on the vast majority of your $1.8M IRA so about $650K plus capital gains on any other assets which almost certainly will be charged at 20% plus the Obamacare Tex of 3.8% because your deemed income in the exit year will bust through all thresholds.

On one hand, you are only having to pay the tax the US would have collected over your lifetime, so it can be argued that it is not a penalty for exiting. On the other hand you have to pay it all in one go, and of course lose growth on the sum paid, plus the tax deferred benefits of the IRA. Then consider the impact of UK and US inheritance tax on all of your assets which is much too complicated to discuss because it is so situational dependent, but is very unlikely to improve if you exit the US.

The hassles of being a U.S. citizen pale into comparison when faced with those sums. If it were me, I would think twice, three and four times and stay as you are, unless you hate the US that much. Just move back and retain your US citizenship. Problem solved. $650K (and up) will buy you a lot of professional time to take care of your US tax returns which is about the only downside of retaining US citizenship.

Last edited by Glasgow Girl; Jul 13th 2023 at 7:23 pm.
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Old Jul 13th 2023, 7:38 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Thank you for your well explained answer, and yes, I do anticipate pain with that route. If you know, where does the $767,000 (mark-to-market?) exclusion figure into this? My figures assume I'd've sold my house and all other assets for cash, and paid capital gains on my next 1040, before renouncing my green card. There may be smarter paths!

I guess I should've been doing bigger Roth conversions, but chose a more lenient tax bracket instead!

$650K added to the SWAG pile, and all others welcomed.
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Old Jul 13th 2023, 8:05 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

With the sort of numbers you're talking about, you might want to consider what ensnaring your assets in UK inheritance tax might do to the residue of your estate that goes to your heirs.

There might be some reasons to expatriate from the US, but in respect of taxes you might only be jumping out of one frying pan and into another.
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Old Jul 13th 2023, 8:14 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by TickledToo
Thank you for your well explained answer, and yes, I do anticipate pain with that route. If you know, where does the $767,000 (mark-to-market?) exclusion figure into this? My figures assume I'd've sold my house and all other assets for cash, and paid capital gains on my next 1040, before renouncing my green card. There may be smarter paths!

I guess I should've been doing bigger Roth conversions, but chose a more lenient tax bracket instead!

$650K added to the SWAG pile, and all others welcomed.
No knowledge on the $767,000 exclusion. Can’t help there.

Just curious, what benefits do you see in renouncing you long term Geeen Card, other than preventing the tax filing requirement for US persons. It seems like there must be significant benefit to suffer the substantive financial hit.

Also, I believe the $2M threshold is per person. If you are married that may be your free pass, if not married that may be an option😬.

Last edited by Glasgow Girl; Jul 13th 2023 at 8:18 pm.
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Old Jul 13th 2023, 8:30 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Sadly, I have no (known) heirs. I'd prefer to support the UK economy than the US's! ;o)
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Old Jul 13th 2023, 8:48 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by Glasgow Girl
Also, I believe the $2M threshold is per person. If you are married that may be your free pass, if not married that may be an option😬.
I guess I'd better get on OKCupid! I'd assume there's a length of marriage test though, and ... older people are much more picky!
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Old Jul 13th 2023, 9:34 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by TickledToo
I guess I'd better get on OKCupid! I'd assume there's a length of marriage test though, and ...
Usually for tax purposes "married" is "married", like pregnancy, you can't be a little bit pregnant.
.... older people are much more picky! ...
Empiracly, my observation is that the opposite is true, at least for men.

Last edited by Pulaski; Jul 13th 2023 at 9:37 pm.
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Old Jul 13th 2023, 9:50 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by Pulaski
Usually for tax purposes "married" is "married", like pregnancy, you can't be a little bit pregnant.
For SSN benefits at least, there is a test: What are the marriage requirements to receive Social Security spouse’s benefits? 1 year, unless ...

But that's not tax.
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Old Jul 13th 2023, 10:25 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

If you move back to the UK as a green card holder and become UK resident, I believe most of your annual taxes will be paid initially to the UK government and you will only pay US taxes if the US tax bill is larger than the UK bill. So, probably only a small amount if any would reach the US. So, while alive you can still support the UK economy as a green card holder.

