US UK dual citizen, has anyone renounced US citizenship due to ludicrous tax situation?

[AlohaMama]

I'm a dual citizen of UK and USA. I was born to British parents who were living in the US but returned to the UK as a baby and grew up here. I then spent 1 year at uni in the USA and then lived there for nearly 5 years as an adult with DH, and had two DC born there. We're now back in the UK with no intent to return to live in the US. Obviously as a citizen I have to continue to fill out tax returns. I was stupidly hoping they wouldnt be too complicated and that after getting my US accountant to do it one year I could just do it subsequent years. But it seems to get more complicated each year. Not only reporting all the bank accounts but even company finances for our UK company of which I am a Co director. So far I've not had to pay US tax as it falls withing the limit for foreign earned income exclusion but I am worried that the US IRS seems to be getting more and more involved in my UK affairs (this year I even had my UK bank contact me with IRS forms) , but also if I come into a lump sum when my parents eventually die, then I'll end up paying US tax on that, or if i get sum from a house sale, not to mention the on going hassles and cost of filong returns eachieve year. I'm now wondering if I should just consider renouncing my US citizenship. Has anyone done this, and if so, what are the implocations I may not have thought of. Will I be stopping myself from ever moving back there? How long does it take before you can stop filing tax returns, or are there any other circumstances where the IRS might allow you to not fill in a return. What should I do???

[temporaryname99]

Can't answer your question exactly but thought it might make you feel better to know that my US citizen husband has been here for 12 years and we haven't yet filled in a tax return. It's just so hard to face doing it, and seems so irrelevant. However, this situation will no doubt bite us on the bum quite soon.
So at least you are more organised than we are!!

[cupcakesandwine]

Boris Johnson did this for exactly the reasons you give.

[Chalalala]

You should get professional advice from a US/UK tax lawyer.

But I do believe that as a US citizen, you get very significant tax exemptions on inheritance/profits from house sales. An issue is more likely to arise if you die (sorry!), because your non-US spouse is not covered by these exemptions,and he is likely to have to pay a lot of tax on your estate.

[mrsmortis]

You might find this interesting:

www.bbc.com/news/35383435

[lljkk]

Most the other Americans I meet living abroad never file. This goes on for decades without problems.

It's worth renouncing if you have high value assets or income.

[AlohaMama]

I'm surprised to hear other people don't file. I'd be scared of being fined for that, but then habing only returned to the UK 2 years ago I assume I'm on the radar.

Thanks for the article mrsmortis. I hadn't realised it was so expensive to renounce. That article does make it all sound quit scary.

chalalala surely my DH couldn't be taxed for inheriting from me, as he's not a US citizen, or am I misunderstanding? All of our savings, house etc are in the UK. I'll check out exemptions for inheritence as well.

[Noofly]

I renounced nearly two years ago. I hadn't been filing tax returns but my mother died in the US and her estate caused me massive headaches and I quickly realised that going forward it would be much easier to only be a UK citizen!

I think if you have been filing taxes, you're pretty much stuck filing from now on. Most people don't ever file to keep themselves out of the system and prolong this for as long as possible certainly my strategy prior to my mother's death The difficulty is that once you are in the system you can't really get out of it!

I think I had to back file 5 years of FBARs and 3 of IRS returns? I possibly did 5 of both- I can't remember! The actual renunciation process was pretty simple and I've just had an ESTA application approved for me to visit NYC in April so for me, there's been loads of benefits and no downside since I have no desire to ever live in the US again...

[VimFuego101]

from what I've read on the BritishExpats forum, you should be able to obtain an ESTA just like any other British person would to go there on holiday.

I'm curious as to what happens to people who renounce and then decide they want to go back there to live, though. Can you have a family member sponsor you or get a work visa just like a regular non-US citizen can?

