Renounce or relinquish?

I wonder if someone could help me? I was born & grew up in the USA & came to the UK in 1966 aged 18. I have been back to the USA once every 3 or 4 years for a maximum of 14 days. I never worked in the USA & have no social security number. I have had a UK passport since 1972. Between 1972 and 2002 I had no American passport and travelled to the USA on my UK passport. In 2002 I was advised (can’t recall by whom) that I could not travel to the USA on my UK passport; so I applied for and received an American passport. I have never worked for an American company and I have never owned any property in the USA. I enjoyed a long career as a social work manager and now live on a pension (£18,000/$27,000) and savings (say £120,000/$181,000).
I recently opened an on-line UK supermarkets bank account and after 6 wks they wrote and asked me if I was an American citizen. I tore the letter up. They sent another and I tore that one up as well. Since then nothing.
But this does suggest I have to do something so I wish to either renounce or relinquish my American citizenship. (1) What is the difference? (2) I want to do choose the one that is simplest and possibly cheapest but I am willing to spend some cash to get rid of this albatross.

Both cost about $2,500 and you must be up to date on your US tax returns.

Relinquishing involves showing that you've actually already lost your U.S. citizenship.  For instance, if you can convince the State Department that when you took UK citizenship you intended to renounce your US citizenship, you can relinquish instead of renouncing.  Relinquishing used to be free, so there was a big incentive to go for it; but now R&R both cost $2350, so for many of us renunciation is somewhat more straightforward.  To renounce you sign an oath at a consulate or embassy, and eventually you get a Certificate of Lost Nationality to prove you are no longer a US citizen.  But you also have to file five/six years of tax returns, plus a final form which examines your net worth and determines whether or not you are liable for the exit tax.

I renounced a few weeks ago and am now waiting for my CLN and grinding my way through the tax returns.  With luck I may be free and clear by next spring.

It doesn't mean you will stop getting letters from banks though, if you were born in the U.S. it will always trigger red flags in the system and you will keep having to prove that you renounced citizenship.

So far, I've only been quizzed by a bank when trying to open a new account.  Pre-existing accounts won't necessarily have a customer's birthplace, or have any reason to suspect the customer of US-ness if there are no US transactions.

ALL IMHO

@Virginia Slim

Thank you for your detailed explanation of your situation. I’m sorry you’ve found yourself in this predicament, but as you are likely aware, you’re certainly not alone.

Could you supply some additional information, please. It appears you are a naturalised UK citizen, occurring around 1972. Is this true, and are you not a dual US/UK citizen at birth (born in the US to a British parent)? It does make a difference.

If born dual, then the exit tax will not come into play. If naturalised, then you have already relinquished US citizenship. In 1972, the US did not allow dual citizenship, and if you became a naturalised UK citizen, you automatically gave up your US citizenship. UNFORTUNATELY, in the mid 1980’s, a US Supreme Court ruling overrode that situation, and gave you back US citizenship, whether you wanted it or not. The intent of your actions in ~1972 still apply, and if you chose to relinquish, you should insist it be based on that past action. The US passport acquisition of 2002 is a complication, but generally, if it was prompted by a US Immigration Agent when entering the US, it may be overlooked.

As for destroying the forms from the UK financial institution, you’ve possibly deemed yourself to be recalcitrant (under the Intergovernmental Agreement). That means all information pertaining to that account will be forwarded to HMRC, and then be forwarded to the IRS, which brings about the question of a Social Security number, and gives rise to an interesting situation. Give it some thought. Has the FI threatened to close the account if there is no response to the forms?

Whichever way you decide to approach this, the cost will still be, at minimum, $2,350 (£1,600).

There is no quick fix to this situation, and each individual situation is different. The easiest, but possibly most costly depending on your aptitude to tackle US tax forms and your current UK financial situation (S&S ISA’s? OIC’s?, mutual funds?, [PFIC’s] etc.), is to renounce, but if you naturalised in 1972, the tax situation may be null and void. It all depends on your understanding (and stance) on a US Code Section, 877 and 877A.

For discussions on this more abstract and confusing complication (877A), you may find this site of interest:
http://www.citizenshipsolutions.ca/

If you do decide to renounce, there are two other thoughts.
1) Nationality (and relinquishing/renouncing) and US tax obligations are two separate independent issues. It’s only if you decide to exit cleanly and legally do the two become intertwined. If you consider yourself a US citizen, then you currently have two differing citizenships, one under nationality law, and one under US tax law (877).
2) Obtaining a Social Security number may require some effort, and it’s needed to file US tax forms. Guya may have some thoughts on this, but it’s rumoured you have a 50/50 chance of being successful if you complete the forms on your own.

If you do decide to renounce, check the exit tax. You may not be subject to this, but with your pension (worth ~$700,000 as a non-deferrable asset) and your savings (worth~$200,000 as an asset), you're almost halfway there. Homeownership, the type of ownership, and location (SE England?) could bring you very close to being a covered expatriate.

