Property Developers, Property Investors

Renounce US Citizenship UK

simon

Simon Misiewicz

15th October 2021

Renounce US Citizenship UK

Americans may wish to renounce US citizenship in the United Kingdom as they are forced to pay the IRS tax on their worldwide income.

There are currently estimated to be more than nine million Americans living overseas.

Giving up US citizenship means they no longer need to file a 1040 tax return to the IRS or pay tax on their worldwide income.

Renouncing US citizenship is a legal process that must be done at a US Embassy or Consulate Office outside the US.

It is permanent. Once US citizenship has been renounced, you cannot rescind, retract or reverse it.

A record 6,075 Americans renounced their US citizenship in 2020, which according to industry sources, represented a 260% increase from 2019.

Renunciations tripled despite US Consulates being closed for large parts of the year due to Covid-19.

This was the highest year of Americans renouncing US citizenship on record.

The frequently asked questions about renouncing US citizenship to save tax on your worldwide income

As property accountants, we are regularly asked about ex-pat tax, particularly paying US tax to the IRS in the United States. We will look to answer the below questions in this Article.

“Are you paying too much US tax to the IRS when living in the UK?”

“Should I speak to a British accountant before renouncing US citizenship in the UK?”

“What are the basics of renouncing US citizenship to prevent the payment of US tax to the IRS?”

“How do I renounce US citizenship in the UK?”

“What are the benefits of renouncing US citizenship?”

“Will I need to fill out Form 8854 before renouncing US citizenship?”

“Will I have to pay US Exit Tax?”

Are you paying too much US tax to the IRS when living in the UK?

Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.

There are many reasons why people pay far more tax than they need to.

This is because:

-They do not know what they do not know.
-They have not spoken to a tax specialist to go through their situation to see what tax reliefs are available to them.
-Their accountants or solicitor are not aware of the many reliefs available to their clients and are not taken advantage of.
-Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.

Should I speak to a British accountant before renouncing US citizenship in the UK?

In recent years, the Foreign Account Tax Compliance Act (FATCA) has driven increased renunciations from the US.

Under FATCA, banks outside the US are forced to report all American account holders under threat of significant fines.

Banks, as a result, have been looking to rid themselves of US clients as they pose a liability.

Many Americans living outside of the US are forced to renounce and provide a Certificate of Loss of Nationality (CLN) to keep their banking services.

American citizens that renounce US citizenship must pay a $2,350 fee to the US government and appear personally at the US Embassy in their country of residence.

They must also file a completed tax return and may have to pay an exit tax.

Despite all of this, the growing trend of Americans renouncing US citizenship in the UK is increasing.

People with US citizenship must file a tax return every year regardless of where they live. They are also required to report every single bank account under FBAR legislation. For many, it feels intrusive.

If you are an American in the UK looking to renounce US citizenship, we recommend speaking to an expert UK tax accountant before considering any immediate steps towards renunciation.

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What are the basics of renouncing US citizenship to prevent the payment of US tax to the IRS?

As property accountants serving thousands of landlords who purchase buy to let properties in the UK, we know that the frustration over US taxes and FATCA pushes more US ex-pats to consider renouncing US citizenship.

It is possible to renounce US citizenship, avoid most future US taxes and still receive income and benefits from the United States.

Renunciation can be a positive and attractive option for individuals looking to simplify their lives.

This often includes situations where US citizens have lived and worked in a different country for an extended period, raised a family there, owned property, and possibly other assets in that country.

Renouncing US citizenship can provide a way to simplify the burdens of maintaining ties to the US through nationality.

Before undertaking to renounce US citizenship, it is worth fully understanding how this will impact your rights and legal obligations.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

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How do I renounce US citizenship in the UK?

The renunciation process comprises two key stages:

* Submission of documents including Form DS 4079

* In-person interview at a US Embassy outside the US

Failure to meet any of these requirements, such as applying within the US, will not constitute renunciation.

