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.

Thank you both for your information! It sounds logical.

I mostly worry because I want to be able to be financially independent. An ISA would be nice.

I earn about £30k a year through my limited company and pay my husband a bit less than that to be the company bookkeeper.

I'm the, um, whatever you call the boss of a LTD co. The business bank account is in my name. I have two current accounts and the business account. I'm pretty sure that I'm supposed to be reporting all three. I am pretty sure that even the gross income into the business account wouldn't mean that I owe tax, but I sometimes worry that they'll add that account to my current accounts and declare it all mine and tax it or something.

Anyway, I'm going to move on that UK citizenship. That just makes sense. From there, I can decide what I want to do.

One more dumb question: how can you renounce without filing? Don't they ask for proof or at least a declaration that you've filed for the last 5 years?

JustGettingStarted. Not a dumb question but no they do not ask for proof or a declaration. Anyone who says otherwise is simply wrong. My wife renounced last year without having filed anything beforehand. Whether or not to file afterward is a decision that can be made later.

Don’t panic, OP.

It’s a faff, but it is unlikely that you will be out of pocket. Step back and let us help you.

wow, that is really cheeky of them, to charge americans who live abroad tax!! fgs! they're not availing of any services in the states!

NB
Boris Johnson was born in the USA - he is in no way an "accidental yank"

I reiterate - 99% of us are below the earnings limit and pay more tax in Europe than we would in the US
so the IRS has no interest in us

YankeeDad:

"Nobody seemed to predict FATCA or automatic exchange of information. It just feels as though with Automatic Information Exchange, we are in a shift towards more cross-jurisdictional cooperation to aid enforcement."

I don't see it that way. We (expat USCs) were blindsided by FATCA because after all, many of us didn't even know that CBT existed, and didn't know America considered our bank accounts its business. We had no reason to take an interest in what was happening in the world of international taxation. But FATCA didn't come out of the blue, it grew from the US response to the Swiss banking scandal. FATCA was a way of getting at foreign banks to put the mockers on any further "facilitating" of tax evasion by US residents.

At the same time, the EU had been trying for years to get AEOI between Member States up and running, and the Forum on Harmful Tax Practices was trying to find a way to regulate bank secrecy.

The G5 and the US dreamed up the IGAs to make it possible for the banks to comply with FATCA by cramming AEOI into the existing "Mutual Assistance with Information" article in the tax treaties.

Before the IGAs, it was necessary for one country to request, from the treaty partner, information about a specific person who was suspected of tax evasion. The IGAs turned that into an automated fishing expedition.

The OECD, the EU, and the Forum watched with interest, and soon the G12 asked the OECD to come up with a FATCA-like AEOI model (legalised, like FATCA, by existing treaty mutual information exchange articles) in a form which would be suitable for global deployment. The result was CRS.

So no, I don't think FATCA heralds new efforts to find a way to enforce US extraterritorial taxation. I think FATCA and CRS are both about Big Data, analytics, and finding the big (dirty) money.

All IMO, of course.

underfall

"So no, I don't think FATCA heralds new efforts to find a way to enforce US extraterritorial taxation. I think FATCA and CRS are both about Big Data, analytics, and finding the big (dirty) money."

You may well be right. I knew some of the detail you described (particularly on the US side), less so on the EU side, but the broad picture you paint is, there was a preexisting framework in place to make FATCA and CRS happen, but there is no corresponding framework in place today that seems to point at increased cross-jurisdictional enforcement.

That may be right.

What I both hope and fear is that once the info exchange starts, the size of the prize from potential new measures will become apparent, leading to measures being taken.

"Hope", because there still are some very wealthy CFs out there who are not paying their fair share of tax in any jurisdiction, and maybe the new information will lead to new actions that will force that to change.

"Fear", because what has often happened before is that new tax-avoidance techniques were developed by the very wealthy and their advisors. A common result would be that any sort of new tax or new tax enforcement would fall mainly on those who have comfortable assets / income, but are either not rich enough or not dishonest enough to escape the effects of the new measures.