I don't think relinquishment will be an option, because by obtaining a US passport in 2002, Virginia Slim performed an action only a US citizen can perform, and therefore implicitly accepted that it was not their intention to relinquish upon taking UK citizenship. I was unable to relinquish because I voted in a US election after obtaining UK citizenship, and getting a US passport counts as the same.

If you do decide to renounce, check the exit tax. You may not be subject to this, but with your pension (worth ~$700,000 as a non-deferrable asset) and your savings (worth~$200,000 as an asset), you're almost halfway there. Homeownership, the type of ownership, and location (SE England?) could bring you very close to being a covered expatriate.

A question, TheOAP: if the pension is a LA pension, does it even have a market value?  It can't be sold or bequeathed or used as security for a loan.

I don't think relinquishment will be an option, because by obtaining a US passport in 2002, Virginia Slim performed an action only a US citizen can perform, and therefore implicitly accepted that it was not their intention to relinquish upon taking UK citizenship. I was unable to relinquish because I voted in a US election after obtaining UK citizenship, and getting a US passport counts as the same.

That's a fair consideration, and likely true. The only counter is a number of people who have relinquished have reported that, if prompted by a US border Immigration Agent to obtain a passport and they did, and in spite of having obtained the US passport, they were allowed to relinquish by the US Dept. of State. There have been more than a few such reports on the IBS site. Are they true? Who knows.

I would guess this can be filed under YMMV if the applicant challenges the circumstances. 

A question, TheOAP: if the pension is a LA pension, does it even have a market value?  It can't be sold or bequeathed or used as security for a loan.

Now that's a $64,000 question.

I'll offer one back. Is a UK pension (any UK pension) in draw down mode, an asset?

This is one of those very grey (read black hole) questions concerning form 8854. The instructions to 8854 offer no clarification, and only addresses pensions, period. A UK pension is definitely a non-deferrable pension, meaning if the person becomes a covered expatriate, tax will be levied at standard rates on the total worth of the pension (20 to 30 years worth of assets required to cover such a pension), and not as a (mark to market) capital gain.

So does that suggest that the value of a defined-benefit defined-contribution scheme like the local government pension the OP has probably got, would be reckoned not by market value but by a formula such as life-expectancy x predicted index-linked value of annual payments minus total employee contributions?

Not for the first time, I wish they'd just say what they require.    

So does that suggest that the value of a defined-benefit defined-contribution scheme like the local government pension the OP has probably got, would be reckoned not by market value but by a formula such as life-expectancy x predicted index-linked value of annual payments minus total employee contributions?

Not for the first time, I wish they'd just say what they require.   

It's been suggested the following two tables are required to value a pension for 8854.

https://www.irs.gov/Retirement-Plans/Actuarial-Tables
Use Table S and Table K Edit: and 2000CM

https://apps.irs.gov/app/picklist/list/federalRates.html

Is this accurate? I don't know since 8854 doesn't specify how one arrives at a value of the pension as an asset, but this seems to be accepted for IRS actuarial calculations. It actually gives me a reasonable value compared to costs to replace the pension (monthly payout) on todays exchanges.

It also raises the question concerning most defined benefit (final salary) pensions where there is a survivors benefit, which is common in the UK (or used to be) for those types of pensions.

Thanks, I'll give that a go.  It may or may not be what they mean by "market value" but since the whole damned garage sale is just a fictional construct, it probably doesn't matter.

...... the whole damned garage sale .....

   I like that definition!

8854 says you do not have to substantiate your figures in the last part (sum of assets) when filing the form. That's great, but if you're compiling 5 years worth of tax returns, and you're filing married separate or single from a foreign residence, and you are in receipt of a pension, and you have over $200,000 of assets for 8938 (like the OP [pension is includable]), then you've already told the IRS the value of your pensions and investments. They can do their own calculations. You will have also declared a yearly pension value if you use line 16a on 1040. (Are you sure you want to include the UK State Pension on line 16a?) And speaking of the State Pension,........is it includable as an asset? And before you answer, where have you determined the answer to that?

It's also one of the down sides of being a fully compliant taxpayer and then deciding to renounce.

  I like that definition!

8854 says you do not have to substantiate your figures in the last part (sum of assets) when filing the form. That's great, but if you're compiling 5 years worth of tax returns, and you're filing married separate or single from a foreign residence, and you are in receipt of a pension, and you have over $200,000 of assets for 8938 (like the OP [pension is includable]), then you've already told the IRS the value of your pensions and investments. They can do their own calculations.

Yep, I'm there before you on that one.  This is why it's necessary to give them a number,  on the 8854, rather than a zero - which would otherwise be my good faith answer to the question of the market value of an asset I can't sell. 

You will have also declared a yearly pension value if you use line 16a on 1040. (Are you sure you want to include the UK State Pension on line 16a?)

Of course.  If I were going to engage in deception I'd go for a bigger and better lie than trying to conceal a State Pension.   

And speaking of the State Pension,........is it includable as an asset? And before you answer, where have you determined the answer to that?

.  Doesn't matter, for me.  I'm not at risk of covered expatriate status.