What advice to take before renouncing US citizenship?

Thank you for your helpful reply. I haven't come across this to be honest. I'm a mistake USA citizen, born there to non usa citizens. I have become compliant with my taxes over the last number of years, I got all my stimulus payments after getting compliant (totally unexpected and wasnt a factor in me getting compliant).

My Tax accountant (USA based - with many uk clients) hasn't picked up on this and when asked he said I'm allowed to have the equivalent to what he called a 401k (pension plan i understand) in the UK. Ive not reported on this and unsure how to. I also have a bank account and just recently met them about getting a mortgage and I made sure to let them know i was a US citizen and they said that they already knew and that wasnt an issue.

Your tax accountant is quite right about retirement accounts such as employee pension plans (~401ks) and Self Invested Pension Plans (~IRAs) which the IRS won't tax until withdrawals are made.

However, if you want to save and invest outside of retirement plans then that is where you fall afoul of PFIC rules.  Even with an ISA the IRS ignores the tax free wrapper and taxes the interest on cash ISAs, and if funds are held in an ISA they will be subject to PFIC taxation.  I like Vanguard and hold after-tax investment funds with Vanguard USA, but Vanguard UK doesn't even allow US citizens as customers.

With company pension plans I have heard that as long as you contribute no more than the employer does (ie simply match his contributions) then no IRS reporting is required otherwise it counts as a Foreign Grantor Trust.  However, the value of UK pension holdings have to be reported to the US Treasury each year as part of the FBAR filing if you are a US citizen.

ETA
Once you pass the FATCA threshold then you probably have to include your pension plan values on your IRS return as well but I'm not sure about that. (I don't have any UK pension pots of money)

https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers

Taxpayers living abroad. You must file a Form 8938 if you must file an income tax return and:

You are married filing a joint income tax return and the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad. Married individuals who file a joint income tax return for the tax year will file a single Form 8938 that reports all of the specified foreign financial assets in which either spouse has an interest.
You are not a married person filing a joint income tax return and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.

Thank you for your helpful reply. I haven't come across this to be honest. I'm a mistake USA citizen, born there to non usa citizens. I have become compliant with my taxes over the last number of years, I got all my stimulus payments after getting compliant (totally unexpected and wasnt a factor in me getting compliant).

My Tax accountant (USA based - with many uk clients) hasn't picked up on this and when asked he said I'm allowed to have the equivalent to what he called a 401k (pension plan i understand) in the UK. Ive not reported on this and unsure how to. I also have a bank account and just recently met them about getting a mortgage and I made sure to let them know i was a US citizen and they said that they already knew and that wasnt an issue.

I am in a similar position. Employment pension plans are one of the few ways we can invest. However, even pension plans have certain rules to make matters awkward, such as not being able to contribute more than the employer or it will become classed as a "foreign grantor trust" and be subject to higher scrutiny. 

In terms of reporting it will mostly be through an FBAR or Form 8938, depending on whether certain thresholds are met. Your accountant should be able to keep you compliant with these.

(Just realised Durhumlad covered all this while i was typing but hope it helps) 

Thank you both for your helpful responses. Appears that I am not complaint with FBAR in that case as i didn't declare them on the FBAR. I'll have to ask him to ensure this is acknowledged in my next filing.

In terms of this how do i report the account number? I have two separate pensions but dont think I have sort codes and account numbers with them?
 

Thank you both for your helpful responses. Appears that I am not complaint with FBAR in that case as i didn't declare them on the FBAR. I'll have to ask him to ensure this is acknowledged in my next filing.

In terms of this how do i report the account number? I have two separate pensions but dont think I have sort codes and account numbers with them?

I’ve never had foreign pension accounts to report but my best guess would be to use the address of your provider plus your employee number if no other number is identified on your statements. I would think it simply needs to uniquely identify you as the account holder for any audit by the US Treasury.

I include all my UK pensions (defined benefit and SIPP) on both my FBAR filing and  form 8938 of my tax return - using account number or client number and giving the mailing address of the provider  - I've been open with all my disclosures but then elect to take a treaty position on form 8833 and exclude contributions and gains from taxable US income. 

Hope that helps.

Hello, Can i ask about where you have said as an average income person and it being hard to save towards your retirement in the uk while holding usa citizenship. what's the deal there? Why is it hard to save?

Because you are barred from having ordinary UK investment accounts due to holding US citizenship, and any stocks and shares ISAs will be treated as PFICs. Investing is a necessity, as there is no UK savings account that comes anywhere close to keeping pace with inflation (and anyway these will be reported under FATCA, constantly leaking your data for no reason; see the recent TIGTA report which clearly states that the US cannot and never has been able to use FATCA data). House sales can be double taxed - on purchase in the UK and on sale in the US. And then there is the issue of trying to comply with two different tax codes at the same time. As you get older and your financial affairs no longer consist of a simple salary, this becomes impossible.

