London Mayor Boris Johnson to renounce US citizenship

[Free_at_49]

Here is the article:

The U.S. government’s stupid tax war on expatriates - MarketWatch

How do retired expats feel about this ongoing problem?

 

[rodi]

Moved to the Politics forum. Hot Topic turned on. Please stay on topic and within the retirement/financial independence umbrella.

 

[Alan]

How do retired expats feel about this ongoing problem?

It is certainly an irritation but not nearly as bad as the article makes out as regards taxation. When I sold my primary home in the UK I declared the gains on my US return and paid no taxes since I was below the $500k cap gains limit in force in the USA at the time. I guess I'm not nearly as rich as Boris so his gains were substantially higher.

As a retired US expat moving to the UK then the UK/US tax treaty treats IRAs and ROTHs the same so I will not be taxed in the UK on ROTH withdrawals, and IRA withdrawals will be taxed as regular income. (Gains in the IRA are tax deferred in both the US and UK).

I've spent a lot of time on expat boards learning about double taxation, tax treaties and FBAR reporting and while the penalties for not reporting foreign bank accounts that hold over $10k are indeed extremely harsh I've yet to see an example of anyone actually being punished. I guess the stick with the new FATCA reporting is big enough to scare folks into being sure they are compliant.

However, for expats who really have no ties whatsoever to the USA and never intend to come and live in the USA I can understand why they might renounce their citizenship, which does not stop them from coming to the USA as a visitor.

 

[kcowan]

I would think just the elimination of duplicate tax filing would make it desirable providing that he plans to remain in the UK.

(I am Canadian and they now ask me to record my US holdings even though they are already reported by my Canadian stock broker. What a PITA! I would get rid of my US holdings to avoid it but they have been great performers...)

Thank God for TurboTax!

 

[Free_at_49]

It is certainly an irritation but not nearly as bad as the article makes out as regards taxation. When I sold my primary home in the UK I declared the gains on my US return and paid no taxes since I was below the $500k cap gains limit in force in the USA at the time. I guess I'm not nearly as rich as Boris so his gains were substantially higher.

As a retired US expat moving to the UK then the UK/US tax treaty treats IRAs and ROTHs the same so I will not be taxed in the UK on ROTH withdrawals, and IRA withdrawals will be taxed as regular income. (Gains in the IRA are tax deferred in both the US and UK).

I've spent a lot of time on expat boards learning about double taxation, tax treaties and FBAR reporting and while the penalties for not reporting foreign bank accounts that hold over $10k are indeed extremely harsh I've yet to see an example of anyone actually being punished. I guess the stick with the new FATCA reporting is big enough to scare folks into being sure they are compliant.

However, for expats who really have no ties whatsoever to the USA and never intend to come and live in the USA I can understand why they might renounce their citizenship, which does not stop them from coming to the USA as a visitor.

Hey, long time no see. Looks like somebody here thinks that income tax on Americans retired abroad is just politics. Maybe they should pay our tax bills to find out how real it is.

 

[Free_at_49]

I would think just the elimination of duplicate tax filing would make it desirable providing that he plans to remain in the UK.

(I am Canadian and they now ask me to record my US holdings even though they are already reported by my Canadian stock broker. What a PITA! I would get rid of my US holdings to avoid it but they have been great performers...)

Thank God for TurboTax!

I'm Canadian too (also lol), UK people have some tax advantages, but I won't be retiring in the UK.

 

[Alan]

Hey, long time no see. Looks like somebody here thinks that income tax on Americans retired abroad is just politics. Maybe they should pay our tax bills to find out how real it is.

Next year I will be an American living abroad and I don't think it is just politics. It is about collecting taxes and my US passport states that I should file taxes no matter where I live. (Back page, section D).

 

[brett]

I do not blame him. I know several people with dual citizenship who are doing exactly the same-and for the same reasons. I very much doubt whether Boris Johnson has any intention of moving from the UK. And apparently he has absolutely zero intention of filing US tax returns let alone paying US capital gains on the gain from sale of his home. It will be interesting to see what transpires if he becomes PM at some point and has a state visit to the US. Can just imagine the IRS agents meeting him when he gets off the plane! I assume that if he was PM he would have diplomatic immunity.

All of them have American citizenship but have been living in the country of their dual citizenship for years or for their entire lives since infantcy and have no plans to return to the US.

As one of them said to me...it is about the hassle of filing, the tax (although minimal) but mostly about the intrusion into my personal finances.


From Boris' perspective, with no intention to live or work in the US, does maintaining dual US citizenship give him any benefit over single UK citizenship?

 

[Lakewood90712]

Seems a little ironic. I don't know about current taxes in the UK, but sure remember the Beatles song " The Taxman " , and the ruckus it was rumored to cause within the government at the time.

 

[theOAP]

Hot Topic turned on.

Indeed, a very hot topic for some.

A discussion of renunciation of US citizenship, whether Boris Johnson or a lab technician living in Vancouver, should not be generalised. Discussion of the consequences of US income tax on Americans living abroad, also, should not be generalised; especially when it concerns retirement planning and US citizens living abroad on retirement income.

