How would you react if your home country denied you the right to participate in the political process back home if you had been resident overseas for longer than 15 years? Your home country does not overtly have citizenship-based taxation along the lines of the US, but refuses to let you go and claims that you will be tax-domiciled for your whole life, right up until your death. Even if you change citizenship your home country would still considered you to be a domiciled tax resident and tax your estate accordingly, as if you had never left.
Sound familiar? None of the above is hypothetical – The country that I am describing is the UK, and the above frustration is actually pushing some UK citizens to renounce their citizenship due to lack of representation and being made to feel like subjects and not citizens whilst overseas. From a regional Iberian newspaper (in English):
James Preston resents having the door slammed in his face. Britain denies him the basic democratic right of representation. He writes “We have concluded, therefore, that the contract between the State and my wife and I – the citizens – has been broken. We moved to Spain, an EU country, to represent British interests and find work, and not continue to claim unemployment benefit.”
Yet despite the fact that Mr. Preston does not claim anything from the UK government, they still consider him to be tax domiciled and expect him to pay his “fair share”. Fighting to have representation and the vote, and the fact that his children studied in the UK have made it even more unlikely that the UK government will let him go:
…the clammy mechanical claw of British bureaucracy might well hold claim on his estate at his death.
British Tax Law could still claim to his dying day that he is ‘domiciled in Britain’, because it says he will retain his British domicile of birth! You may think this outrageous and you are right to think so. It is difficult to cut yourself loose from the British State if you are born British. The fact that his children are educated in Britain, and extraordinarily, the very fact that he has taken a case before the High Court in London to claim the right to vote displays in the eyes of the Revenue his ‘attachment’ to Britain.
Preston goes on to lament the fact that his children are not even considered to be full UK citizens, but rather “British by descent” and will be unable to pass on their citizenship to their own children unless they are born in the UK, leading to possible statelessness.
It is the last straw that, after having been insultingly refused the right to Representation, Britain could still claim a pound (£) of ‘flesh’.
It beggars belief that Britain, claiming to lead the world in Democracy so treats its own citizens who dare to live abroad. It cannot desire, can it, that every British Citizen living abroad should renounce their citizenship? Should not Britain be proud of us who live abroad? To our neighbours we are the image of Britain. Why are we ignored by our own country?
We want to be ambassadors for Britain, but Britain does not want us – except perhaps our money.
http://algarvedailynews.com/features/world-affairs/5872-renounce-your-british-citizenship-so
What’s worse, being denied the right outright to vote or being given that right on paper but ignored by your assigned representative for having a foreign address? Being forced to renounce citizenship so that you can keep open a bank account and not have your hard earned assets overseas subject to double taxation or still being treated as tax-domiciled even after leaving the country and changing citizenship, resulting in your assets still being subject to an estate tax at death (perpetual allegiance)? Lastly, does anyone else find it to be unbelievably hypocritical that the US & UK, supposedly both the defenders of democracy worldwide, conveniently forget about their own ideals and philosophy when it comes to their own citizens and a bit of money is to be had from disenfranchised people unable to complain?
*Glad you reported on this.
Tax residency is written in each country to overlap the others. Having a home (even a rental) in Sweden, means that I am liable to taxes in Sweden. When I commute and work in Norway, Norway claims me as a tax resident. Sweden generally overlooks this when commuting to Norway. However, if I were to commute to UK or were to actually live and work in Dubai, USA, or someplace, then it would be very difficult to avoid the Swedish tax arm if my home was still available for my use (not sublet). UK, Norway, Sweden, and US are simple examples where if one has a home of any sort, then the country claims the right to income tax. The tax credit process (similar to form 1116) in Sweden or Norway is not easy to negotiate without a tax lawyer.
I have heard about the UK’s extraterritorial estate tax. I believe that there are ways around it, including not owning any property in the UK, giving money to heirs, establishing trusts for heirs, etc. But I haven’t heard anyone saying that the UK taxes the extraterritorial income of British citizens if they live abroad and pay taxes where they live.
The issue then comes into being when the person dies and multiple countries want estate tax, and the total bill could exceed the highest rate any one country requires. I am not an expert in these matters, but what would be fair is that if you owned a house in the UK, an appartment in Switzerland, were a British citizen, and also a Swiss citizen, had investment income and bank accounts in both countries and a salary in Switzerland, Switzerland should be able to impose estate tax on, and only on, Swiss-based assets and UK on, and only on UK-based assets.
Estate tax is an abomination. In most cases, the government has already taxed it, and now they want to tax you for dying. Governments in the West have proven themselves unworthy of being the only large institution that controls everything. They have made a shambles of everything. Let people pass their wealth on to their children. Otherwise, you make people like Warren Buffet extremely wealthy. This is because those who own businesses and farms must pay exorbitant rates for life insurance only so that their estate can pay the taxes upon their death–so that they can pass their businesses or their farms onto their children. It is a great destroyer of family wealth–going into the hands of billionaires like Buffet.
