US Foreign Account Tax Compliance Act (FATCA)

I was born in the US in 1959 and am therefore deemed to be a US citizen, though I am British and have been resident in the UK since 1960 and have no US connections. In 2010, the US government passed the Foreign Account Compliance Act (FATCA), obliging US citizens, regardless of dual citizenships and even though they may not have lived in the US since childhood, to self-report their non-US assets and to pay US tax on foreign income if the foreign tax should be less than US tax. So if such persons sell their home, then they are liable for American capital gains tax on the sale as the UK levies no such tax.

Until a short time ago I had no idea of the requirements of FATCA and the situation I find myself in is making me ill. Employing accountants to prepare the necessary paperwork to bring me into compliance will cost me in the region of £30,000. I stand to lose at least half my life savings in taxes and penalties.  The US will not allow me to renounce citizenship until I have filed five years’ of tax returns and not before 2018.

In 2014, the UK Government entered into an Intergovernmental Agreement whereby financial institutions in the UK report information about US accounts to HMRC. HMRC then provides the information to the US. If I fail to self-certify as a US citizen when opening a UK bank account or requesting other financial services from a financial institution then I am liable to be refused the account or service.

FATCA potentially affects 173,470 people born in the US by chance but many of whom left the country as small children and have since been resident in the UK and are UK citizens.

I have created a petition, "United States Foreign Account Tax Compliance Act (FATCA)" calling on the British Foreign Secretary to end cooperation with FATCA and, if you are a UK resident, I wanted to ask if you could add your name too. You can read more and sign the petition here:
http://you.38degrees.org.uk/petitions/united-states-foreign-account-compliance-act [nofollow]

Thank you!

Jim

In 2010, the US government passed the Foreign Account Compliance Act (FATCA), obliging US citizens, regardless of dual citizenships and even though they may not have lived in the US since childhood, to self-report their non-US assets [/b]and to pay US tax on foreign income if the foreign tax should be less than US tax. So if such persons sell their home, then they are liable for American capital gains tax on the sale as the UK levies no such tax.[/b]

Even before FATCA US citizens were required to pay US tax on their worldwide income. In most cases foreign tax credits and Foreign Earned Income Exclusion will make the US tax due zero. In your situation I would get a few more quotes on getting you into compliance and pursue the renunciation path. If you can explain a bit about your finances maybe the folks on here can put you mind at ease.

Many thanks for your reply. If there ARE some folks out there able to put my mind at ease then I would sure appreciate that! What I have been told is that the US taxation regime is based on, among others,the principle of "taxing up". So, if I sell my home here in the UK, then I will have to pay US tax on the gain in value, as the UK does not levy any Capital Gains Tax on realised gains from the sale in one's primary residence. In addition, I have, since the 1990s, been putting my savings in ISAs. "ISA", for those who don't know, stands for "Individual Savings Account". Essentially, each year the UK Government allows citizens to put aside money up to a certain amount (I think the current limit is about £15,000) by placing it in an ISA, where the income and capital gains on the ISAs value remain free of tax (ISAs were introduced to encourage the population to save for their retirement and so on). So again, since ISAs are not taxed, the US Government will want to tax them, I understand, and I understand that they will be taxed at the rate of 39% of the gain in their value since purchase. I understand that I am likely to have further liabilities but I have not yet been able to build a clear picture of exactly what they will be.

I believe you are correct about the US taxing you on the sale of your primary home in the UK but you have an exemption of a $500k gain so unless you are making a whole load of money on the sale then you won't have any US tax to file. 

ISA's are a real pain if they are invested in UK funds because the US treats them as PFIC's (Passive Foreign Investment Companies) so you may well be correct in the tax rate you mention.  We only have cash ISA's but have to keep track of the interest as it is taxable in the US, but only as regular income, no PFIC penalties.

