# Ready to renounce - looking for last-minute sense check



## PlanetCitizen

Hello all!

After lots of reading, it's time for my first post. I am looking to renounce my US citizenship, but am nervous--I think understandably!--about finally going through with it. I thought I'd post here for a 'sense check' to make sure that I haven't miss some detail or opportunity. I would be grateful to have my fellow expats find any flaws in my logic or understanding--please pick this apart, if you are so inclined!

*Here's my situation:*


I am in my late 20s. I was born in the US to one American and one Canadian parent, so I am dual-citizen (American by birth, Canadian by descent). I have lived outside the US for more than a decade.

I am now settled in the UK as a permanent resident--eligible for UK citizenship soon--and married to a UK citizen. I have no intention of returning to live in the US, though I do have immediate family and friends there who I like to visit.

I am entirely compliant with my US tax and FBAR obligations (have filed more than the last 5 years). I have never owed anything to the US government as I have neither a high enough income nor impressive enough assets to interest them.

I have no children and no major assets aside from modest savings. (I do not own property or any bank accounts in the US.) That said, in the next 2 years my partner and I may indeed have a child, an owned (mortgaged) home and quite possibly a jointly-owned business.

*Why do I wish to renounce?*


I have no plans to ever live in the US again. If things somehow get really awful in the UK, our back-up plan is Canada, not the US. I'm not remotely anti-American, but nor have I ever been a patriot: it's just a country, like all other countries, with both benefits and drawbacks. I had a perfectly happy childhood there, but politically and culturally it just isn't for me. It would have to change substantially to suit me better than my other two countries.

My partner and I are content with the idea of having children who are UK citizens and who have the option of obtaining Canadian permanent residency (sadly I cannot pass on Canadian citizenship). Of course we presume that the children will somehow develop a lust for America and then never, ever forgive us for denying them the opportunity to live there, but so goes parenthood. 

I am nervous about the direction the US is going in terms of tax law for non-resident citizens. At the moment my situation is quite simple, but I still cannot have an ISA (tax-free savings account here in the UK) and am concerned about how the US might tax my pension when I retire. I am concerned about how my taxes may get even more complicated once I own a home and a business here in the UK. I'm especially concerned about how these may impact my non-American partner, who would co-own both.

I feel this is a now-or-never situation: If I wait until after I have children, then the children will be American citizens and burdened by the very thing I'm trying to avoid. If I wait until after we buy a home and/or start a business, I may be taxed on the presumed sale of one or both on the day of my renunciation--something that will be too expensive for my partner and I to absorb. I am also concerned that, in time, British banks may make it difficult to open any account or get a mortgage. (From what I gather, FATCA hasn't yet had the same impact here that it has had in other parts of Europe.) And of course each year I wait is another year to have to file a tax return and FBAR.

I have had an informal chat with a US consular officer and can confirm that I fully understand the outcome of renunciation. She said she was aware of the increase in renunciations because many people have the same concerns.

Am I correct in my understanding about future tax and ownership complications? Please do pick apart my reasoning here! I've been researching and thinking about this for years and now feel 99% ready to "pull the plug", but it's difficult to feel 100% calm and convinced. (I explain this to friends that it's as though you are 99% sure you never want a child and so opt for surgical sterilisation. In terms of enormously life-altering decisions, they feel roughly on par and require the same consideration. Is it really worth the administrative burden to keep your options open for the 1% chance you'll want it?)

Thank you for reading so much. I'll be very grateful for any response.


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## Bevdeforges

It's hard to tell what the future will bring in terms of tax law and FATCA - especially because we seem to be just at the dawn of the "serious" FATCA data collection thing. But I have to admit that the main thing that keeps me from renouncing is the fact that I have retirement funds in the US and am qualified for US Social Security when I hit retirement age, so I just don't fancy having to dance around the 30% withholding requirement.

It sounds like you've considered all the angles. The big unknown is how the law may change in the future. You should still be able to visit your family in the US - just be sure to carry your renunciation certificate with you should the Immigration folks notice your US birthplace.

But the decision is a very personal one for each of us and "you gotta do what you gotta do."
Cheers,
Bev


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## Nononymous

I think you're reasoning is sound, and you're aware of all the future uncertainties. (There could be unlikely outcomes in either direction - the tax silliness decreases, or the US bars ex-citizens in a fit of pique.)

As for children, while technically they would be citizens, if you don't report the birth and they don't have a US birthplace, they could probably go undetected (though perhaps it would raise questions if you brought them to the US to with you).

In my situation, I too went and talked to the consulate, and what stopped me was potential inconvenience in the very, very unlikely event that my wife was made an offer she couldn't refuse at a US university, and more importantly, I'm not tax-compliant and am far too lazy to get all the paperwork in order. Right now I see very little risk in my remaining non-compliant so I have no particular desire to get myself back on the US radar.


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## StewartPatton

Two inputs from me. Please note that I'm just sharing my thoughts, as you asked--please don't regard this post as cheerleading for any particular result.

