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

[budinbloom]

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.

Accidental American here too. You have to declare the content of your bank accounts under the FBAR and file a tax return.

Tax wise you are fine if you earn under the threshold (usually about $95k) but as PPs have said usually fine if you earn over the threshold as you can deduct taxes paid in the UK.

There's also an issue with selling property FYI, as in the UK you pay tax on purchase of your home (stamp duty) where in the US you pay capital gains on the sale. Dual nationals are potentially stuffed!

I recently refinanced my house in the UK and as an American citizen they asked about the citizen for tax purposes thing. Turns out if you don't owe US taxes (which I don't - and I file every year), it's just a formality and they just tick a box. They seemed very laid back about the whole thing at the bank.
Filing every year is a nuisance but I always get it done (eventually). But I empathise with your frustration and hope it all works out for you.

"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)."

Similar to the situation of my children, yet my children will never get a FATCA letter because they were born in the UK. Not fair, is it? The FATCA legislation requires banks to search for "an unambiguous place of birth" and treat the accountholder as tax-resident in the US unless they can prove that they have renounced US citizenship.

"We can't lie/nor do we want to? "

I felt the same - not about to let the IRS force me to lie. It just depends how important your US citizenship is to you. You can renounce, without filing anything; or you can rearrange your savings to minimize US taxation, and just start filing, if you want to hang on to your citizenship.

Renouncing is expensive, especially if you're paying for your children as well as yourself. But it does solve the problem. Keeping the citizenship does not: US law is always changing, and many US expats who own shares in a foreign (e.g. UK) corporation are currently being hit with a demand for payment of a "transition tax" retroactive to 1986!

Good luck.

It’s just DH. He can’t pass on his US citizenship to our DC since he left as a baby and never lived there since, thank God. I’m a Brit with no other nationality. He has no dilemma with renouncing because it’s not useful apart from being in a shorter queue for holidays which we can gladly sacrifice! Basically, we’re too inclined to be law abiding to even consider renouncing as a “covered expatriate” I.e renounce without tax compliance. Ticking a box to say you’ve complied when you haven’t isn’t something we want to do. He/we are stuffed if we are inclined to be totally honest. It’s absolutely crap from all angles - we’re feeling boxed into a corner. He’s now considering a DIY approach!

"Ticking a box to say you’ve complied when you haven’t isn’t something we want to do."

He doesn't need to. He can just renounce.

It takes a while (couple of months?) for the CLN to arrive, but in the meantime he can show the bank his receipt (it states "Renunciation" on the receipt. Once the CLN arrives, his loss of citizenship is confirmed and backdated to the date he swore the oath.

Alternatively, if he opts to become compliant before renouncing, he could use free tax software to generate a "model" return - entering the numbers for, say, 2013, then using the model to help him fill in all five years (with correct numbers for each year obvs) and backfile together with payment. Then backfile six years of FBARs. Then renounce. Then next year (in 2019) he should file a dual-status return and Form 8854.

I believe stocks-and-shares ISAs get treated as PFICs which reportedly is a very very expensive and complicated subject (which I don't know about).

There's a very helpful blog run by a US tax expert called Phil Hodgen. Googling should bring it up. You'll probably find helpful (free) information about PFICs.

My husband had to indicate whether he was in good standing with the IRS before he could renounce. That's within the last two years.

FATCA was a really stupid piece of legislation based on a false premise.
The IRS convinced themselves that all Americans overseas were millionaires with Swiss bank accounts

The truth is that lots are children and pensioners and housewives and low earners
and many of the high earners pay tax at higher rates than they would in the USA (ie they live in Europe)
so when they submit returns the IRS owes them money

So, big surprise, the IRS is not pushing for all of us to submit returns
and why my family member - despite being a UK 40% taxpayer with expensive houses - was told
IN WRITING BY THE IRS to ignore FATCA

So I have no guilt at all in ignoring it too

To expound a bit on renouncing:

US citizens have a right of expatriation (renunciation). As long as you meet the requirements, you can renounce.

The requirements are stated in Sec. 349. [8 U.S.C. 1481]. Relevant bits:

"(a) A person who is a national of the United States whether by birth or naturalization, shall lose his nationality by voluntarily performing any of the following acts with the intention of relinquishing United States nationality-
[..]
(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State; "

The Consular Office has a duty to consider whether the individual is acting voluntarily (i.e., not under duress). That's all. The Consular Officer will form his/her opinion based on the forms and documentation submitted by the individual. There will be no questions about IRS compliance.

The Consular Officer takes your money, administers the Oath and sends the forms and documentation to Washington, stating his/her opinion as to whether the loss of citizenship should be approved (i.e., the person is acting voluntarily). Eventually, a CLN arrives. Job done.

Consulates differ in the documentation they ask for, and in the time it takes to get an appointment. Check the website of the desired consulate/embassy for further information.

Once you've renounced, give your bank a copy of the CLN and sign their self-certification form (certifying that you are not a US citizen). That's all they want. They keep it on file, and it proves that the bank does not have to report your account to HMRC for forwarding to the IRS.