More importantly, upon your death you will almost certainly leave a lot more money behind by remaining a green card holder versus renouncing it. With no heirs you could leave your estate to UK charities; or even the UK government but I think you can do better than that!

Right now $11m can pass without any inheritance tax in the US, it’s much lower than that in the UK, about $500K ball park. In 2026 or thereabouts that $11M drops to about $5.5M but that is still a lot more than the UK. Perhaps you can avoid US and UK inheritance tax by leaving everything to charity. But renouncing your green card simply means you are guaranteeing to pay the US government a huge slice of your wealth before death. Retaining it, should result in so much more going to causes you care about in whatever country you choose. That is, unless you plan to spend it all, which is a perfectly fine plan as well.

I would consult with an estate planning attorney to establish how best to achieve you aims. A good one will be able to advise on the tax complexities of being a green card holder, versus renouncing it. For about $3-$5K you will likely get invaluable advice on how to structure your estate to attain your key goals.
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Old Jul 13th 2023, 10:40 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by Glasgow Girl
If you move back to the UK as a green card holder and become UK resident, I believe most of your annual taxes will be paid initially to the UK government and you will only pay US taxes if the US tax bill is larger than the UK bill. So, probably only a small amount if any would reach the US. So, while alive you can still support the UK economy as a green card holder.

More importantly, upon your death you will almost certainly leave a lot more money behind by remaining a green card holder versus renouncing it. With no heirs you could leave your estate to UK charities; or even the UK government but I think you can do better than that!

Right now $11m can pass without any inheritance tax in the US, it’s much lower than that in the UK, about $500K ball park. In 2026 or thereabouts that $11M drops to about $5.5M but that is still a lot more than the UK. Perhaps you can avoid US and UK inheritance tax by leaving everything to charity. But renouncing your green card simply means you are guaranteeing to pay the US government a huge slice of your wealth before death. Retaining it, should result in so much more going to causes you care about in whatever country you choose. That is, unless you plan to spend it all, which is a perfectly fine plan as well.

I would consult with an estate planning attorney to establish how best to achieve you aims. A good one will be able to advise on the tax complexities of being a green card holder, versus renouncing it. For about $3-$5K you will likely get invaluable advice on how to structure your estate to attain your key goals.
I'll go ahead and admit that inheritance is nowhere on my list of concerns; my flippant comment about supporting economies notwithstanding. My sole concern, at the moment is the exit tax ... do you have a SWAG for me?
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Old Jul 13th 2023, 10:53 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Post #2.

You really need to think through what your goals are here. It’s not in your best financial interests to expatriate, you apparently care not for your estate (although that would be a lot bigger if you retain your GC), and either way you can support whichever economy you choose to if you plan accordingly (if you even care about that).

Can’t help anymore, as I don’t like to waste my time, and I seem to have done plenty of that on this thread,
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Old Jul 14th 2023, 12:15 am
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by Glasgow Girl
Post #2.

You really need to think through what your goals are here. It’s not in your best financial interests to expatriate, you apparently care not for your estate (although that would be a lot bigger if you retain your GC), and either way you can support whichever economy you choose to if you plan accordingly (if you even care about that).

Can’t help anymore, as I don’t like to waste my time, and I seem to have done plenty of that on this thread,
My apologies for miscrediting that SWAG. Further apologies for not stating clearly enough exactly what I was looking for in my initial post. I shall work on simplifying my language.
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Old Jul 14th 2023, 7:38 am
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Maybe a dumb question, but what's the big attraction of the UK as a destination? Is the U.S. not big enough..there are plenty of other options there surely? (as in nice places to live) Why not explore that avenue ??..

1. UK Health system is in a state of collapse.

2. Capital Gains Tax thresholds will go down next year and by half again in 2025.

Last edited by calman014; Jul 14th 2023 at 7:40 am.
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Old Jul 14th 2023, 2:44 pm
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Default Re: US -> UK Expatriation tax ... SWAGs requested

Originally Posted by Pulaski
Empiracly, my observation is that the opposite is true, at least for men.
Pulse? Check

Here comes the bride...
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