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To not want to pay tax as an "Accidental American."

(218 Posts)
budinbloom Fri 08-Jun-18 15:06:00

Help! Is anyone facing/has faced this recently?

DH is a dual UK/US national from birth. (English Dad, American Mum, born in the US but left for the UK as a baby and never lived or worked there since). He received what we now know is a "FATCA" letter recently and after copious googling and increasing panic, it looks like he is supposed to file tax returns to the US and potentially pay tax on the funds he holds in his ISA. Luckily, they aren't threatening to close his account....yet but the internet says that is what's happening in other countries!

We're still flapping but becoming resigned to the fact that, we have to pay to enter a foreign tax system in the first place before we can exit and renounce his US citizenship if we are to even plan for our future retirement. We're still at the going backwards & forwards stage - should we/shouldn't we? It's so unfair? What do we do? How would they know? We can't lie/nor do we want to? At the same time, we don't want to pay ANY tax to a foreign government on our already taxed UK income. He's always been PAYE here! Is the final solution renouncement but this process which will involve backfiling tax returns which we should never have to do, in the first place and will costs thousands (yes, we've got a few general quotes for the work).

We really want to keep hold of his stocks and shares ISA. Do we only really need to sell the funds in them but keep the actual direct company shares? No-one seems to admit to having anything other than cash ISAs but is that because they have already sold them in advance of filing for the first time? No idea what to do without paying even more for expensive legal/tax advice.

mummymeister Fri 08-Jun-18 15:16:21

Please, please go and get the expensive legal and tax advice from a real person with qualifications and indemnity. this really is way too important to take advice on a forum as gospel because everyones circumstances are always just slightly different from yours.

you are potentially talking about a lot of money plus who knows what Trump will bring in next - no entry to people who haven't paid their taxes?

start with your DH's company. they may have someone in house that can give some good uptodate advice when they have all the facts in front of them.

Sortofcool Fri 08-Jun-18 15:27:56

An acquaintance is going through this too. She was born in the US and lived there for a few weeks before the family moved back to re owing tax. You need advice from a specialist tax adviser. At present I think the person I know of is able to just cough up the last 5 years tax.

It’s really hideous and hugely unfair. I think Boris Johnson was in this situation too and he really tried to get out of having to pay but had to in the end.

Sortofcool Fri 08-Jun-18 15:30:03

Sorry that made little sense. She was born in the US and lived there for a few weeks before the family moved back to the UK. Out of the blue, last autumn, she received a threatening sounding letter about owing tax from the US tax department.

ArfArfBarf Fri 08-Jun-18 15:37:43

I’ve been through this and am now up to date. I may renounce at the end of this year but because of dh’s job might want to keep our options open.

It’s a truly horrible system. One because it’s taxing people with no real connection to the country, and two because the US tax system is really not set up to handle people living abroad.

I can recommend a company who should be a bit cheaper if you like, but if your dh is a high earner then you’d probably want more specialist advice. You can always save costs by filing some of your own fbars as these are easier to do than the tax returns themselves.

I don’t have any stocks and shares ISAs so not sure what the problem is there. DH has had to file a US return in the past though (lived there through work for a tax year) and he had one at the time and I don’t remember any problems.

Semster Fri 08-Jun-18 16:06:16

You do need to get some proper advice.

He should have been filing IRS tax returns since he started working. He does need to file back tax returns but he won't necessarily have to pay taxes.

Generally, if you've paid tax on the income abroad, then you can claim either a credit or a deduction on your US tax return so you don't have to pay again.

There is an upper limit on the double taxation credit, so if you are high earners then potentially you'll pay tax to the US on the top end of your income.

You could try putting his details for last year into Turbotax and see what it shows you as owing - it may well be nothing. It'll at least give you an idea about how much you should be panicking.

We have done our returns in Turbotax for 11 years, and had no problems. We do have ISAs in the UK, but they're worth less than $10k.

I really would say the sooner you get on with this the better. Also if you do owe tax, you can usually negotiate a payment plan.

It's all very unfair to Americans abroad IMO.

caroldecker Fri 08-Jun-18 16:45:53

he should have been aware of this as his mother is american, so she should have been filing as well.
The ISA issue is that they are tax free in the UK, but not under the US system, so double taxation does not apply (due to no UK tax being paid). Essentially they give little benefit to a US citizen. If you change them to just holding the shares, however, you will pay UK tax, so not really any better off. If you keep them and renounce US citizenship, then you will benefit in the UK system.

