US STATE tax when retired and living in Europe.

[nun]

Are you a non resident alien? Any experiences in dealing with US-based IRA custodians from aboard? Are they comfortable with customers having non-US home address? I've activated Vanguard's new voice-recognition security feature, in anticipation of calling them while I'm on the road someplace.

I'm not an NRA, but I am a US/UK dual citizen and have looked at the implications of moving to the UK and managing my finances.....most of which are in the US.

Vanguard are one of the few companies that have no problem in servicing the existing accounts of non-US residents. How you are treated depends on your custodian. Some will ask you to move your account and some will only service retirement accounts.

 

[Free_at_49]

I'm not an NRA, but I am a US/UK dual citizen and have looked at the implications of moving to the UK and managing my finances.....most of which are in the US.

Vanguard are one of the few companies that have no problem in servicing the existing accounts of non-US residents. How you are treated depends on your custodian. Some will ask you to move your account and some will only service retirement accounts.

Thank you, that's good to know about VG. I was referring to IRAs, regular accounts can be moved any time with no restrictions(?). How would a British/German mutual fund deal with a 1/2+ $ million conversion/purchase, I read stories in the news about money-laundering concerns, and I'd hate to get into that type scenario.

 

[nun]

Thank you, that's good to know about VG. I was referring to IRAs, regular accounts can be moved any time with no restrictions(?). How would a British/German mutual fund deal with a 1/2+ $ million conversion/purchase, I read stories in the news about money-laundering concerns, and I'd hate to get into that type scenario.

Regular accounts can be moved, but if you have to be aware of the tax issues with owing certain investments. If you are a US citizen you should not own non-US mutual funds as they are taxed a punitive rates under PFIC rules. Other countries also have similar rules for their residents eg the UK has Reporting Funds Rules.

 

[meierlde]

I make a single withdrawal annually, and ask Vanguard to withhold 25% Fed + 10% State. The percentages are optional, my choice. So 30% probably means I'll get a refund, correct?

For accrued capital gains, are you referring to IRAs or regular accounts?

Regular accounts.

 

[Free_at_49]

Regular accounts can be moved, but if you have to be aware of the tax issues with owing certain investments. If you are a US citizen you should not own non-US mutual funds as they are taxed a punitive rates under PFIC rules. Other countries also have similar rules for their residents eg the UK has Reporting Funds Rules.

I see, so Sam considers a British bond fund to be a PFIC ?

In that case, if you want to move to EU with your assets you pretty much have to renounce US citizenship? Seems like they put you between a rock and a hard spot, unless you're a tax geek and enjoy that sort of thing.

 

[nun]

I see, so Sam considers a British bond fund to be a PFIC ?

Yes

In that case, if you want to move to EU with your assets you pretty much have to renounce US citizenship? Seems like they put you between a rock and a hard spot, unless you're a tax geek and enjoy that sort of thing.

You could invest your money in individual shares outside the US and be tax efficient and there are tricks with insurance wrappers that you can play. But foreign pooled investments ie foreign mutual funds should be avoided.

If a US citizen moves to the UK and wants to invest regular money in pooled investments they should use the US Vanguard ETFs that are UK reporting funds

 

[Free_at_49]

Yes



You could invest your money in individual shares outside the US and be tax efficient and there are tricks with insurance wrappers that you can play. But foreign pooled investments ie foreign mutual funds should be avoided.

If a US citizen moves to the UK and wants to invest regular money in pooled investments they should use the US Vanguard ETFs that are UK reporting funds

I wish I had a CFO like you, a British accent always tricks out American customers.

Don't you agree though that renouncing citizenship simplifies things?

 

[nun]

I wish I had a CFO like you, a British accent always tricks out American customers.

Yes and we also make the best bad guys in movies too.

Don't you agree though that renouncing citizenship simplifies things?

Renouncing certainly makes your taxes easier, but it's a big step if you have family in the US or would ever want to return.

FYI US citizenship renouncements are increasing, but they are still a small number, maybe 3000 a year.

 

[meierlde]

Yes and we also make the best bad guys in movies too.



Renouncing certainly makes your taxes easier, but it's a big step if you have family in the US or would ever want to return.

