New York-born London mayor Boris Johnson refuses to pay US tax bill http://t.co/MaKDcZnTnM via @guardian U.S. London Emb won't pay con "tax"
— U.S. Citizen Abroad (@USCitizenAbroad) November 20, 2014
Read the complete article here.
It includes:
Boris Johnson has revealed that he is refusing to pay a tax demand issued to him by US authorities – despite previously lambasting the US embassy in London over its failure to pay the congestion charge.
The mayor of London, who was born in New York and holds a US passport as well as a British one, visited the country last week to promote his book and said during an interview with NPR (National Public Radio) that he had been hit with a demand for capital gains tax.
He said the US demand related to his first home in the UK, which was not subject to capital gains tax in England.
And for the absolute and total U.S. hypocrisy:
Johnson has continually pressed the US embassy to pay unpaid fines it has incurred for the congestion charge. The embassy has refused to do so, claiming the charge is a tax and therefore its diplomats are immune. During a visit to the UK by Barack Obama in 2011, Johnson reportedly asked him for a £5m cheque for unpaid congestion charges but the US ambassador intervened before the president could answer. By last year the amount the US embassy owed in congestion charge fines had risen to more than £7m, the most of any diplomatic mission in the capital.
Thanks JC, I sent the link of Ginny’s letter from Maple Sandbox to Robert Wood on Sunday.
http://maplesandbox.ca/2014/ginny-writes-to-london-mayor-boris-johnson-help-stop-fatca-with-adcs/
He replied almost immediately that he would publish it. Great to see he did that so quickly.
@kermitzii Definitely double compliance especially with the US very complex and costly compliance, with potentially severe penalties if wrong. Compliance is a form of taxation (so say I, and so should say we all). Double compliance, therefore double taxation.
This is an easier way of explaining rather than the actually double taxation for which must be defined by Brockers rather broadly as follows: Boris Johnson pays all his UK taxes, but the US wants to tax him more for taxes the UK does not have. He pays tax once to England on income but then the US wants to tax that same income in a different way and then it becomes double taxation.
This broad definition of double taxation is much more realistic than the narrow Treasury department definition that works something like this: The US has a new Net Investment Income Tax. Some call it Obamacare tax. If you are in the income leagues of Boris Johnson and even considerably lower you may attract this. Here is how it is not double taxation according to the Treasury Department definition: The US has this 3.8% tax (would not apply to Boris Johnson’s home sale in 2009 as that was before the introduction of the tax), and the UK does not have a Net Investment Income Tax/Obamacare Tax. Therefore the US rate of 3.8% flows on top of all other taxes in full and is not double taxation because the income is not subject to a UK Net Investment Income Tax. This is an example of how the tax treaties the US defined “prevents” double taxation. The reality: the taxes flow straight on top and according to the tax treaty there would be no credit allowed for the US tax paid on Net Investment Income Tax for UK source investments against UK tax liabilities.
Maybe another way to think of it is if there is no credit for US taxes paid against UK taxes for UK source assets/income for those tax resident in the UK then it is double taxation.
The whole tax situation is very complex. There are many including it may appear most politicians who when they hear “tax” they shut down and do not want to comprehend any further. Then when there are two tax systems overlayed on each each other it gets more unfathomable. This is part of the reason politicians around the world have been duped by the treaty language of “preventing double taxtion” and think helicopter view – prevents double taxation great, I’ll vote for it! Yet not preventing double taxation for those impacted.
@Blaze
The “BoJo + Ginny’s ADCS letter” story in Robert Wood’s Forbes column is awesome – what a coup!
There is a very sympathetic BoJo article now out in the UK’s Financial Times by Lisa Pollack!
She sounds like a US expat living in UK. You can tweet her: @lspollack
Her email at FT is below. Suggest you send her Ginny’s letter and Wood’s article as well.
I’ll write to both these journalists later today to encourage more coverage.
http://www.ft.com/cms/s/0/456dec30-7372-11e4-a257-00144feabdc0.html
“Notebook: An American expatriate shares Boris Johnson’s tax pain”
by Lisa Pollack
lisa.pollack@ft.com
Twitter: @lspollack
“‘Oops-Americans’ need to be warned that they face a life of torturous paper-pushing”
“As something of a bleeding-heart leftie, finding myself cheering for Boris Johnson is awkward at best. At worst it has potential to trigger a mild identity crisis and with it a sudden urge to personally thank a National Health Service nurse, become a member of a co-operative and possibly even join a union. Maybe this will make me feel better about the air punching I did when I heard London’s Tory mayor tell a US radio host that a bill from the American tax authorities was “absolutely outrageous” and that he’s not going to pay it. “I support Boris in his refusal to pay capital gains tax in the US on the sale of a primary residence in the UK!” – is that a punchy enough slogan for a T-shirt? I may get one printed anyway.”
