# US Naturalization & SS Before Move Back To UK/Ireland - Worth It?



## mr_nice_watch (Feb 10, 2021)

Hey Guys, first time poster! Saw some great advice on this forum and hoped I could get some thoughts/advice! I hope I posted this in the right place. Thx

I currently work in the US on a greencard. However I am thinking of moving back to the UK or Ireland to be closer to family and friends; I have a passport from both. I am also now eligible to apply for US Citizenship. So my question is, would people recommend me waiting to get the US passport before I leave or not? The main benefit being that I could live or work in the US again at some point in the future. Always nice to have options  

The main drawback is I have heard the US tax fillings can be expensive for an expat, and that you may owe US tax if you earn over a certain income. I was reading about the FEIE, FTC, the Net Investment Income Tax, difficulty opening bank accounts etc. I guess I wanted to get an idea of levels of income and investment an expat would need to have before worrying about owing money to the IRS? Also in general is having the US citizenship worth the tax paperwork?

Regarding retirement. Would the US tax any pension I receive in future from the UK or Ireland? Also, I have paid 9 years into US Social Security. I could wait longer and pay 10 years to get the minimum credits to qualify. Is it worth it? I will likely be subject to the WEP reduction I have read due to having a foreign UK pension, so not sure I would get much. If there even is Social Security in 30 years!

A bit about myself it helps. Late 30s. Unmarried. My income this year will be ~$200k all in. This would likely go down somewhat in the UK or Ireland. Net worth shy of 0.5 million.

From what I can gather I would maybe owe little tax right now, but I am hoping (as we all are) to increase my income in the years ahead. I don't want to get a passport only to have to renounce it several years later.

Appreciate your time and input. Thanks!


----------



## Bevdeforges (Nov 16, 2007)

A couple of caveats regarding the pensions:
As a "non-resident alien" (NRA) you will be taxed at the NRA rate on 85% of your US Social Security benefits and they will withhold this amount before sending you your benefit payment each month. However, the "good news" is that, even with only 9 years of paying into the system, they will count your working history in Ireland or the UK (or any of a number of other countries) toward that 10 year requirement. Your ultimate benefit will be a bit smaller, since the calculation is based on 30 years of work history, 21 of which will be counted at $0 income (because you weren't contributing into the US SS system) - but you will still get a US pension.

The biggest disadvantage of taking US citizenship at this point is that you are signing up for FAR more complicated taxes - as you will be subject to US income taxes for the rest of your life no matter where you live - and you may be restricted from many forms of common investments outside the US, or severely inconvenienced in investing in common sorts of things (like ISAs in the UK). The US does not recognize any form of "deferred retirement savings plan" outside the US, so you wind up paying US taxes on the annual gains in such plans, plus whatever local taxes there are on withdrawals at retirement. The other "gotcha" is that many common types of investments and investment funds are considered to be PFICs or foreign trusts or other entities that are severely regulated and subject to scrutiny by the IRS. Getting someone to prepare your US taxes for you with those sorts of "complications" in the mix can lead to an exorbitant tax preparation bill every year.

It's ultimately up to you what to do, but unless you have definite plans to return to the US to settle there, I'd hold off if I were you. Renunciation is expensive (and irreversible).


----------



## 255 (Sep 8, 2018)

mr_nice_watch -- The choice is yours alone. My daughter in-law currently has two citizenships and plans on staying in the U.S. long enough to qualify for citizenship (and social security,) before she moves back out of the country. She has infinitely better income opportunities in the U.S., but wants to provide her children with a world-wide life experience. On the other hand, FATCA has complicated the financial lives of U.S. persons living overseas, to the extent that many give up their U.S. citizenship to "get out of the system."

The investment issue is either a non-issue or can be problematic, depending on how you invest (as long as you don't invest in PFICs, it's pretty simple.) Keep cash accounts and invest in individual securities and you won't have any problems. My mother filed FBARs, while living in the U.S., for decades. 

I have never really found U.S. Federal income taxes any more complicated living overseas, as to just living stateside -- but mine are fairly complicated anyway. Of course, if you take U.S. citizenship, you'll be filing U.S. tax returns for life (along with any other countries returns.)

You are young, so the opportunities, in the U.S., make a viable case to acquire U.S. citizenship, so you can always go back. On the other hand, you are a fairly high earner and you may want to look at the "covered expatriate" rules, if your income grows and your U.S. ties restrict what your ultimate goals are in the future. You can always detach yourself from the U.S. system, but it'll cost you a couple of grand. Good luck with your decision! Cheers, 255


----------



## Moulard (Feb 3, 2017)

I would assume that there is a totalisation agreement between the US and both the UK and Ireland.