FYI US citizenship renouncements are increasing, but they are still a small number, maybe 3000 a year.

Does the US extradite on taxes? If you left and never intended to or did treturn, and had citizenships like the original poster, then what could the US do if you left and took your money with you. If they don't/cant extradite as many treaties do protect citizens.

 

[M Paquette]

Does the US extradite on taxes? If you left and never intended to or did treturn, and had citizenships like the original poster, then what could the US do if you left and took your money with you. If they don't/cant extradite as many treaties do protect citizens.

TL ; DR ... You can't take it with you. Trying to transfer large sums of cash or liquid investments tends to draw attention.

They collect the taxes when you renounce. It's done as an 'exit tax'. All assets are 'marked to market', or deemed as sold the day before you terminate citizenship. You then owe tax. This hits anyone with a net worth of 2 million or more, or with an income tax of roughly $145,000 a year in the past 5 years. (It gets inflation and bracket adjusted regularly.)

The details are here: http://www.irs.gov/Individuals/International-Taxpayers/Expatriation-Tax

 

[Derslickmeister]

I've been spending a few months in EU every year, if I move away permanently why would I care about a US driver's license or jury duty? I can get a DL in Europe.

Renouncing citizenship, I've thought about it, but it's uncharted territory for me.

Tina Turner did it, so can you...

 

[theOAP]

FYI US citizenship renouncements are increasing, but they are still a small number, maybe 3000 a year.

I'll let this comment pass other than saying if all 3000 of those people renounced due to the difficulties with tax obligations in their country of birth (most highly unlikely for all 3000), then that would be 3000 times as many as those driven to renounce for the same reason by any other civilised country anywhere on earth.

Renunciation is being talked about rather freely here except for the comments from nun ("but it's a big step if you have family in the US or would ever want to return.") Let's not talk about the reasons for renunciation, but instead, talk about the practical elements. It's appropriate for this forum since most of those facing this decision are the relatively successful US Persons (including expats) approaching retirement age. They've accumulated a reasonable amount of funds, or at least enough for the sum to be a significant consideration regards US reporting.

Let's also assume we're discussing long term expats; those who no longer have a need to view the US as a bolt hole to escape to in the future.

The first element, as nun rightly points out, is the family centre of ones life. Their immediate family may be in the country they now live in, but they may also have aging parents or children in the US who may require their attendance in the US for periods of more than 6 months due to health/end of life situations. An ESTA is only valid for 6 months maximum. In this case, retaining US Citizenship becomes valuable.

I would also add there are laws currently in force to prevent a US Citizen who has renounced for tax reasons (e.g. is subject to the 'exit tax') from returning to the US under any circumstances. Google the 'Reed Amendment'. So far, this law is being ignored and is not enforced.

The second element is the location of their financial centre. If most of their income and investments are in the US, then tax filing is simplified. The only drawback is the addition of sources in the 'new' country. As has been explained in previous posts, these can complicate US filing substantially and the individual will find it complicated (for US tax reasons) to have many types of accounts which are advantageous for the normal resident of that country. You will find it difficult to invest as a 'local'.

If their financial centre is in the 'new' country (e.g. where most of their income and investments are), then renunciation becomes a much more likely consideration.

Last, and a subject rarely discussed on expat forums; renunciation can only be achieved by those able to qualify. I'm not talking about needing a 2nd citizenship, but instead the requirement to be able to grasp mentally what they are doing (renouncing). It is a requirement by the US Department of State. Now consider the situation if the individual has dementia. They will not be allowed to renounce. Who completes their US tax forms. If they have been doing these themselves, or if their immediate family would have no idea where to begin (an NRA spouse?), who completes the forms? Qualified tax advisors in foreign countries are expensive. It's another consideration for those US expats.

 

[nun]

I'll let this comment pass other than saying if all 3000 of those people renounced due to the difficulties with tax obligations in their country of birth (most highly unlikely for all 3000), then that would be 3000 times as many as those driven to renounce for the same reason by any other civilised country anywhere on earth.

The 3000 number really needs some examination.

The renouncer needs to have another citizenship to renounce, so I expect many are not US born citizens, but are naturalized citizens who return home and then renounce for convenience, usually involving taxation.