The processing fee of $2,350 must also be paid. This is the highest renunciation fee in the world.

Renunciation becomes official on reciting the Oath of Renunciation; then, you are issued a Certificate of Loss of Nationality.

What are the benefits of renouncing US citizenship? 

One of the most significant benefits of renouncing US citizenship is that non-covered ex-pats have no immediate US tax liability.

You must file Form 8854 with your final tax return to determine if you are a ‘Covered Expatriate’ or ‘Non-Covered Expatriate’.

A Covered Expatriate may be subject to an exit tax. This is a way for the IRS to ensure that individuals are not renouncing their US citizenship to avoid a hefty US tax payment.

To be considered a Non-Covered Expatriate (and exempt from exit tax), the following conditions must be satisfied:

* You must have filed taxes for the five years preceding the year you renounce US citizenship

* If you were born a dual citizen and are taxed as a resident of another country, you cannot have lived in the US for more than 10 of the last 15 years

If you are a Covered Expatriate, you may be required to pay an exit tax based on the gain on items you own, such as property, stocks and bonds.

Even after you renounce US citizenship, you may still have US tax filing requirements and potential US tax to pay if you hold property, investments or financial assets located in the US.

Another benefit of renouncing US citizenship is that you don’t need to liquidate assets and investments in the US.

After renunciation, you are considered a non-resident alien (NRA), so the US’s financial activity on investments and/or assets need to be reported on Form 1040NR instead of the previously-used Form 1040.

Your tax rates for various items will depend on the tax rates in the UK in which you are a resident and any tax treaty the US has in place with the UK.

Non-business related income will be taxed at 30% unless the US-UK tax treaty states otherwise.

Business-related income is taxed using the tax tables provided by the IRS. It uses similar tax rates as Form 1040.

A third benefit of renouncing US citizenship is that Social Security benefits are available to those who qualify.

If you have paid into Social Security for a full 40 quarters, you are eligible to collect benefits when you retire.

As an NRA, you can usually continue to collect US Social Security just as you would if you remained s US citizen.

Will I need to fill out Form 8854 before renouncing US citizenship? 

Before you can renounce US citizenship in the UK, you must fill out Form 8854 and attach it to your final US 1040 tax return.

To qualify as a Non-Covered Expatriate, you must meet the following criteria:

* Your net worth (retirement accounts, bank accounts, property values owned inside and outside the US) is below $2M on the date of your renunciation.

* You are allowed to gift up to $145,000 to an NRA spouse every year and avoid paying gift taxes.

* You must file Form 8854 in the year following the year when you renounce US citizenship.

If you’re unsure of your tax position, speak to one of our tax team today.

Will I have to pay US Exit Tax?

If you are deemed a Covered Expatriate by the IRS, you will be liable to pay an exit tax.

The exit tax is based on the perceived value of your assets.

On the day you expatriate to the UK, the IRS will assume that you have liquidated your assets.

You are then taxed on the amount of assumed income.

The exit tax is a tax on the built-in appreciation in the ex-pat’s property as if it had been sold for its fair market value on the day before expatriation.

The current maximum capital gains rate is 23.8%, including the 20% capital gains tax and the 3.8% net investment income tax.

The expatriation tax provisions under the Internal Revenue Code (IRC) sections 877 and 877A apply to US citizens who have renounced their citizenship and long-term residents who have ended their US resident status for tax purposes.

It’s essential to read the IRS guidelines on expatriation tax to fully understand your tax position once you have decided to renounce US citizenship.

Read these valuable articles written by our US and UK tax advisors to help US ex-pats reduce their taxes.

We also recommend that you speak to a British tax expert before you renounce US citizenship in the UK to ensure that you access the best possible tax advice and minimise your tax liability.

US Expats in the UK: You may be interested in services to help Americans move to the UK with tax in mind.

There are many legal matters and tax issues that you need to consider.

We have also written a helpful article about people moving from Hong Kong to the UK and getting a VISA.

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