Expatriation so you can pay the correct taxes.

I have a friend resident in the UK who is, like me, a UK/US dual citizen. She has recently started a job that offers a pension and has been looking into ISAs and investments for her and her kids. I had a long email from her complaining about the frightening complexity of doing her US and UK taxes. I told her to forget the ISA, stay away from all UK mutual funds and get some professional advice to deal with the UK pension on her US tax return. She made a very telling remark in reply. She said

"I'm thinking about giving up US citizenship. I'm worried I'm going to get my taxes wrong. I'm not doing it to avoid taxes, but to make sure I pay the right amount without spending lots to get them done".

I thought about this and it's definitely correct that her taxes would be far simpler as only a UK citizen as she has no money in the USA. I also looked at my situation. I have lots of retirement accounts, a pension and SS in the USA as well as after tax investments and as a US/UK dual citizen living in the US my taxes are relatively simple....at least Turbotax handles them. But if I move to the UK my taxes will become pretty complex, mostly because of the savings clause in the treaty. But as only a UK citizen living in the UK the savings clause goes away and my US SS and retirement accounts won't be taxed in the US, thank you W-8BEN and Article 17, and I'll be free to move my taxable investments to the UK. I'll only have to deal with UK tax on those as well, also no FATCA, FBAR or PFIC.

It really is a sad thing when someone feels so frightened and intimidated that to make sure they pay their taxes correctly they'll consider giving up US citizenship. It's the opposite of expatriating to avoid taxes, it's expatriation so they have a chance to comply with the tax rules.

It really is a sad thing when someone feels so frightened and intimidated that to make sure they pay their taxes correctly they'll consider giving up US citizenship. It's the opposite of expatriating to avoid taxes, it's expatriation so they have a chance to comply with the tax rules.

This is exactly why I've decided to give up US citizenship. I don't mind paying the taxes, but the money and time to figure out what taxes I need to pay is not worth the hassle. I still have ties to the US (family/friends), but don't want the headache of dealing with the US government.

This is exactly why I've decided to give up US citizenship. I don't mind paying the taxes, but the money and time to figure out what taxes I need to pay is not worth the hassle. I still have ties to the US (family/friends), but don't want the headache of dealing with the US government.

My friend was also frightened by all she'd heard about the potential for fines if she got anything wrong. It's not long since she was a student so the idea of paying someone to do her taxes is pretty alien to her. She has US citizenship through her parents and grew up mostly in the UK so feels more British. I think her kids are also US citizens so she'll might have to consider some future family immigration issues too, who knows if she might want to live with them in the US when she's old.

There are an increasing number of articles appearring in the popular media on the problems faced by Americans who have decided to live abroad. There are also a greater number of Americans who are willing to speak of the once taboo subject: renouncing US citizenship. My 'favorites list' is bulging with links to a number of articles and sites, from the extreme (Issac Brock Society) to the pragmatic (ACA), all concerning the increasing difficulties of being an American living abroad.

Occasionally, a comment or article surpasses the normal anger of being faced with the situation, and is a much more honest expression of sheer frustration with the US system. I submit the following 3 which I find to be 'from the heart'.

The first two are from Victoria, a USC who lives in France. They are personal thoughts on being an American abroad and the resulting complexities. She has a terrific writing style, and her blogs are extremely honest and insightful. Well, well worth the read. She speaks eloquently for many of us. I highly recommend you spend the time reading them.

http://thefranco-americanflophouse.blogspot.co.uk/2012/09/how-i-really-feel-about-citizenship.html
http://thefranco-americanflophouse.blogspot.co.uk/2012/10/perspectives-on-compliance-with.html

The last is a comment posted recently on another expat site. Scroll down to the bottom of the page and read comment No. 20 from whatshouldido.

http://www.expatforum.com/expats/expat-tax/128012-fbar-compliance-2.html

The first two may take some time to read. Spend the time, they're worth it.

There are an increasing number of articles appearring in the popular media on the problems faced by Americans who have decided to live abroad. There are also a greater number of Americans who are willing to speak of the once taboo subject: renouncing US citizenship. My 'favorites list' is bulging with links to a number of articles and sites, from the extreme (Issac Brock Society) to the pragmatic (ACA), all concerning the increasing difficulties of being an American living abroad.

I don't really agree with the tone of the first two blog posts you linked. I don't mind being taxed on citizenship, particularly as I've lived in the US for a long time and I have deferred a lot of tax in retirement accounts. I just wish the IRS would make it simpler to comply. I want to pay my taxes correctly, I just fear that that is an impracticality for most US expats. If the IRS wants more people to come into compliance they should make things 99% simpler.

The more I learn about the issues surrounding the taxation of a US expats the more I believe that you have to get professional help to have any hope of compliance. To avoid PFIC issues I will probably leave most of my money in the US in funds that will satisfy HMRC's "Reporting Funds" rules. That's annoying, but at least there is a good selection of offshore funds that are ok with HMRC.......that can't be said for the IRS. But when I move to the UK to retire I'll have to deal with the taxation of US pension and retirement account income and interest, dividends, capital gains and SS from the US and the UK.....it's a nightmare. I don't mind informational forms like FBAR or 8938, but trying to correctly apply the various articles of the tax treaty and resource income to get the FTC and also satisfy HMRC  is a loosing battle for the taxpayer. Expatriation would not save me any tax, but it would allow me to organize my finances in a way better suited to living in the UK, ie being able to invest in any UK financial product and it would greatly simplify my taxes and remove the fear of being in IRS non-compliance.

I agree with whatshouldido's post on the expat forum. I renounced for peace of mind. I am such a low earner (school teacher) that I highly doubt that the IRS ever would have bothered to look more than once at any of my forms, but it still stressed me out that I probably wasn't getting all the forms right, despite my best efforts. And I highly resent the fact that my employer pension plan isn't recognized by the IRS. And since I've lived abroad so long that moving back is very unrealistic, it didn't feel like such a big deal to renounce. It may not be for everyone, but I'm glad it's no longer a taboo subject.

I too am feeling like it's just more trouble than it's worth. However, I'm the British half, and my USC OH just will not renounce citizenship...and the kids are kind of excited they have the option to go study there without visa worries...
and I don't know about the idea that being a school teacher means the IRS won't notice you, we're under a pending audit not looking forward to it at all.
just don't understand why it all has to be so complicated!

An IRS audit is extremely unusual. You may want professional help.

I agree with whatshouldido's post on the expat forum. I renounced for peace of mind. I am such a low earner (school teacher) that I highly doubt that the IRS ever would have bothered to look more than once at any of my forms, but it still stressed me out that I probably wasn't getting all the forms right, despite my best efforts. And I highly resent the fact that my employer pension plan isn't recognized by the IRS. And since I've lived abroad so long that moving back is very unrealistic, it didn't feel like such a big deal to renounce. It may not be for everyone, but I'm glad it's no longer a taboo subject.

In some places it is still a taboo subject.  I will agree however that one can discuss this subject more openly than before

In some places it is still a taboo subject.  I will agree however that one can discuss this subject more openly than before

For those born and raised as US citizens renunciation is definitely a difficult subject as it carries so much emotion with it. For those that are "accidental Americans" or took US citizenship as adults the emotional issues are far less and the practicalities make it far easier to consider, although it's still a decision that required detailed and deep thought about the consequences.