I'm not going to read all 159 replies, sorry. But this is a matter we have been working on for several months and the US/UK-born mum is about to renounced her US citizenship. That does not affect the advice I am going to give. Point 1 is whether the child is a US citizen. From your facts as given I assume not. Point 2: neither a vulnerable person trust, a Child SIPP or a Junior ISA has an owner other than the beneficiary child. Don't expect the IRS to understand that because they will try to assimilate a VPT to a Special Needs Trust and a JISA to a UTMA (formerly UGMA) custodial account. Or maybe a 529 account. Except that UK law is not like US law and the custodian can't get hold of the money (can reinvest it within the circle of approved financial services providers, that's all). If your child is a US citizen you do have problems and potential penalties. You also need to file FBARs and maybe Forms 8639 with your 1040 depending on the value of the account(s). If the child is a US citizen then there are PFIC problems (you'll have to look up these abbreviations with a search engine, I'm not going to define them). In which case you have 2 choices: a cash ISA or stocks/shares in specific non-US companies rather than unit trusts or index funds which I (and for that matter Warren Buffett) recommend as relatively safe and cheap. You can do either with, for example, Hargreaves Lansdown. Third point: the custodian or trustee should be the non-US citizen parent. If both the custodian and the child are not US citizens you've saved yourself risk, argument and paperwork. I do not take clients but I have the qualifications and am glad to give free advice. TurboTax won't do everything, but it will do a lot. The things to worry about are those $10,000 penalties: from now on any failure by you will be deemed "willful" because you know the rules. Watch out for Forms 3520 and 3520-A (foreign trusts and gifts by Americans to whatever, in their ignorance or arbitrariness, the IRS deems a trust. We have file those forms and you can not imagine the nastiness that resulted from IRS Ogden even though we wrote in capital letters: "The child is NOT a U.S. citizen". Do not be bullied. Always be polite with the IRS. But of course facts matter, and you haven't given them all. Good luck. I'll try to look in to see if you have further questions.

I seem to have mis-read this, largely because this is Mumsnet. The case seems not to relate to a (possibly non-US) baby with a JISA but an American adult with an ISA. In that case there is an FBAR, maybe an 8938 and certainly a PFIC problem. You could use the Streamlined IRS program to "come clean" but since you live abroad the IRS can do nothing. There is a 6-year statute of limitations on FBAR penalties. You could change your investment from a fund to specific stocks and shares. You could start filing FBARs. Or you could do nothing. Indeed, of the Amcit DH has no Social Security number doing nothing brings the only risk that a bank or financial services provider might assume he is a US citizen, as he is. Renunciation ($2,350) means having to be compliant for 5 tax years. I would avoid joint accounts. SIPPs and other pensions are outside the scope of US taxation (Tax Treaty art. 18). And you have until 30 June to file a 2017 FBAR if you choose to do so.

The answers to all the questions about renunciation, and many of the tax questions are on the Isaac Brock Society web site out of Canada. Easily found with a search engine. The comments there are serious and many of the forum members are highly qualified.

While the IRS hates "quiet disclosure" (filing back returns, etc.) they can't send in the Marines. Noncompliant and accidental Americans might want to avoid travel to the USA until the statue of limitations runs out. (It is tolled extended as to "absconders" but someone who has lived all her life abroad is hardly an absconder.

The issue of FATCA and the Inter-Governmental Agreements is that enforcement of US tax law has been delegated to banks and financial services providers. There is a "presumption of alienage" for persons born outside the USA, and those without a SS number really don't have to do anything. But with a passport showing a US place of birth there are problems.

Another point: any US Person (citizen, green-card holder, etc.) who has 10% of shares in a foreign company needs to file Form 5471 every year: $10,000 per year penalty for not having filed it: it gets filed with your 1040. The worst that could happen happened to a guy called DeWees (he was levied a $100,000+ fine which Canada Revenue Agency collected from him because he wasn't a Canadian citizen.

The UK-US tax treaty doesn't have a collection agreement. But any US resident here should get UK citizenship ASAP.

grc5060. Once again and for the last time, you do not have to be compliant in order to renounce. For many renouncing and not filing anything is the best course of action.

grc5060:

"Renunciation ($2,350) means having to be compliant for 5 tax years."

This is incorrect. A USC can renounce US citizenship by making an appointment with a US consulate/embassy, supplying the required documentation, attending the appointment, paying $2350, and swearing the Oath. Then wait for the Certificate of Lost Citizenship to arrive, and use it to prove non-USness to banks and financial service providers. Expensive, but very easy; and it solves the problem.

"The UK-US tax treaty doesn't have a collection agreement. But any US resident here should get UK citizenship ASAP."

Unfortunately, UK citizenship can be a lengthy and very expensive process nowadays. Fortunately, UK legal residents don't have to worry about HMRC demanding payment of US taxes - regardless of citizenship status.

Does anyone know if the renunciation process is likely to include any questions about family members (ie whether family members are also citizens)?

minipie - There's a form DS-4079 which is not required for renouncing but the London Embassy does ask renouncers to complete it. It asks very intrusive questions, including whether you've ever registered a child as a US citizen born abroad. Not all consulates ask for it. Check the consulate web sites for information.

