28 January 2021
Renouncing US citizenship when abroad, for example in the UK, has its benefits. The benefits to taxes and the general cost is something we’re often speaking to our clients about. For this reason, we thought we’d share our experience and advice in more detail for you here.
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As the system currently stands, US citizens, and in many cases people holding a US “green card” have to file an annual income tax return with the IRS. This is regardless of where they are living and working.
This can be a costly and time-consuming exercise. But for those with no plans to move back to the US, the possibility of renouncing US citizenship might help. There a many attractive prospects and benefits to jumping off the US tax law carousel.
However, this is a decision that should not be taken lightly. There are many non-tax issues that should be considered before going ahead.
Although the US Embassy is currently closed due to Covid-19 restrictions, you could use this time to consider whether this would be the best financial and personal option for you.
When abroad, renouncing US citizenship is a relatively straightforward process. It is not necessary to engage an immigration lawyer to ensure that everything is done correctly. Although some people may wish to do so to give themselves some extra comfort.
If you meet any of these criteria you will be treated as if you disposed of all assets on the last day of your US citizenship and will be taxed according to the Capital Gains Tax requirements. In addition, you may be deemed to have received a full distribution from certain trust or deferred compensation arrangements (such as pension plans) of which you are a beneficiary. Finally, complex rules will apply that may result in a tax charge on future gifts or bequests to US persons.
However, there are some exemptions to the Exit Tax tests listed above. Firstly, some people born with dual nationality, and citizens under the age of 18.5 years old are exempt.
Similar rules apply to individuals who relinquish their lawful permanent residence (“green card”) status if they have held their green card for more than eight of the previous fifteen years, although the administrative process of relinquishing a green card is much less involved.
With any potentially life-changing decisions there are pros and cons and these need to be considered very carefully.
Are you are considering renouncing your US citizenship to simplify your tax affairs? Why not give our team at Everfair a call and we can talk you through the process. Hearing your specific circumstance, we can share how it would benefit you and what else you should consider.
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