[Chalalala]

AlohaMama, yes, as far as I understand your non-resident alien DH could be taxed on your inheritence

blogs.wsj.com/expat/2014/11/16/ask-an-expert-tax-tips-for-expats-with-alien-spouses/

The exemption is a lot higher than I thought, up to a couple million dollars. But if you have property it could add up quickly, also not sure how life insurance would be taken into account...

In theory gifts from US to non-US spouses are also taxable (!!!), although there's also some level of exemption.

I'm definitely no expert but I looked into all of this when I bought a house with my US husband, I talked to a UK/US lawyer who told me to put everything in my name as far as possible (I'm not US), as it would make things a lot easier with the IRS.

[Chalalala]

also I made DH back-file his tax returns and FBARS, which he hadn't been doing... yes it's a serious pain, but I'm a worrywart and it's just not worth the anxiety!

[AveEldon]

www.mumsnet.com/Talk/am_i_being_unreasonable/2198880-To-Consider-Giving-up-US-Citizenship lots of info here

[AlohaMama]

Thanks for the link AveEldon, it looks really useful.

chalalala it's articles like that that make me want to get out of the citizenship. I don't feel it's likey we'd have to pay tax as the exemptions are so high, but it seems like there are no end of ways to trip up by not filing relevant forms. In so many situations it won't occur to me that it has anything to do with the IRS.

[AveEldon]

The cost and hassle of filing is big problem

[faffadoodledo]

Sorry for breathing new life into this ancient thread but may I ask those who renounced like @Noofly whether the process was easy? And whether in renouncing you triggered any kind of IRS investigation? Asking for a young relative (who doesnt yet have assets worth chasing!!)

[knitnerd90]

If you are worth a lot of money, the IRS will charge you an exit tax to renounce. Be aware of that. I believe the trigger is $2M net worth.

Generally speaking the IRS doesn't have the time or manpower for enforcement of expat tax returns unless there's a red flag. Every year there's some story about renunciation but the fact is that the absolute numbers are still small, because it's not an option for most people (you need to have another citizenship and be confident you don't plan to return. Boris waited decades.

[faffadoodledo]

Interesting. I thought it was a flat fee of over $2000 for anyone to renounce no matter their assets.

[FormerUSCitizen]

NC for this. I gave up US citizenship about 10 years ago, with the result of drastically reducing the administrative costs of complying with tax obligations. This also saved me many, many hours of paperwork and hassle.

It is definitely worth getting expert legal advice on this, and there are lots of lawyers and accountants who do not have good knowledge of the rules so be wary. One possible resource is here www.americansabroad.org/; that website will provide some information and may lead to some knowledgeable lawyers and accountants. Since that one is not targeted to people looking to give up US citizenship, another one worth reading is this one 1040abroad.com/faq/renouncing-u-s-citizenship/
Neither of the above are US government official sites, so good background reading but may or may not be perfectly up to date. The info on the second site appears consistent with what the rules were 10 years ago, so unless the rules have changed, it is still going to be relevant.

There are as many of three sets of costs involved in renouncing, two of which are unavoidable:

1. US embassy fees. Again, unavoidable.There is definitely a flat cost (I think it is now USD 2,350) common.usembassy.gov/en/renounce-citizenship/
   
   
2. accountant and lawyer fees. Theoretically avoidable, but due to complexity of the rules, I would also call these unavoidable. It can be very expensive to make a mistake: that could result in significant tax penalties or ongoing obligations, given the need to be fully compliant with US tax obligations upon renunciation in order to avoid being classified as a "covered person", which is a problem one can have even without having
   
   
3. US exit tax. Potentially avoidable in certain situations, notably for persons born with dual citizenship: there is, or at least used to be, an exemption from exit tax and from being a covered person available to any person who acquired at birth both US citizenship and also citizenship of a second country, provided that such person renounces US citizenship at a moment when they are resident of and taxed as a resident of that second country. So a US/UK citizen from birth would need to renounce while resident in the UK; if they had since moved to France it would pose a difficulty.
   That exemption is definitely worth having if it is available, and IMO, it is definitely worth paying the lawyer fees to make it so.