OK, first: the exit tax only applies if you either paid about $150,000 tax for the last few years or have a net worth over $2 million. Based on your facts, it sounds like neither of these is a concern right now (but let's hope they could possibly be a concern in the future  ). So, you could wait until after you bought the house without worrying about having to pay exit tax on it.

Second: if your kids were born with US citizenship, then they could renounce really easily before they start working (or even afterwards as long as they keep up with their tax filings) if that is what they choose to do. On the other hand, if you renounce now and they somehow get keen on the US, it will be difficult for them to obtain U.S. citizenship.

So, it just seems to me that you could hang on to your U.S. citizenship until you and the wife are done having kids, and then you can head to the embassy on your way to the vasectomy. That way, your kids will have more options when they are older, but the US citizenship won't really be a burden for them because they could just renounce themselves if they so decide.

Again, just sharing thoughts, please don't take the above as an argument for any particular course of action.


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## PlanetCitizen

Thank you *Bevdeforges*, *Nononymous* and ***********for responding! It is very much appreciated. I should note that one thing I'm not willing to do is anything that might put my ability to enter the US with reasonable ease at risk (e.g., simply not declaring any future children as US citizens if they are indeed citizens or no longer filing tax returns and the FBAR). I can certainly understand why some make this calculated risk, but it's too much risk for me to take on.

*********, first a quick correction: I _am_ the wife in this situation.  Anyway, I'm grateful for your notes. My understanding of the exit tax is that there is indeed one for those with assets over US$2 million, but that the tax on the presumed sale of all assets was something different that applied across the board. Did I simply misunderstand this? You are correct that I am in the [un]lucky scenario of not having assets anywhere near US$2 million.

_Can anyone else support either my belief of the situation or what TaxTalkinGuy has declared?_ (This is not at all to discredit your contribution, T********, merely to corroborate.)

Also, any thoughts/experiences of potential complications of co-owning a non-US business as a US citizen abroad?

I would of course also be keen to hear from those who did choose to go through with renunciation.


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## StewartPatton

Sorry for assuming you were a dude. 

On the exit tax issue, here's what the IRS says about it:



> If you expatriated after June 16, 2008, the new IRC 877A expatriation rules apply to you if any of the following statements apply.
> Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).
> Your net worth is $2 million or more on the date of your expatriation or termination of residency.
> You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
> If any of these rules apply, you are a “covered expatriate.”


From here: Expatriation Tax

Section 877A is the tax on the presumed sale of assets, and there is no other tax that applies. What you are probably remembering is that the exit tax applies to anyone who doesn't certify that they complied with their tax obligations for the last 5 years.


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## Nononymous

Regarding travel, it's very hard to predict what will constitute a risk to your re-entering the US. At present there appears to be zero monitoring of tax compliance, so failure to file returns and FBAR does not lead to trouble at the border (certainly hasn't for me) but one day it could. Similarly, having renounced isn't currently a barrier, but it could become one. No idea how likely either scenario is.

I'm not sure how much of a worry it is traveling as a US citizen with kids on UK passports. Citizenship does not transmit automatically (you need to have lived five years in the US, with two years I believe after the age of 14, for your kids inherit citizenship) so it's perfectly reasonable for a US citizen, with US birthplace, to have non-citizen kids. (If caught, the worst-case outcome is probably a lecture about how they need a US passport the next time they enter the country.) It's not been an issue for me when we travel as a family. But then, as has been pointed out, kids can renounce easily at 18 so there's almost no point hiding it except to save a little money.

I think given that you're already tax compliant and presumably that's not too onerous for you going forward, the decision probably hinges on whether there is a specific drawback or cost to the US citizenship that makes it worth the trouble of renouncing. For as long as your financial affairs remain within the realm of the semi-ordinary, there might not be much real cost. Remember also that owing the US money according to the letter of the law, the US figuring out that you owe it money, and the US being able to collect that money are all very different things.

But if 100 percent guaranteed access to the US important to you, then I would recommend full compliance and keeping the citizenship, despite some costs and inconvenience.


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## Bevdeforges

PlanetCitizen said:


> Also, any thoughts/experiences of potential complications of co-owning a non-US business as a US citizen abroad?


It kind of depends on the type of business... Officially, there is a form 5471: Information Return of U.S. Persons With Respect To Certain Foreign Corporations. Unfortunately, they never really define exactly what they mean by "certain foreign corporations" and many just assume this means any form of business overseas.

Form 8832 (Entity Classification Election) includes with the instructions a list of Foreign Entities Classified as Corporations for Federal Tax Purposes which, for example, only includes Public Limited Companies in the UK. Apparently, if your business entity is not one of the ones considered as a corporation for US tax purposes, then you would not have to bother with form 5471.