Because you are barred from having ordinary UK investment accounts due to holding US citizenship, and any stocks and shares ISAs will be treated as PFICs. Investing is a necessity, as there is no UK savings account that comes anywhere close to keeping pace with inflation (and anyway these will be reported under FATCA, constantly leaking your data for no reason; see the recent TIGTA report which clearly states that the US cannot and never has been able to use FATCA data). House sales can be double taxed - on purchase in the UK and on sale in the US. And then there is the issue of trying to comply with two different tax codes at the same time. As you get older and your financial affairs no longer consist of a simple salary, this becomes impossible.

Thanks for such a great response. Does anyone have any UK based tax accountants they would suggest using to assess these issues. As I said i'm an accidental American, which isnt a bad thing, and only getting to grips with all of this. Is investing in the USA possible for me? i.e rather than investing in private UK pension could I invest in stocks/shares via an american investment fund?

Re the property question. I did some research and found that the first $250,000 of profit is exempt from USA tax for a family home. So this doesnt seem to be an issue for me in the short or medium term, though i can see it being an issue in the long term.

Thanks for such a great response. Does anyone have any UK based tax accountants they would suggest using to assess these issues. As I said i'm an accidental American, which isnt a bad thing, and only getting to grips with all of this. Is investing in the USA possible for me? i.e rather than investing in private UK pension could I invest in stocks/shares via an american investment fund?

Re the property question. I did some research and found that the first $250,000 of profit is exempt from USA tax for a family home. So this doesnt seem to be an issue for me in the short or medium term, though i can see it being an issue in the long term.

The issue with investing in the USA is that brokers there generally won't allow you to make an account unless you are a US resident. If you have an address in the US you can get around this requirement, but for people who have no connections to the US it is difficult. If you were able to set up a way to invest in US domiciled funds, you would also need to make sure that any US funds you did invest in are HMRC Reporting funds. If not, you would have the UK's equivalent to the PFIC issue. Unfortunately, from my own research, i found that there is no simple way to invest safely using ETFs/mutual funds in the ordinary way you might have expected to (Without having a US address).

Thanks for that helpful advice!

All new to me. So in short I think I want to move to a UK based tax accountant as my USA based accountant is very good but doesn't really reassure me he is doing everything right. He is very competent and tells me he works with many UK based USA citizens. And since he filed for me i have got various stimulus cheques in the post so it seems to be going right.

Does anyone have a good (and good value) accountant based in UK that i could deal with?

The UK tax accountant I have been using since moving back is expensive and our tax situation is simplifying greatly over the next year or so I will be giving up on her soon.

Here is a list of some alternatives

https://talk.uk-yankee.com/index.php?topic=97064.0

The issue with investing in the USA is that brokers there generally won't allow you to make an account unless you are a US resident. If you have an address in the US you can get around this requirement, but for people who have no connections to the US it is difficult. If you were able to set up a way to invest in US domiciled funds, you would also need to make sure that any US funds you did invest in are HMRC Reporting funds. If not, you would have the UK's equivalent to the PFIC issue. Unfortunately, from my own research, i found that there is no simple way to invest safely using ETFs/mutual funds in the ordinary way you might have expected to (Without having a US address).

Well summarized.

I was fortunate enough to have time to prepare before our move back, converting our mutual funds to HMRC reporting ETFs and also ensuring we were with a brokerage and a bank that does not require a US address for customers moving overseas.

With company pension plans I have heard that as long as you contribute no more than the employer does (ie simply match his contributions) then no IRS reporting is required otherwise it counts as a Foreign Grantor Trust.

[My bold.]
Thanks.  That got me thinking about my recent decision to bump-up significantly my own contributions to my work pension plan.  My employer contributes 10% and for the past two months I'd increased my contribution from 5% to 35%.  I'm now going to scale that back so that over the 2022 calendar year I'm not exceeding my employer's contributions.

I read a bit more about grantor trusts here:
https://www.thetaxadviser.com/issues/2020/may/foreign-pension-plans-us-uk-tax-treaty.html

[My bold.]
Thanks.  That got me thinking about my recent decision to bump-up significantly my own contributions to my work pension plan.  My employer contributes 10% and for the past two months I'd increased my contribution from 5% to 35%.  I'm now going to scale that back so that over the 2022 calendar year I'm not exceeding my employer's contributions.

I read a bit more about grantor trusts here:
https://www.thetaxadviser.com/issues/2020/may/foreign-pension-plans-us-uk-tax-treaty.html

That is an excellent article on the treatment of UK pensions for USCs living there.  Our son is certainly not a "highly compensated employee" and since his salary is well below the exclusion limit I've always told him to include his employer pension contribution as income in the salary he reports to the IRS. He also matches his employer contribution and does not exceed it so I think he is good.