Many thanks for that! What you say about the sale of the home is a relief: no, I won't get anywhere near $500k, but I thought I was going to have to remain stuck where I am now until I got the taxes sorted out! I know that I won't have to pay taxes on my employment income as it is already taxed in the UK and it is below the US tax-examption limit, so the "taxing-up" principle won't be applicable here. But that is about all I have been able to piece together so far. Any additional information folks out there have would be appreciated because I understand that the accountants' fees for the US filings will be somewhere in the region of £30,000: I would like to know what my tax ball-park tax liability is likely to be BEFORE I part with the £30,000 (also to enable me to come to terms with it NOW rather than having constantly to worry about what my liabilities MIGHT be), but the accountants say that they cannot answer my question until AFTER they have done all the paperwork. So as I say, any further information about US taxes anyone has to offer me will be very gratefully received. Thanks again.

Unfortunately a lot of professionals like to scaremonger you into thinking you MUST use their services or else everything you've ever owned and earned will be seized.  That's pretty far from the truth.

Yes, it'll likely cost a bit to become compliant but I suspect it isn't anywhere near as bad or as scary as it's been presented to you thus far. 

@Jim Newell,

I appreciate your worry over your discovery of your US tax obligation. Not that it helps, but there are many US citizens around the world going through stress similar to yours at this time. You're getting some bad information from various sources.

Let's start with the exclusion for personal residence. The amount is not a flat $500,000. The exclusion, if you qualify, is $250,000 per each US taxpayer on your return. If you were to file married filing separate (as most US cits. with an NRA spouse do), there is only 1 US taxpayer. If you were filing married filing jointly (Your spouse would file with you, and the return would include the incomes for both for US tax purposes) then the allowance is 2 X $250,000, or $500,000.

Renunciation is not dependent on filing a tax return. Your nationality/immigration citizenship is separate to your tax obligation via US citizenship. You may renounce US citizenship (your tax status has no bearing on this and will not be questioned), but without filing the last 5 tax years and form 8854, you become a covered expatriate. If you are a covered expatriate, then the tax obligation of those 5 years (plus penalties) follows you for the rest of your life, and in some cases, after your death. Research, research, research.

£30,000 is a viable figure IF you have a considerable number of UK accounts which can be classified as PFICs. Others have paid such a fee, but they had many, many PFICs. The cost of simply preparing 5 years of past tax returns, form 8854, and a final 1040/1040NR should be no where near that amount if your finances/pension arrangements are straight forward and simple.   

Many thanks! Please keep the advice and suggestions coming!

The guy we use for our US tax preparation is a US/UK expert and he does consultations for a fee.

I started with him for a consultation and have been using him ever since. He is not the cheapest out there but he came highly recommended and I am so glad to have found him.

He will be able to answer all your questions and give you a good idea of where you actually stand.

If you would like his details I will pm them to you.

That would be wonderful, thank you so much! I WOULD like to speak to your man. ("pm" them to me?)

That would be wonderful, thank you so much! I WOULD like to speak to your man. ("pm" them to me?)

PM= personal message. It will go into your UK Yankee mailbox here on the site and you will receive an email that it's there.

I will do that now!

I realise it is alarming to suddenly discover your US tax filing obligation, but you will get past the panic stage and then be able to work through it. Unless you have some extraordinarily complex situation 30,000 is absurd.

I am surprised that no-one has yet mentioned the IRS Streamlined Foreign Offshore Procedures. If you are eligible (and it appears that you are) and comply with the requirements you will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.

Take a look at the procedures here: https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states

That's wonderful folks: thank you so much for your advice. I really appreciate it.

Jim - I'm calm; are you? Your first question is whether you are a US citizen? Were either of your parents US citizens? If not, what kind of visa did your father have when you were born?

No I am not calm, unfortunately   -- I took the advice in an earlier posting to "research, research, research", and besides learning that they will probably tax the savings I have put into ISAs over the years at 39.5% plus interest, the private personal pension plan I set up (because I started full-time, permanent employment relatively late in life) will, like the ISAs, be regarded as a PFIC and taxed accordingly. I can't quite believe this is actually happening: I am a British citizen, resident in the UK since 1960 and fully up-to-date with my tax affairs here. My father was American at the time of my birth (he renounced later, I think to protest the Vietnam war!). My mother was British.