That being the case you won't necessarily need 10 years of contributions to Social Security. So long as you have contributions into the other scheme and the total of both is 10 years.

Most totalisation agreements only require 6 quarters of US contributions, but your US payment will be proportionally reduced.

The totalisation agreements override US domestic law on Social Security... As such WEP will not apply if....

you entitled to a U.S. Social Security benefit or a foreign pension based on a totalization agreement after December 1994, and
you need to combine work credits from the U.S. and the foreign country to get a benefit from either country

You can use the WEP screening tool for foreign pensions based on your particular circumstances






International Programs - Windfall Elimination Provision and Foreign Pensions


This page displays information about the Windfall Elimination Provision and Foreign Pensions.



www.ssa.gov


----------



## Bevdeforges (Nov 16, 2007)

255 said:


> The investment issue is either a non-issue or can be problematic, depending on how you invest (as long as you don't invest in PFICs, it's pretty simple.) Keep cash accounts and invest in individual securities and you won't have any problems.


Just a note on this - it is sometimes a bit "surprising" the range of accounts and investments that many tax preparers insist on including in the PFIC category - including most foreign forms of retirement savings accounts, even if they are virtually identical to a US IRA or 401K. Also any type of foreign "mutual fund" (which covers a rather wide range of investment instruments). 

If you're comfortable doing your own tax return preparation, you can tailor how you choose to report these sorts of items. But if you pay someone to do your US returns for you, it gets expensive very quickly as paid tax preparers necessarily need to take a fairly cautious approach to compliance if there is any question involved.


----------



## Nononymous (Jul 12, 2011)

I'll just throw this out there: if you take US citizenship, you would still have non-US passports with non-US birthplace (I'm guessing UK or Ireland). If this is the case, you won't look American to any banks unless you tell them about your freshly acquired US citizenship. If you don't want to deal with any grief from FATCA, or be restricted from investing in ISAs or similar vehicles (either because banks won't take you as a customer, or the reporting burden and/or taxes owed make it not worthwhile) then you have the option of keeping that part of your financial life fully unknown to the IRS.

Of course taking US citizenship with the intention of partial (or full) non-compliance on the tax front is something you might find dubious. But it's not impossible to do.

Also, you said you've paid into Social Security for 9 years. If you've been on a green card for more than 8 years, there are potentially unpleasant exit tax implications if you leave and formally give up the green card. I don't know the details, but this is something you should look into.


----------



## mr_nice_watch (Feb 10, 2021)

Hey Guys, appreciate all the responses and information! I did not know about the pension agreement. So I currently have 9 years US SS and 12 years UK National Insurance paid. I am actually still paying voluntary Nation Insurance contributions into the UK system, it's less than a couple of hundred pounds a year. However perhaps this is redundant to pay into both?

I already have a couple of UK pensions from before I moved to the US. Combined value around $50k. I do already report them on my FBAR and taxes etc. I do not contribute or draw from them currently. However I guess there may be some tax complications with these when I start to draw them? Or once I get new pensions from work abroad if these are considered PFICs. I have very little investment at present. Outside my US and UK pensions. However I would like to start to invest. Are index funds considered a form of PFICs?

On bank accounts I still have a couple in the UK so I can continue to use those I guess. My place of birth is not the US so I would not need to tell the banks. However I would feel uncomfortable not including accounts on my FBAR etc. I know my stressful nature 

I will have a green card 5 years this spring. I have read that I could be subject to Exit Tax if I renounce the card after eight years. On the Exit Tax criteria, I do not think I would hit the 2 million threshold for several years. And the income threshold seems quite high. I just wanted to check the *average annual net income tax liability *mentioned, $171,000 for 2020, is that value the tax owed, vs the income taxed?

My parents in the UK are thinking of gifting me non-income generating property there, so this will push up my net worth. From what I can gather I would not owe tax on the receipt of this property, as it resides outside of the US and is not owned by a US resident. Is this correct, and if so are there limits? Also I read if may still have to file a form with the IRS, even if no tax is owed, if the value is greater than $100k?

Luckily for me my industry has lots of opportunities in UK and Ireland. However it does seem a shame to cut ties with the US. But I can't change the rules to suit my situation  I could apply for Citizenship and hold it until I get close to the Covered Expatriate thresholds. I do not mind paying a fee to both get and renounce. I also do not mind paying 1k/2k a year to pay to have my taxes filed. My main worry would be that the US may somehow double tax my income or inheritance at some point. It's hard to know how the US tax rules may change in future. And you may not have time to renounce before any new rules come into affect. Processing times seem slow at present. I have heard 16 months for Naturalization and maybe 12 months for Renunciation. Also currently I have no children, but if I do abroad I would have to think whether it would be a benefit or a burden to them to get US Citizenship through me. It's definitely not a straight forward choice and requires some number crunching.