@JC, the annual filing for me had I retained my US citizenship and non-US mutual funds and private pension plan would have risen to at least £3000 per year, with tax returns of approximately 300 pages. And this would have been considered ‘cheap’, given the complexity. With full consolidation into a US-compliant portfolio, I would have continued to face annual tax preparation bills of at least £1500, though my accountant explained that with FATCA looming, they would have thought it too risky not to start filing the foreign trust forms for the pension plan. These are very expensive to prepare and file. This is when I knew I definitetly wanted out: when I realised to my horror that there would be no way to simplify my situation enough to make ongoing compliance affordable.
Before FATCA, I could have probably found a more sympathetic accountant who would have been willing just to treat my investments as ordinary dividends or capital gains/losses, etc. But by the time I discovered my predicament, all the tax preparers were adament that I would have to file by the book, via the PFIC 8621 forms because FATCA simply would make it too risky for both them and me to not do so. It is the enabler for citizenship-based taxation to be enforced internationally.
@Wondering, I appreciated Lisa Pollock’s sympathetic article but still find it somewhat naive in that I’ll bet that in fact the vast majority of at least middle class Expats living in affluent cities such as London or Vancouver would actually wind up owing taxes to the US; most of that economic level would be hit with PFIC taxation or capital gains taxes on real estate due to the incompatible tax systems. I’d imagine that most upper middle class people would have investments in mutual funds where they live!!
There’s also the foreign trust problem involving locally held retirement plans. I’m afraid the US is going to enjoy an extra source of revenue both in extraterrestrial taxation as well as fines for various obscure forms not having been filed. The compliance condors must be rubbing their hands in glee!!!
I desire so much for Boris to come to our aid and speak out but am afraid he will batten down the hatches and stay silent going forward…it may very well be Everyman out for himself. I feel revulsion and horror. I feel that someone in his position has a moral duty to use his political clout to stand up for what is right but am afraid he will look out for number one.
I’m guessing that people who renounced before 2014 should slip through but that things could get really hairy from about 2017-2018 when FATCA will start to be heavily enforced, as I understand that the US will make some allowances for the first couple of years as a grace period of adjustment; however, could imagine nasty audits or at least warning letters starting to arrive enmasse sometime in 2017 or 2018. They will start receiving information on foreign accounts in 2015 but it will take some time for the IRS and FINCEN to sift through the mountains of data.
I hope and pray that the Challenge will make a difference. At least one good thing is that the Boris Johnson case will bring all this far more to the public’s attention. I still bet though that Boris will be let off with a vastly reduced tax bill because to aggressively pursue him would cause a diplomatic incident with Britain.
@JC
In another tax twist as noted by Robert Wood:
“True, and now that I think about it, it is fairly common for tax planners to try to have a particular item treated as one thing under one country’s tax system and as something quite different under another’s.”
What is a principal residence in one country may be designated as an investment in another.
@trishamoon
“(I don’t live in the US & not being able to deduct the interest has no effect on my tax situation)”
I’m way out of my element here but shouldn’t you be able to get the US deduction for mortgage payments if they are going to charge you tax on the gains. I don’t think any of this is fair in the first place but to me it doesn’t jive.
With the disability thing. If you are self employed and buy disability insurance (not your employer) you don’t have to claim the premiums as a deduction. If you don’t, them any payouts in the future used to be tax free???
I’m sorry this probably isn’t worthy of notice. I just found it interesting and wrong.
I think I have finally lost it – reduced to using ad hominems even, and duking it out with some idiot (yes I called him that and now it is HIS favourite word for me) who calls himself ‘the viceroy’s gin’ at: http://blogs.spectator.co.uk/coffeehouse/2014/11/boriss-taxing-dilemma-relinquish-his-us-passport-or-pay-american-tax/
LOL
By the way, Ginny’s letter on Forbes is great. Maybe the cause is finally getting legs…perhaps wings. Congrats
Whether Boris complies or not, his action (or inaction) would be a reasonable response to a law imposed on him by an immoral nation. Whichever route he takes, he’ll be accused of not acting with moral guidance. Poor rich Boris.
@Cheryl
I don’t know the answer to whether one “should” be able to get the US deduction. The problem is there are two different tax systems which simply are not compatible.The issue of capital gains on the sale of our homes is something that the CDN govt should have covered in the Tax Treaty. Obviously, it is not fair.
There is no such thing as not being “worthy of notice,” Are you saying that the payouts are now taxable?
If so, then of course, you would be right. I am not aware however, that anything has changed in that regard. If you do not take the deduction for payments to a disability plan (whether SE or not SE), then you do not pay tax when you receive the benefit.
Tricia, I just know the way it used to be but am uncertain if there have been any changes. Thanks for responding. It makes sense to just look at it as incompatibility of the two tax systems. They just choose what they want to add, fair or not. Of course, the whole thing is not fair but that’s the whole point.
@WhiteKat,
You got your butt kicked. You have to admit that he is just a far better idiot than you will ever be.