FATCA/IGA has been incorporated into UK law. That makes it a potential problem for anyone born in the US, because anyone born in the US is a potential risk to a bank. Advisable either to show them that you're not a USC, or to confirm that you are indeed a USC and sign the W-9 and give them your SSN.

US tax law has not been incorporated into UK law. Once you've renounced, if you have no US assets or income, you're no longer tax-resident in the US and can prove you're not tax-resident in the US, so FATCA/IGA is no longer a problem.

If you renounced four years ago underfall did you only have to pay 650 dollars?! It really leapt up to over 2000 dollars.

"My husband had to indicate whether he was in good standing with the IRS before he could renounce. That's within the last two years."

Who asked him the question?

I renounced just after the price was raised to $2350. Best investment I ever made.

Things may have changed since you renounced four years ago underfall. I've checked again with dh. There is a form in the pack from the Embassy which asks about IRS standing. On the day you just renounce and there are no questions about the IRS, just why are you renouncing.

The solution is to renounce at a Consulate where no such form is requested. London asks for a bunch of stuff that isn't legally required. I renounced in Amsterdam.

Correction, it was three years ago, not four. 2015. About three months after I first heard of FATCA and citizenship-based-taxation.

I cannot renounce because I need to go to the US unlimited for now.

But as both the UK and the US have crap records of who is a citizen and who is not - especially folks who were not born there and never worked there

its really not something I stress about

Just had a look at the London list of forms required. The only one mentioning the IRS is DS-4079, which is not required for renunciation. It's supposed to be used to determine whether a person claiming they have already relinquished their citizenship (e.g. by becoming a citizen of another country with the intention of losing their US citizenship) really did intend to lose their US citizenship at the time they performed the expatriating act (e.g. became a citizen of another country). Hence all the intrusive questions - they're trying to find out if the person has "acted like a US citizen" (e.g. by voting or filing US taxes) since performing the expatriating act. Intentionality doesn't apply when you're losing your citizenship by swearing the Oath.

That form is a nuisance, because it asks so many intrusive questions - including whether you have registered a child as a US citizen - information I did not feel inclined or legally entitled to give them. It's one of the reasons I didn't want to go to London. But it doesn't ask for confirmation of US tax compliance. It just asks if you've filed.

The right to renounce is not conditional on tax compliance. If you pay, fill in the legally required forms, and swear the Oath of your own free will, that's all that's required. The DoS sends a copy of the CLN to the IRS, though, so anyone who has been filing and owes taxes should obviously clear that up if they want to exit with nothing hanging over them. Assesed liabilities don't go away when a person renounces.

For those who have backfiled 5 years and then renounced relatively recently, how long did the process take for you from the point of instructing a tax specialist to do the main filing for you?

About two years. First return went in then we filed the others. Then renounced and got final forms in - form 8854. It's time consuming getting all the paperwork. It was for us anyway.

I read somewhere underfall that renouncing doesn't release you from the tax burden - that they can still pursue you. Urban myth?

Sorry underfall didn't see your last post!

There's a difference if you've been filing US tax forms and have been assessed as owing US tax, or if you've not been filing US tax forms and have never been assessed as owing US tax.

The first situation is about a legal debt; it's not that easy for the IRS to collect, but let's not beat around bush, not paying it is tax evasion.

The second situation is not about a legal debt. On form 8854, the IRS asks a former citizen to list their worldwide assets, pretend they sold everything the day before they renounced, and if the imaginary sale would have raised a lot of imaginary money, the person should send the IRS some very real money as a share of the imaginary proceeds.

In a US court the IRS might or might not be able to enforce these vindictive games. Elsewhere, no chance. The moral (it seems to me) is not to join in the games - don't file the form.

"we don't want to pay ANY tax to a foreign government"

It isn't a foreign government for him, even if it is for you.

There are pros and cons to being dual nationals, this is one of them. It shouldn't have been a surprise it has been going on as long as I remember.

It shouldn't have been a surprise it has been going on as long as I remember.
Except it hasn't
because pre FATCA the IRS was not interested in people who had no tax relationship with the USA and earned less than the limit (around $85000 a year)

since FATCA, lots of Yanks are suddenly having to jump through stupid hoops to open a basic bank account in the UK

DH definitely views the IRS as foreign regardless of whether they view him as a tax evading American citizen who has chosen the tax haven paradise of the U.K to escape their clutches when he was a baby!

Anyway, he has finally accepted the fact that he will need to pay for the substantial procedural costs of renouncing a US citizenship foisted upon him at birth and to a country where he has never resided or worked or have the intent to move to. It’s galling to say the least! We’ve poured over a huge mountain of information over the last few weeks so we aren’t basing a decision from comments on a public forum. I’m venting my frustration and seeking solace I suppose from others who have been through this.

WHY?
You are not listening to us.

Get him to fill out the FATCA letter and tell the ISA provider to sod off.
I've got a stocks and shares ISA
I've had several in fact.
Its really NOT A big issue.

He does not need to renounce.
He does not need to contact the IRS
Just keep your UK taxes up to date and that is that.