The massive variations which may alter one's perspective:

Is the retirement income primarily US source, or foreign source?

Has the individual lived most of their lives in the US or abroad?

How closely does the individual guard their financial identity? Are they comfortable using personal financial information online, or are they more guarded about public exposure of their personal financial information. Nothing sinister here, we're not talking about people actively evading tax; just ordinary people doing ordinary things like having a bank account or taking out a mortgage.

What foreign country are we discussing? For US tax purposes combined with foreign residence, some are more difficult than others (Switzerland and Germany, for example).

What will the individual's ties to the US be once retired? Family? End of life planning? None?

A difficult and emotive subject (believe me on this, I'm going through pragmatism versus emotional ties at this time on this very subject). BTW, Boris has settled with the IRS (and no, no one knows the outcome) and has yet, as far as anyone is aware, to renounce.

This is a topic best left for discussions between adults, especially those with no "hobby horse"** ideals.

***This is not about patriotism, love of America, or greed. It is about the engineer living in Sydney, the lab technician living in Vancouver, and the secretary living in London, or the retired executive living in Houston considering partially relocating back to the home country during retirement ) Alan and I, amongst others on this site, have been part of similar discussions before on other expat sites). It is not about Eduardo Saverin, Denise Rich, or indeed Boris Johnson.

 

[brett]

Agree. Like you, I would hardly consider this a slight against the US.

It is more an administrative and tax issue than it is about any one country.

Cannot imagine why on earth any American would be upset by this. There are far more people clamouring for US citizenship than the very few who wish to give it up for tax reasons.

If these people could avoid US tax filing simply by the fact that they are resident/domiciled in another country I doubt whether they would have a reason or would bother to give up their citizenship. It costs money to do and it is apparently (so I am told by one who has done it) a PITA to go through.

 

[samclem]

What foreign country are we discussing?

Emotions, loyalties, duty, and sympathies aside, the foreign country of residence/adoptive citizenship would be a huge factor. The protections and privileges of US citizenship, including the right to "go home," can prove to be mighty important to an AMCIT who has decided to try to make a go of it in one of the world's less developed, and less stable, nations. Boris will be fine, but most of the world is not as politically stable and respectful of individual rights as the UK is.

 

[Free_at_49]

Indeed, the emotional/patriotism factor comes down to where you consider “Home”.

I had a business in the US and my wife was American, so I applied for US citizenship to fit-in and avoid discrimination and being called an “alien”. My wife died very young in her 40s, so I no longer have ties here.

I have US, Canadian and EU citizenship. I plan to retire in the EU where it feels more home and health care is vastly superior.

I’ve no desire to renounce, but I will if I’m pushed, i.e. double-taxed, abused or discriminated as a foreign resident.

 

[haha]

I’ve no desire to renounce, but I will if I’m pushed, i.e. double-taxed, abused or discriminated as a foreign resident.

Is it not a given that some or all of these negative effects will affect you?



Ha

 

[Free_at_49]

Is it not a given that some or all of these negative effects will affect you?

Ha

I will play it by ear. Vanguard works OK for "foreign" residents with some limitations. But tax is withheld immediately and your country of residence also taxes your worldwide income. Do you have experience to share?

 

[theOAP]

I plan to retire in the EU where it feels more home and health care is vastly superior.

Since you may retire to the EU, it would be likely you'd be covered by a national health system, but there is something to be aware of when the time comes if rules stay the same as they are now.

You'll be fully covered where you live in the EU; obviously you will not be able to enrol in any US health coverage when living abroad (unless your present coverage includes foreign countries after retirement); and if you were able to have US coverage you'd have to be in the US to utilise it. Nonetheless, since you are a US citizen, you'll have to file form 8965 otherwise you'll be penalised a percentage of your AGI on your US return because you don't have US coverage.

This is a real sticking point in your first year abroad since you may not qualify for either substantial presence abroad or bona fide residence abroad (Section 911 required for those US citizens abroad) to qualify for the exemption allowing you not to be penalised. Plan carefully.

 

[Free_at_49]

Since you may retire to the EU, it would be likely you'd be covered by a national health system, but there is something to be aware of when the time comes if rules stay the same as they are now.

You'll be fully covered where you live in the EU; obviously you will not be able to enrol in any US health coverage when living abroad (unless your present coverage includes foreign countries after retirement); and if you were able to have US coverage you'd have to be in the US to utilise it. Nonetheless, since you are a US citizen, you'll have to file form 8965 otherwise you'll be penalised a percentage of your AGI on your US return because you don't have US coverage.

This is a real sticking point in your first year abroad since you may not qualify for either substantial presence abroad or bona fide residence abroad (Section 911 required for those US citizens abroad) to qualify for the exemption allowing you not to be penalised. Plan carefully.

Thank you, I’ve read about this online. Hopefully the tax software will take care of any forms.

The biggest problem I see is maintaining a large US IRA as a non-citizen. IRAs can’t be moved without generating a huge tax event. If I redeem the whole thing I’ll be taxed at ~40%, both here and in EU!