Some will be accidental Americans who have a US parent or were born in the US, but have never lived in the US and have no other connections to America.

It would be interesting to see the number of US citizens who actually grew up in the US that decide to renounce. I expect that number to be small because of emotional and family ties.

 

[Free_at_49]

Paying taxes in your country of residence is only fair, but if you don’t live in the US and thus do not avail yourself of US public goods, then it’s obviously an abuse by the state. US is the only country that taxes non-residents for life, even on income earned abroad! Imagine if Canada wanted a cut too, but it doesn’t, because I don’t live there nor did I earn it there.

In EU I’d be taxable as a permanent resident. But the prospect of 3 countries wanting to tax the same income is confiscatory taxation. There is no “exit tax” unless you’re obviously doing it to evade taxes, I’d only be escaping from a tax predator that’s holding my nestegg hostage.

Maximum tax rate is ~50%, my annual rate ~20%. So if I sell a $1/2-million IRA then it’s a big tax hit (30% more), but you can take it and leave and never owe US taxes again (or do as I posted earlier). Regular accounts are transferable any time. In my case they’re in bond funds with negligible capital gain/loss, so that part is easy. Plus I forfeit the Medicare that I’ve paid into. Did I leave anything out?

 

[nun]

Paying taxes in your country of residence is only fair, but if you don’t live in the US and thus do not avail yourself of US public goods, then it’s obviously an abuse by the state. US is the only country that taxes non-residents for life, even on income earned abroad! Imagine if Canada wanted a cut too, but it doesn’t, because I don’t live there nor did I earn it there.

In EU I’d be taxable as a permanent resident. But the prospect of 3 countries wanting to tax the same income is confiscatory taxation. There is no “exit tax” unless you’re obviously doing it to evade taxes, I’d only be escaping from a tax predator that’s holding my nestegg hostage.

Maximum tax rate is ~50%, my annual rate ~20%. So if I sell a $1/2-million IRA then it’s a big tax hit (30% more), but you can take it and leave and never owe US taxes again (or do as I posted earlier). Regular accounts are transferable any time. In my case they’re in bond funds with negligible capital gain/loss, so that part is easy. Plus I forfeit the Medicare that I’ve paid into. Did I leave anything out?

You have to work things out with a knowledge of the tax treaty between the US and where you'll be resident. You might come out better by staying as a US citizen, or leaving money in the US as an NRA, and using the treaty given the usually higher EU personal income taxes. An example is the way a UK resident NRA can use the treaty and IRA to ROTH conversions to produce low tax income.

 

[F4mandolin]

These are all questions that we need to figure out as well. My wife (UK) and I (US) are likely moving back to N England in the next 2-3 years. Questions abound.
1. Is it worth it for her to get her US citizenship this next year. Really only getting it in case they change the Social Security rules. The spousal SS coverage is very much worth it for us to keep. It won't be much, probably about 200 Pounds(equivalent) a month if she takes it at 62.
2. If she doesn't get citizenship, does that make our taxes a little easier?
3. What are the rules if I were to drop my US citizenship and getting Social Security? We would be in big trouble without that money.
4. Even if I did drop US citizenship.....what the heck do I do with my Govt TSP money? Easy enough I guess to move my Vanguard funds over to ETF's that are ok with the UK Govt.

Hey....the Seattle Mariners are in first place......better say that now before they play anymore games

 

[nun]

These are all questions that we need to figure out as well. My wife (UK) and I (US) are likely moving back to N England in the next 2-3 years. Questions abound.
1. Is it worth it for her to get her US citizenship this next year. Really only getting it in case they change the Social Security rules. The spousal SS coverage is very much worth it for us to keep. It won't be much, probably about 200 Pounds(equivalent) a month if she takes it at 62.
2. If she doesn't get citizenship, does that make our taxes a little easier?
3. What are the rules if I were to drop my US citizenship and getting Social Security? We would be in big trouble without that money.
4. Even if I did drop US citizenship.....what the heck do I do with my Govt TSP money? Easy enough I guess to move my Vanguard funds over to ETF's that are ok with the UK Govt.