ArfArfBarf Fri 08-Jun-18 16:52:38

Turbotax doesn’t work for most non-residents due to not allowing non-US contact numbers, and I think it also can’t handle a non-resident alien spouse.

MrsTerryPratchett Fri 08-Jun-18 16:53:22

It is such a weird system.

Can you renounce citizenship?

ArfArfBarf Fri 08-Jun-18 16:54:14

You have to have been tax compliant for the last 5 years MrsPratchett

HeatedCatFurniture Fri 08-Jun-18 16:56:58

You need advice from a specialist lawyer and an accountant. You won't be able to avoid filing but if your affairs here are relatively straightforward you may not have much to pay.

UghAgh Fri 08-Jun-18 16:58:12

We have had to do this on behalf of one of our DC. He is an adult but we feel it was our fault for having him in the states so we are helping sort it all out. It’s very time consuming and expensive.

He will wait a few years then will probably renounce his U.s citizenship.

MissConductUS Fri 08-Jun-18 16:58:28

Can you renounce citizenship?

Indeed you can, but it's a bit of work:

travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/Renunciation-US-Nationality-Abroad.html

longlostpal Fri 08-Jun-18 16:59:25

Not unreasonable not to want to pay. I’d hire an accountant with experience in US and UK tax planning to go through it all tbh, then maybe you’ll be able to do it yourselves next year. Afaik there’s no late filing penalty if you don’t owe money, and the dual tax agreement means that you only pay tax in the UK plus any amount that is above this under the US system. For lots of people that is nothing, but some high earners renounce citizenship for this reason.

ArfArfBarf Fri 08-Jun-18 16:59:51

It makes me so angry. We want to pay down our mortgage but can’t because the pound has gone down so much in value since we took the mortgage out and because you have to convert everything to dollars for the IRS it looks like we’re getting to pay back less than we borrowed. They treat that difference as income! Even though we took the loan out in pounds and are repaying it in pounds. You can “make” $200 a transaction without it being taxable so our monthly payments just creep under the threshold but we can’t pay any extra. Another crappy side effect of Brexit stuffing the pound.

MrsTerryPratchett Fri 08-Jun-18 17:00:18

You have to have been tax compliant for the last 5 years MrsPratchett

Cheeky fuckers.

ArfArfBarf Fri 08-Jun-18 17:01:44

Also, it’s not really the tax owed (which will probably be small because of the tax treaties between the US and UK) it’s the amount of money you need to pay accountants to file returns correctly.

lljkk Fri 08-Jun-18 17:01:47

Costs $1000 to renounce, AFAIK.
If anyone has found a free way to file US taxes electronically, when you have foreign earned income, let me know.

who knows what Trump will bring in next - no entry to people who haven't paid their taxes?

Wot, like himself, his family, ex-campaign manager & cronies?! Great idea. smile

lljkk Fri 08-Jun-18 17:03:04

ps: how much has anyone here paid an accountant to do their US taxes while you're living & only earning in the UK?

I was quoted £800 for one year of returns, 14 yrs ago.

ArfArfBarf Fri 08-Jun-18 17:05:01

longlostpal that’s true of the returns themselves but not the other reporting requirements of US citizens - fbar for example has ridiculous potential penalties for not filing.

Also, whilst most income is excludable up to $90k, plenty of passive income isn’t.

Caucho Fri 08-Jun-18 17:06:15

I don’t think this has anything to do with Trump but he does seem to get the blame for everything

ArfArfBarf Fri 08-Jun-18 17:06:50

It’s $2,350 now, excluding any accountants fees!

I use a very budget company who charge about $2-300 but I’ve never been audited so no idea how good they are.

DonutCone Fri 08-Jun-18 17:07:33

I honestly find it hard to believe he didn't know. There was massive thing with Boris Johnson a few years ago with his back tax and they did endless Megan Markle stories on it and how she'd have to report the price of her engagment ring.

It's a very, very well known fact that Americans abroad still need to pay tax. I imagine there was more than a little head in the sand and hoping they'd never notice.

ArfArfBarf Fri 08-Jun-18 17:09:41

It often gets reported that only people who earn over $90k need to pay which people thing means they don’t have to file if they earn over that amount when actually any citizen who earns over $3/4K has to file even if they don’t owe anything.

ArfArfBarf Fri 08-Jun-18 17:10:04

think not thing obv

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