 

[Alan]

The biggest problem I see is maintaining a large US IRA as a non-citizen. IRAs can’t be moved without generating a huge tax event. If I redeem the whole thing I’ll be taxed at ~40%, both here and in EU!

If you retain your US citizenship and live in an EU country I expect that you can keep your large IRA and it will be treated as you would expect with no double taxation.

I can only speak for one EU country, the UK, but the US/UK tax treaty means that neither country will tax the IRA until distributions happen. If you are a USC living in the UK then the IRA distribution will be taxed as regular income and when you file your US taxes you apply the UK tax on that distribution as a tax credit so there is no double taxation.

The ROTH IRA distributions are tax free in both the UK and US. When doing ROTH conversions the taxes are only due in the US so I don't expect to ever pay any UK tax on IRA distributions as I will be converting to ROTH first.

 

[Texas Proud]

I know that some here have said 'maintain dual citizenship'..... but I would think that there are a good number that do not do any maintenance...


Let's use Johnson as an example.... he was born in the US, so is a US citizen... born to UK parents, so I assume he is also a UK citizen....

So, parents move back to the UK while he is still young... he grows up in the UK... never gets a passport (not sure if you have to get one... I know you do not here) from either the US or the UK.... how is he maintaining dual citizenship He is not.. he is being forced to be a dual citizen....

I would bet there are a lot of US citizens that have not lived here since they were kids and never plan on coming back.... heck, they might not even know they are US citizens... but the US seems to want to go after all of them.... what a great country we live in....

 

[brett]

That is exactly the issue for many.

Others have lived outside the US for their working lives, married foreign nationals and built lives in other countries, and have no desire to return. It happens to many expats of all countries. They simply do not want the tax or the reporting burden.

 

[Meadbh]

That is exactly the issue for many.

Others have lived outside the US for their working lives, married foreign nationals and built lives in other countries, and have no desire to return. It happens to many expats of all countries. They simply do not want the tax or the reporting burden.

Except that most countries do not tax their expats or require them to report.

 

[Free_at_49]

If you retain your US citizenship and live in an EU country I expect that you can keep your large IRA and it will be treated as you would expect with no double taxation.

I can only speak for one EU country, the UK, but the US/UK tax treaty means that neither country will tax the IRA until distributions happen. If you are a USC living in the UK then the IRA distribution will be taxed as regular income and when you file your US taxes you apply the UK tax on that distribution as a tax credit so there is no double taxation.

The ROTH IRA distributions are tax free in both the UK and US. When doing ROTH conversions the taxes are only due in the US so I don't expect to ever pay any UK tax on IRA distributions as I will be converting to ROTH first.

The big picture: If we were truly free, one should be able to take their money and go live wherever they want without being punished.

But as it stands in the US, my IRA savings are held hostage (unless I withdraw the whole thing at the highest tax rate, renounce, and then I’m truly free). So by extension I’m held hostage too because wherever I go in the EU, I’l be taxable in both countries. Yes?

Roth is still a custodial account. If I were to convert the entire IRA to a Roth, would I not be taxed at the same rate for the conversion? Can I even convert to Roth all at once? It seems you can only convert so much every year, which would take me a lifetime to do.

 

[Free_at_49]

If you retain your US citizenship and live in an EU country I expect that you can keep your large IRA and it will be treated as you would expect with no double taxation.

I'm not clear on this one. Are not IRA distributions considered taxable income in both countries?

 

[theOAP]

I'm not clear on this one. Are not IRA distributions considered taxable income in both countries?

First, reading and understanding the relevant Double Tax Treaty between the US and "the other country" is imperative, provided one exists. No two treaties are exactly the same. The previous comments concerning how IRA, ROTH, etc. work in the UK may not apply to other countries. If a treaty exists, there will also be a "Technical Explanation". This is the treaty put in everyday english (to some degree), and may be easier to understand. It is also imperative to understand the "saving clause" contained in all US treaties. It comes about as the result of the US unique Citizenship Based Taxation. As a result, many of the benefits of the treaty do not apply to US citizens abroad. It is necessary to understand the limited number which may benefit the US citizen abroad, and if they apply to you.

For the UK double taxation of the IRA might be avoided by use of the resourcing basket of form 1116 where the US income is resourced as UK income in order to offset US tax by claiming the UK tax paid on the income.

Be aware that income primarily from US sources allows for the use of tax software. If the majority of income is foreign, and especially if it is retirement income possibly from more than one foreign country, tax software is useless.

 

[samclem]

The big picture: If we were truly free, one should be able to take their money and go live wherever they want without being punished.

But as it stands in the US, my IRA savings are held hostage (unless I withdraw the whole thing at the highest tax rate, renounce, and then I’m truly free). So by extension I’m held hostage too because wherever I go in the EU, I’l be taxable in both countries. Yes?

"Being held hostage" seems a bit overwrought, no? If you withdraw the (previously untaxed) money from the IRA, you're being asked to pay taxes on it (which you owed in the first place). The deal was always the same--when you take it out, you pay tax on it--if you choose to take it all at once, you'll pay tax at a pretty high rate. And if you get taxed by another country (in many cases you wouldn't, but look at the actual treaties to be sure), then your issue is with your "adoptive' country.