Hey....the Seattle Mariners are in first place......better say that now before they play anymore games

1) Getting US citizenship would remove any immigration issues if you wanted to move back to the US.
2)If she doesn't get US citizenship it might make her taxes easier, but not yours and not either of you file jointly.
3) Dropping citizenship does not affect eligibility for SS
4) Govt TSP money can stay where it it...it's a government pension under the treaty so sheltered from HMRC reporting funds rules.

 

[F4mandolin]

1) Getting US citizenship would remove any immigration issues if you wanted to move back to the US.
2)If she doesn't get US citizenship it might make her taxes easier, but not yours and not either of you file jointly.
3) Dropping citizenship does not affect eligibility for SS
4) Govt TSP money can stay where it it...it's a government pension under the treaty so sheltered from HMRC reporting funds rules.

nun.....as usual...you are awesome. But....if moving to the UK (as planned)....this would be PERMANENT for me.....no coming back(ever) to the US. Could you elaborate on #2? How would her staying UK...or US kill my taxes? What....if....the Republicans get into power and decide that anybody who doesn't have US citizenship doesn't get SS money(and I understand that one). Citizenship would matter.....and I don't trust politicians to do anything for anybody.....unless it helps them.
The TSP money....is protected now...and probably/likely in the future...but..

 

[Free_at_49]

nun.....as usual...you are awesome. But....if moving to the UK (as planned)....this would be PERMANENT for me.....no coming back(ever) to the US. Could you elaborate on #2? How would her staying UK...or US kill my taxes? What....if....the Republicans get into power and decide that anybody who doesn't have US citizenship doesn't get SS money(and I understand that one). Citizenship would matter.....and I don't trust politicians to do anything for anybody.....unless it helps them.
The TSP money....is protected now...and probably/likely in the future...but..

You've paid into SS so you're entitled to it, even non-citizens get it. I don't see how Congress can change the law retroactively.

If you're moving to UK permanently, I don't see any advantage in your spouse getting US citizenship. Even if you give up yours, you can still visit on an 90-day visa like anybody from EU.

 

[meierlde]

You've paid into SS so you're entitled to it, even non-citizens get it. I don't see how Congress can change the law retroactively.

If you're moving to UK permanently, I don't see any advantage in your spouse getting US citizenship. Even if you give up yours, you can still visit on an 90-day visa like anybody from EU.

Unless a law is passed that I would call the modern version of the man without a country law. If you renounce your us citizenship you are permanently barred from entering the US no matter what your other citizenship might be.

 

[HawkeyeNFO]

If you renounce your us citizenship you are permanently barred from entering the US no matter what your other citizenship might be.

Where does any law or USC say that? I'll believe it when I see it.

 

[kramer]

If you renounce your us citizenship you are permanently barred from entering the US no matter what your other citizenship might be.

This is categorically and absolutely FALSE.

 

[nun]

nun.....as usual...you are awesome. But....if moving to the UK (as planned)....this would be PERMANENT for me.....no coming back(ever) to the US. Could you elaborate on #2? How would her staying UK...or US kill my taxes? What....if....the Republicans get into power and decide that anybody who doesn't have US citizenship doesn't get SS money(and I understand that one). Citizenship would matter.....and I don't trust politicians to do anything for anybody.....unless it helps them. The TSP money....is protected now...and probably/likely in the future...but..

If your your wife is just a UK citizen living in the UK then she can invest locally without worrying about how the IRS would tax those investments. US citizens can get into a lit I trouble by investing outside the US. If your wife has US retirement accounts they would only be taxed when income is taken and under the treaty they would only be taxable in the UK. Anyone with dual US/UK citizenship living in the UK has to deal with both the IRS and HMRC as the UK Will tax them due to their UK residency and the US will tax them because of their citizenship.

 

[nun]

Unless a law is passed that I would call the modern version of the man without a country law. If you renounce your us citizenship you are permanently barred from entering the US no matter what your other citizenship might be.

This is completely false.

The US will only let you renounce US citizenship if you have citizenship of another country. Once the US citizenship is gone you will be able to enter the US on your foreign passport. So you'll have to comply with visa requirements and limits on the length of your stay.