In Canada, all the tax is due on RRSPs and retained earnings on the day the final spouse dies; hence small-medium business owners must have expensive life insurance here in Canada too. So even in Canada, passing on property is not easy, and we don’t have an estate tax per se.
Mark Twain, I’m looking into buying a house in the States and renting it out. What impact would this have on my tax situation?
@swisspinoy My perspective on that is that if I were going to keep my US citizenship, the tax issues aren’t going to go away. I would have to move back to the States to reduce the headaches. But in any case, as a citizen you have to do a US tax return.
However, if I planned to renounce/relinquish US citizenship (I did), I would want to cut my financial ties to the US.
As far as substantial presence residency is concerned, it would not affect that. But at present you are US citizen–as such you have to file a US return and pay the taxes on the US source rental profit.
As an investment, I’ve lost upwards to 70K on US commercial real
estate (at least as a short term investment). I don’t think its a good
idea, having been burnt once.
As an investment, I’ve lost upwards to 70K on US commercial real
estate (at least as a short term investment). I don’t think its a good
idea, having been burnt once.
As an investment, I’ve lost upwards to 70K on US commercial real
estate (at least as a short term investment). I don’t think its a good
idea, having been burnt once.As an investment, I’ve lost upwards to 70K on US commercial real
estate (at least as a short term investment). I don’t think its a good
idea, having been burnt once.
@ Petros
Regarding your last comment here … ? ? ? ? You must have a repeater key on your keyboard and a kitty found it. 😉
@ Em, oh, that’s terrible, I’ll have to fix that.
Well, actually I was having trouble with cut and paste and undo, and the ctrl-v didn’t seem to work, but I guess it was working. Tertia has not been spending much time at home. She comes in at midnight says hi! then out the door until 4:30 am, then out again all day. So it wasn’t her.
Oh, I thought that you were stressing the potential return on US commercial real estate! My situation is a bit different. My 300+ years of US ancestry left me with enough Spanish mugs to get a loan for a tiny house in a suburban sprawl. I figure that if the demorepublican monarchy makes a fuss about that, then I’ll toss a bag of tea in the Boston harbor and return to the old world.
@Swisspinoy…
Well, before I did that, I would be getting some good tax advice from someone who knows…
See if there is anything here that might be helpful to you…
http://hodgen.com/category/nonresident-individuals/
@all…
Interesting this.
You have to wonder, if the domicile tax residency issue might not be morphing more and more into a Citizenship taxation “lite” regime or Citizenship Tax by another name, which over time may effect more and more nationalities around the world. There could be a developing trend to keep ones eyes on.
When I read this, it rang true with me. Years ago, while I was sailing, I recall meeting a POME (Aussie slang for Prisioner from Mother England) sailor, in the Pacific, who had left the UK many years before. He was in a long struggle to get the UK Tax Office to allow him to drop his tax domicile characterization, so he could shed himself of UK taxation when he was no longer living there.
He had been living on his sailboat for years, and was now in New Zealand with no intention of ever returning to the UK. At the time, I thought how strange, but I had not yet focused on the US citizenship taxation and how onerous it could be. The last 3 years of IRS offshore jihad certainly awakened that awareness, and now I am real sensitive to other countries citizens that might be having similar struggles with their homeland’s “uncivil servants”.
It seems to me, that we need to put this in light with what is happening with FATCA. With EU countries looking around for extra sources of revenue, is it possible that Expats of all countries are becoming a natural targets for new sources of revenue? America leads the way in example and in deed, by helping create by fiat, an automatic Tax Data exchange, which FATCA/DATCA is morphing into. i.e., GATCA Doesn’t this advance that cause?
Once FATCA is fully in place, with the reciprocity deals that follow, it becomes easier for say Greece to find it’s diaspora in the US or Australia, and tax them with automatic remittances from the county where they are living or banking.
Now, that does seem a stretch right..? Wild ass speculation and hyperbole? Maybe. However, I don’t think we should under estimate the possibilities, or probabilities that this is where the global community is headed!
@Just Me, I had once inquired with the IRS if I was considered to be a “resident” or a “non-resident”. At the time (a month or so ago), the IRS was unable to answer that question. I then called a State and learned that I was an “invalid” resident, rather than “resident” or “non-resident”. I’m not sure how the link you provided would apply to “invalid residents”. I assume that my status now is “resident non-resident with invalid-address”. If I cancel my mail-forwarder, then it might be “resident non-resident with non-address”. In any case, my US bank and the IRS both informed me that “non-resident” conditions don’t apply to my situation of “invalid resident” or “resident non-resident with invalid address”. I hope that this doesn’t confuse you, because I don’t get it and I doubt that anybody does, but it would probably be too easy if it made sense.