Apart from that, no questions are asked about family members.

Thank you. So no questions about parents and siblings? And is there an interview (I think I read that somewhere)?

When I renounced, I had a perfectly pleasant chat with the Consul General (Edinburgh) before saying the oath. I did mention my children and how they were wanting to emigrate to the US someday, but I volunteered this and she didn’t take notes or anything.

The chat was really just for her to ascertain that I wasn’t renouncing under duress.

Thank you!

Definitely no questions about parents or siblings.

I wouldn't call it an interview. They check the forms you supply, ask you to confirm that you understand it's irreversible, that kind of thing. They may ask why you're renouncing. A brief simple answer is enough (e.g., I want to simplify my life, or, I don't need two citizenships.

No need to be apprehensive. Renouncing is a perfectly reasonable choice and it's your right. I found the consular staff professional and helpful.

wow, that is really cheeky of them, to charge americans who live abroad tax!!
Not only them but their spouses too, even if they are not US citizens, never lived in the US and have no intention of ever doing so. One of my sisters was furious when she discovered her income had to be declared on her DH’s tax return despite all the above. Her DH left the US at the age of 19 as well, and they live in Europe on my Dsis’ UK/EU entitlement with their DC, but as his parents are getting elderly he feels he needs to hang on to his US citizenship. (In fact after Brexit the US could end up being the only place they could all legally live together as DSis is effectively a trailing spouse and it would take a while for her to be able to earn enough to bring him into the U.K despite being married for 18 years. Its so complicated)

if you are a US citizen and you own more than 10% of a UK limited company which is at least 50%owned or more by US citizens you will have bigger US tax headache. Since Trump signed into law last november the Tax cuts and jobs act, businesses owned by US citizens overseas are taxed at upto 17.45% on the retained earnings of the business. So even though we pay all our UK taxes we are now taxed by uncle Sam personally on the money our UK business has in its account. I have been compliant for years as I could file my own US tax returns and never owed money but that has all changed now. And it will continue next year with the introduction of GILTI, a tax on the UK profits of our company that will have to be paid through our personal return.

This is very confusing. If a US-born citizen has lived in the UK for most of his/her life, and is also a UK citizen with an NI number, bank account, etc... does the US still have jurisdiction over that person's income tax?

I've just been informed by a tax professional that 5 years of compliance is necessary before renunciation is possible.

Beware of that tax professional. He or she doesn’t know what he’s talking about. Perhaps trying to separate you from some of your hard earned money.
Renunciation is absolutely not dependent on tax compliance. My spouse has been there done that.

"This is very confusing. If a US-born citizen has lived in the UK for most of his/her life, and is also a UK citizen with an NI number, bank account, etc... does the US still have jurisdiction over that person's income tax?"

A dual citizen has rights and obligations from both citizenships. The US deems US citizens to be "tax-resident" in the US (in the District of Columbia, I believe) regardless of where they actually live.

HMRC has primary taxing rights on UK-source income, regardless of whether the taxpayer is a UKC, a USC, or both.; the US has primary taxing rights on US-source income.

Under a recent-ish US-UK agreement, and now implemented in UK law, UK banks and financial service providers must identify and report to HMRC all accounts held by USCs; HMRC forwards the information to the IRS. Because of this law, USCs with US birthplaces are likely to receive letters from their UK banks, asking them to provide SSN and sign a US form W-9 to confirm that they are a US citizen.

You can choose to sign the form and give them your SSN, or you may prefer to renounce your US citizenship. Renouncing is easy but costs $2350. Email a US consulate, ask for an appointment, they'll send you instructions. You don't have to file any tax returns in order to renounce. It's a completely separate.

That's all. It's your decision what you do about filing US tax returns and paying US tax on top of paying UK tax on your UK-source income. The UK does not enforce or collect US taxation of UK-source income received by UK residents, and the US has little power to do so.

"I've just been informed by a tax professional that 5 years of compliance is necessary before renunciation is possible."

That's not correct. You lose your citizenship the day you swear the Oath, regardless of whether you've been filing US tax returns. The loss is confirmed when you eventually receive the Certificate of Loss of Citizenship; you can show the CLN to your bank to prove you're not a USC.

What you choose to do about your US tax obligation is a separate matter. If you have US income/assets, or you frequently need/want to travel to or over the US, you may want to jump through the hoops and enter the system and backfile the five years and file final forms. Everyone's circumstances are different. Everyone must consider the options and decide what they need to do. If you do decide to file, you could have a go at D-I-Y before paying for help.