Thanks again for all the thoughts! More are always welcome


----------



## 255 (Sep 8, 2018)

mr_nice_watch -- In response to your latest post: 

U.S. Social Security and the UK equivalent are separate systems. The U.S. social security retirement benefit is based on the average of your "indexed" (for inflation) earnings for your highest 35 years of income (years worked over age 60 are not indexed.) Years you didn't work, under 35, are counted as zeros in your average income calculations. Your payments to to the UK are only used to increase your potential UK old age pension. In general, the SS Totalization Agreements allow the US to count years worked in a treaty country, to help you qualify in the U.S. for social security retirement and vice versa. The "paid in" amounts do not come into play.

Agreement Between The U.S. And The United Kingdom (ssa.gov) 

International Programs - Totalization Agreement with Ireland (ssa.gov) 

The one thing that wasn't mentioned earlier is that the agreements do not cover Medicare -- so you'll still need 10 years work history to qualify. You are young now, but I have many European acquaintances that have retired to Florida and Arizona. If you have 10 years work history (or can qualify through a spouse,) you'll be eligible for Medicare, when you turn 65. In general, medical costs in the U.S. are quite high -- Medicare takes care of the lions share, but many retirees obtain supplemental plans.

Your current pensions may, or may not be, PFICs. You'll need to investigate their make-up. We recently had a member asking about a UK "Stocks and Shares ISA." Bottom line, if this "wrapper" did not contain "foreign" money market funds, to hold his cash, and did not invest in "foreign" collective investments, he is OK. If you do now have a PFIC, you currently have an income tax reporting issue, assuming they are growing. "Foreign" index funds are PFICs. I do know many U.S. investors, with offshore entities, that only invest in U.S. investments (within the entities) and only have U.S. bank accounts, to get around some of the reporting rules.

There are no issues having a UK bank account, as long as you file the FBAR, if you are above the reporting thresholds.

That $171,000 figure (2020 number) you mentioned is the last 5 year average of your tax liability, used as one of the three "tests," to determine if you are a covered expatriate. So, your income would need to be significantly higher than you indicated in your original post, to have to worry about this.

There are no limits on the amount of gifts you receive and it doesn't matter if the gift was within or outside the U.S. In the U.S., "Gift Taxes" are paid by the giver. As you surmised, you will have to report the gift, if it's over $100K -- but there are no taxes, you just have to provide "information." Use Part IV of IRS form 3520:

2020 Form 3520 (irs.gov) 

There are tax treaties between both the UK and Ireland

United Kingdom (UK) - Tax Treaty Documents | Internal Revenue Service (irs.gov) 

Ireland - Tax Treaty Documents | Internal Revenue Service (irs.gov) 

In general, you shouldn't have to worry about double taxation. In the U.S., you can claim the "Foreign Earned Income Exclusion" utilizing IRS form 2555 and/or the "Foreign Tax Credit," with IRS form 1116. Laws are notoriously slow to be enacted and it is extremely rare to make requirements retroactive. Additionally, treaties take precedent over laws and the treaties above are dated 2001 and 1997, respectively! I think you should have plenty of time to make "adjustments," to your estate planning. This happens routinely. I personally know half a dozen U.S. citizens that made adjustments to their "estate/tax planning," to take advantage of the "Trump tax cuts." These same folks will make additional changes to mitigate any potential changes to "Biden's proposed tax increases!" Tax attorneys live for this stuff.

It's more than numbers, to make your decision. As far as potential children, personally I believe U.S. and UK/Irish citizenship would be a great gift. It gives them freedom/advantages, above the masses. Despite all of the issues you read on this forum -- there are people world-wide clamoring to immigrate to the U.S. We have friends, a couple that were not U.S. citizens, that have two children. One was born in the U.S. and the other in Bolivia. The oldest took advantage of her U.S. citizenship to go to a U.S. boarding school for her last three years of high school Her Bolivian younger brother was *so* jealous.) She returned to Bolivia, after graduation, with no intent to ever return. Conversely, her brother had desires to go to the U.S. and was unable to get a visa! There is no burden (then only a paperwork drill for the IRS,) until they are grown and earning income above the reporting threshold. Let them make their own decisions (with your guidance.) Cheers, 255


----------



## mr_nice_watch (Feb 10, 2021)

Hey 255! Appreciate all the information.

So the US tax system scares me ha ha, one reason I wondered about exiting it when I leave. It seems there is always more I do not know  Question on this.

*If you do now have a PFIC, you currently have an income tax reporting issue, assuming they are growing.*

So I do report my pensions values every year on the FBAR and on FACTA: 8938. However that is all. If these are PFICs then will I need to contact an expat tax specialist to prepare my taxes to file the other needed forms? I don't want to get hit with some crazy penalties and looks pretty complex from the little I can see on it. Or if I am not getting Citizenship then could I just leave it? Thanks again!