@Swisspinoy,
To be truthful, I did not look closely at Phil Hodgens’ links on non resident status. I just know he has talked about not getting caught in that trap, so thought maybe there was something there, or not. I do not know when a non resident hits the trip line for filing taxes with the IRS, but I know that Michael Miller has discussed the substantial presence issue over here…
and yes, you confused me, but then that is no great feat, as I am easily confused.. 🙂
@JustMe
If you follow the news at all in Canada you get the sense there is increasing friction between the current Conservative government in Ottawa and what I call “global progressivism.” Basically there is an increasing view in both the US and Europe that big business, big banks, and mobile capital must be brought under some type of international extraterritorial control emanating from Washington and Brussels and more implement the EU and US need to stop third country jurisdictions from adopting race to the bottom policies that allow big business to pit country against country. This view though is abhorrent to the current Conservative Party of Canada and more importantly an issue they can use as a wedge towards the left of centre opposition parties forcing them choose between their “progressive” allies in the EU and US and the old school Trudeau era Canadian “nationalism” they have stepped themselves in for years.
@Tim…
I only occasionally catch cross border CBC news in Bellingham when visiting my elderly mother, and then on KUOW, they do a program with Vaughn Palmer from the Vancouver Sun that I listen to weekly. But that is probably not enough to catch the trends/frictions that you mention.
BTW, I left you a note on NZ TPP that I thought you might be interested in.
@All, this article http://www.advisor.ca/tax/tax-news/tax-laws-tailing-funds-across-borders-82001 predicts more countries attempting to emulate the US, or UK; ‘Tax laws chasing funds across borders by Vikram Barhat / June 15, 2012’
……”Under pressure from deteriorating public finances and aging populations,
global governments will continue to be aggressive on the tax regulation
and enforcement fronts.”….
(note, @Just Me, it’s your foretold ‘GATCA’!)
There is a mention of the scale of those directly affected by FATCA, in Canada – ……..”FATCA, like other U.S. tax laws, is applied based on citizenship, not residency, and impacts about seven million American expatriates worldwide, a million of those in Canada.”…
(And goes on to mention the upside (?) ““The silver lining in all of this? A deluge of work for professional working in the tax arena.”“)
@Badger…
…and that silver lining is the… Tax Practitioner, Big Accounting firm, Compliance Complex that is being built constructed on the back of the FATCA Feeding Frenzy (FFF) that is well under way.
I must say that this appears to be different in kind to FATCA. There are no citizenship tax laws in the UK. The fact that the gentleman in question has not lived in the UK for 15 years implies that he has not been paying tax in the UK for 15 years (and why should he?). In this case taxation and representation are connected. The article is a little vague about what UK tax he ‘could’ face and this makes it very difficult to argue with. If it is inheritance tax then the question is where is the estate he is concerned about? If it contains UK property then I would have thought that UK tax law applies. There are extensive double taxation arrangements between UK and Spain, but the general principle is the tax goes to the government where the income/gain arises
@Mark Twain
1) Thanks for helping me think more clearly about Swedish taxes. I am almost certain that if you own an apartment in Sweden while living outside of the country, this requires you to pay tax on your worldwide non-employment income to the Swedish Tax Authority. If you rent that apartment out, you certainly need to declare that income to the Swedish Tax Authority when you are living out of the country. I am uncertain what the rule is for subletting a rented apartment when you are out of the country. The documentation (SKV 341) only says “rented out”. That gives me something new to check with the Tax Authority.
2) I have filed tax credits twice in Sweden and they were a piece of cake – uncomplicated, easy and not requiring lawyers or even an accountant. I believe I filled out one section of form SKV 2703. I even went to an accoutant who told me to do it myself as it was so simple. The most important thing was having a receipt showing taxes paid from the other country’s Tax Authority. The time I had a receipt, things went smoothly and timely. The second time, I did not have a receipt. While it took one year for the Swedish Tax Authority to decide to accept the other documentation I had, they were quite amiable about it.
UNPLEASANT PART – The worst and most expensive part of the tax credit experience was then having to go back and amend my US taxes as I now had less Swedish taxes to credit. Amendments to the US taxes cost USD 500 as I needed an accountant to do them as the US way of doing tax credits is complicated and many forms with complicated calculations needed to be modified.
And that illustrates the worst aspect of this whole thing – It is so complex that you need a professional’s advise to ensure that you are doing the right thing. You can’t help but think that professional tax advisors in the US are the main beneficiaries of legislation such as this – even if you consider the IRS!
Tax preparers can be just as sleezy as the demorepublican monarchy:
Tax Preparers Charged with Hiding Funds (06/18/2012 )
One should avoid tax preparers and place the burden of all tax questions/issues on the responsible demorepublican masterminds. That’s the only way that they will be forced to admit that they are incompetent.
@SwissPinoy,
and, guess what… The Justice Department can do all this without FATCA or FBARs. Don’t need either, but instead they create these overly broad and complicated regimes to deal with tax evasion that can be handled just fine by the Justice Department, while the rest of us suffer.
Then again, I guess they think it is pretty handy to have the extra penalty rules that FATCA and FBAR provide, so they can use them for more collections directly to the IRS Treasury accounts on top of prison sentences. If the court assigned a $$$ penalty plus prison without those FATCA FBAR provisions, where would the money go? Assume the IRS wouldn’t get it, right?
@Just Me: quite often new regulations are passed in order to give the government cover for what they already have been doing, sometimes in order to short circuit pending court cases.