Clear as mud? Yeah, well that's how these things work out for those of us living abroad. Basically, you stake out your position and when and if the IRS comes back to question anything about your return, you use that as your support for whatever you did or didn't do.
Cheers,
Bev


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## PlanetCitizen

Bevdeforges said:


> It kind of depends on the type of business... Officially, there is a form 5471: Information Return of U.S. Persons With Respect To Certain Foreign Corporations. Unfortunately, they never really define exactly what they mean by "certain foreign corporations" and many just assume this means any form of business overseas.
> 
> Form 8832 (Entity Classification Election) includes with the instructions a list of Foreign Entities Classified as Corporations for Federal Tax Purposes which, for example, only includes Public Limited Companies in the UK. Apparently, if your business entity is not one of the ones considered as a corporation for US tax purposes, then you would not have to bother with form 5471.
> 
> Clear as mud? Yeah, well that's how these things work out for those of us living abroad. Basically, you stake out your position and when and if the IRS comes back to question anything about your return, you use that as your support for whatever you did or didn't do.
> Cheers,
> Bev


Ooof, that sounds like a pain! (I mean, it's all a pain, but the clear-as-mud-ness of involving a business seems even worse.) The business would a secondhand shop: legally buying goods, fixing them up and selling them both in a physical shop and online.

*StewartPatton*, I appreciate the clarification on the exit tax issue. I'm sure I've read that bit a million times, but for some reason had remained convinced that there was a presumed-sale-and-tax-on-presumed-profits tax for everyone regardless. Glad to see that's not the case.

Regardless it seems like I'd be taking on more and more paperwork as time went on... I wish I could know now what the UK was planning to do about FATCA in the long term. For now I haven't heard any reports of them closing the bank accounts of US persons, though I do know they'll be reporting what's in those accounts. Blech.

Please feel free to keep anecdotes and thoughts coming! I appreciate hearing from everyone.


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## Bevdeforges

So far, at least, the closing of accounts and refusal to open new accounts seems to be limited mostly to the "Germanic" countries or those countries the US has gone after for their "bank secrecy" policies (i.e. Switzerland). For the moment, it doesn't seem to be spreading. But you can also take a look at the Bilateral Agreement on FATCA Foreign Account Tax Compliance Act (FATCA) - with lots of additional material.

I was kind of encouraged by seeing that (for France at least), they are concentrating on the larger accounts, and that strictly local banks are pretty much exempt from the reporting at all. (Not that I have anywhere near enough to be required to file any FATCA forms - since the thresholds are significantly higher for overseas residents than for US residents.)

Reporting of bank accounts held by foreigners is pretty much a given from this point on. Here in France, we have to provide a list of our foreign bank accounts and foreign "life assurance contracts" each year as part of our tax declarations, so my US accounts get reported to the French fisc as well. It's really all the extra (excess?) reporting of business interests and investments that is the most annoying, since no other country (ok, other than Ethiopia, or so I'm told) tries to ride such close tabs on its citizens resident overseas. 

And, frankly, with the recent Supreme Court rulings that Corporations are "people" I see no reason why they shouldn't have to pay their US taxes just like the rest of us instead of being able to hide it all away in low tax havens. (Or this fuss lately about US Corporations moving overseas to avoid US taxes.... hey, if it works for them, why not for us? Or maybe charge them a big fee for renouncing their US "citizenship" like they do us.)

One other factor to take into consideration - and that is the ability of the IRS to enforce all the details of the laws outside the US. There are only 4 IRS offices located outside the US - London, Frankfurt, Paris and Beijing. I know the Paris office only has about 5 staff. Not sure, but I suspect the other three offices aren't much larger than that. Back in the States, the auditors have a target figure they have to meet in "additional taxes recovered" on average over all the accounts they audit in a year, so it's highly unlikely they're going to waste time hunting down a hundred bucks here or a thousand bucks there. On an international basis, they're after the big time tax evaders, not technical violations. 
Cheers,
Bev


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## PlanetCitizen

Thanks for the continued contributions in this thread! I'm finding it helpful and I hope others reading are as well.

I spoke to my bank (in the UK) today who confirmed that they would indeed be complying with FATCA by asking their customers if they were American citizens and, if so, reporting that information--and it seems some financial details as well--to HMRC (the UK tax office). As an existing customer no one has asked me about my citizenship since FATCA came into play, though perhaps this is just a matter of time. They said they do not have any plans to close the accounts of Americans at this time or in the foreseeable future--a stance which seems to be held by all major UK banks.

*Bevdeforges*, certainly I am not impressed/overly concerned with the US government's ability to track its citizens financial lives abroad so far. But I do know that information technology is improving by leaps and bounds and that UK banks' compliance with FATCA means this will become ever easier. Are they coming after me, individually, and my adorably small income? Pffft, absolutely not. Might I get caught in the crossfire of their tax evader hunt? Certainly a possibility.

The big concerns for me are implications for home ownership (including any capital gains on a sale) and business ownership. Plus the general creepiness of it all, though I'm not sure it makes sense to give up citizenship in any country due to creepiness. Much as I'd love to put that on the renunciation form...

"Reason for renunciation?"
"Heebie-jeebies."


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## BBCWatcher

I tend to agree with you, PC. Moreover, "creepiness" evolves and changes, sometimes rapidly. For example, there are particular European citizenships that were at least undesirable (by many) just a quarter century ago and are now extremely valuable and sought after.

There's value in diversification itself, so in my view there'd have to be a compelling reason (or many compelling reasons) to give up a major component of that diversification.


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