----------



## 255 (Sep 8, 2018)

mr_nice_watch -- I have never owned a PFIC. I went to a class, about 30 years ago, on how to avoid being classified as a PFIC, when forming an off-shore entity and I've just stayed clear. It appears that IRS form 8621 is the form to file: Form 8621 (Rev. December 2018) (irs.gov) Again, this seems to be another "information return," so filing is probably required, but you're already paying the tax, so filing the 8621, is just another paperwork drill. I noticed that "Moulard," our resident authority, on all things taxes, stated in a different thread, that the IRS was targeting holders of PFICs with filing penalties, but a lot weren't sticking..

Me personally, I would seek counsel from a qualified tax attorney, for your options. I've had to do this, a few times, and it was "cheap" insurance for my (and my wife's piece of mind.)

The U.S. tax system is based on voluntary reporting ("the honor system.") Personally, I would ensure I filed correctly, whether I was leaving or not. From a practical perspective -- who's going to know. You are a relative high earner, so you do have a higher probability of being audited than the average filer. I've been audited a few times, but always came out ahead, even the one time, I had to go to "tax court," (the judge threw out the IRSs case,) but it can be a time waster and an unpleasant experience. FYI, I've read many articles, over the years, and professionals, including CPAs and EAs, traditionally have about a 10% accuracy rate and the IRS has been notoriously understaffed for years. In my own experiences, as a layman preparing my own taxes, I've generally found IRS auditors amenable to a sound augment and if not, often offer suggestions on how to fix, whatever situation, that is causing the issue, if asked. Again, yes, you could "just leave it," if you are going to relinquish your green card and return to the UK/EU. In my own case, when seeking the advice of counsel, I only paid for the session, not tax preparation. I've found, in each of three cases, that the attorneys gave me options that we were able to select, based on our own "risk tolerance." Cheers, 255

P.S. I've been told, that tax returns prepared by CPAs have an extra "shield" against audit, as the IRS assumes they are professionals and are preparing returns accurately. Whether that statement is true, or not, I do not know, but a CPA can always interface with the IRS directly, if there are any issues.


----------



## Moulard (Feb 3, 2017)

Not PFIC but Foreign Trust Reporting on Form 3250-A for foreign trusts .. particularly foreign pension schemes.

Thousands if not tens of thousands of people were being pinged with $10k penalties last year for late filing when they filed them at the same time as their (timely) tax returns.

This was even occurring in cases where people were protective filing and the financial entity in question was probably not even a trust that had to be reported. 

Here is one of the early posts on the topic that turned into a tsunami.









Foreign Trust: IRS Penalty Notices For Late Forms 3520-A Scare Many Innocent Taxpayers! | TaxConnections


The IRS is sending $10,000 penalty notices for late substitute Forms 3520-A, when the form has been filed timely with Form 3520. This article explains how it is unnecessarily traumatizing law abiding taxpayers.




www.taxconnections.com


----------



## Jca1 (Aug 7, 2019)

Great info about the totalisation agreements above.

However, I don't think you need to worry about PFIC reporting for funds held by a UK pension. Scroll down to "Treaty-based reporting exception for PFIC stock held through a foreign pension fund is expanded to PFICs held through all foreign pension funds regardless of entity classification":









United States – IRS Issues Final PFIC Regulations


This GMS Flash Alert reports on how the final PFIC regulations compare to the proposed




home.kpmg





All or nearly all UK pensions are recognized as pensions by the US-UK treaty, so you should be OK there. Also, you don't have to pay tax on the pensions until you start taking distributions -- see article 18(1) of the US-UK tax treaty -- so don't worry about US tax on the undistributed growth.

If you have PFIC stock held through an ISA that's a different matter, but note there are also several de minimis exemptions from reporting, and additionally, there appears to be no penalty for not filing form 8621.

As for the original question, it's difficult for me to advise. US salaries in tech, finance, and medicine are great compared to the UK and EU, so I can understand why you'd be tempted to get a US passport.


----------



## mr_nice_watch (Feb 10, 2021)

Hey Guys!

Thank you all so much for the great information! That's good news on the UK pension *Jca1*! I had given myself some anxiety on how I would report that on my taxes 

I have no ISAs or stock in the UK at present so things may be quite simple for me so far, as long as I avoid PFIC's in the future (good to know *255*, thanks!).

Just to update on my situation. I decided to apply for the citizenship while I think further on it. It will likely take at least a year, and I don't mind losing $725 if I decide not to follow through. I also hired a CPA to do my taxes this year. Worth it for my peace of mind.


----------