@Neil
The Kat won that big time. Mr. Gin gave her a million chances to get the word out. V.Gin is food for the soul. When you fail to meet up with idiots the conversation just dies and the issues go unspoken.
Great JOB Kat…a good days work before breakfast!
@Charl, You mean before LUNCH don’t you?
And I think Neill was trying to say that I got my butt kicked in the ‘who is the biggest idiot?’ contest. You gotta admit, the viceroy won.
@Kat
Man, lunch already?? Notice how the time flies, how this mess is sucking up all the energy that should be spent living ones normal life. So very sad.
@WhiteKat
Nobody beats our Whitecat.
@Wondering
Thanks or the link. I particularly like this from the article:
“Oh wow, I spent the whole weekend trying to figure out how to do the alternative minimum tax calculation for foreign tax credits. I think my brain may have started bleeding out of my ear. Have you filed yet?”
OK, I know nothing more than the next person (or much less if they’re an accountant), but I have been struggling with this system for years, so I’ll give my impression of the tax problems being discussed above for a USC living in the UK. This is only my understanding, and it may well be wrong.
Mortgage payments:
For those in the US, they may reduce their taxable income (AGI), yearly, by deducting mortgage payments made during the year using Itemised Deductions on Schedule A.
For us abroad, we may also reduce our AGI, yearly, by using Schedule A just like those in the Homeland. The problem for those in the UK is we pay tax at a higher rate than the US and depend on Form 1116 to create FTCs (Foreign Tax Credits) to offset any tax due. We could reduce AGI using Sch. A, but 1116 will refigure FTCs since items from Sch. A are included in the calculations to reduce income available for FTCs. Using the Itemised deductions on Sch. A gains us nothing. Clear as mud? Trust me, it’s very seldom worth using Itemised Deductions.
The upshot – the Homelanders get lower AGIs and therefore have tax calculated on a lower amount of income; we get sufficient FTCs to pay no tax _IF_ we live in a country with higher tax rates.
Profit from sale of primary residence:
The UK has no Capital Gain Tax on the sale of a primary residence located in the UK. Non-UK resident UK citizens have a tricky 3 year to 5 year window in which they may be liable, but at all other times, they pay no CGT.
The US taxes the gains made on the sale of a primary residence anywhere in the world if it’s above the $250,000/$500,000 exemption, and after deductions for costs.
There are ‘things’ called QBU’s (Qualified Business Units) in the US Code. This is the vehicle to reduce a tax obligation. It can be applied to homes. Don’t ask me any more, because I’ve no idea.
UK Council Tax versus US Property Tax:
In the US, a person may deduct State and/or local (depending on the State) property tax they have paid during the year on Schedule A, Itemised Deductions. For Federal returns, the tax must have been assessed on the value of the property and on the OWNER of the property. Using Sch. A results in a lower AGI as above.
In the UK, (and I must stress, this is the opinion of conservative tax accountants) a local Council Tax is levied according to the value of the property on THE OCCUPIER of the property. Think Landlord/Renter. A part of the rental agreement may be the renter (occupier) pays the Council Tax.
Upshot – A UK Council Tax payment may not be used to reduce income on a US tax return. The US taxes the owner, the UK taxes the occupier (which may be the owner, but that doesn’t count). The UK tax is not the same type of tax as the US tax, and is therefore not recognised. This has ramifications for 1116. You can not include in foreign taxes paid a tax that the US does not recognise.
If you get it wrong, will the black helicopters be circling above your house? Will the IRS audit your return? Will the IRS even care if it’s a small (subjective) amount? Will you lose LCUs if you do include it, by worrying? Why are you doing this to yourself? And, who knows, except you’re not supposed to include it.
Stamp Duty in the UK
For the US – What is that? Never heard of it, don’t recognise it.
For the UK – When a house is purchased, the buyer pays what is known as Stamp Duty (a tax, if you will). It is levied against the value of the property, and can be £0, £2,000, £3,000, or more. It can never be included in a US tax return, because the US does not recognise it. It can be used as a ‘cost’ when selling the property to reduce the amount of profit when figuring CGT on a US tax return.
Foreign (in US terms) Mortgages and section 988 on currency exchanges:
Again, practised by conservative tax accountants. Will the black helicopters arrive if you don’t adhere to this? Most likely, AT THIS TIME, no.
You borrow £200,000 from the bank to buy a home, a mortgage. When you take it out, it’s value in $US is $350,000. You have 25 years to repay it. You make all 300 payments, in £’s. The mortgage is now paid off. When you add up all the payments made, at the exchange rates in force when the payments were made, you find you have repaid a total of $300,000. You now have a section 988 gain for US tax purposes, and you owe tax on the $50,000 gain you made.
Welcome to the world of variable exchange rates, and their consequences!
The question: this law is on the books, now. It’s meant for the big players, international hedge funds, etc.. If you file a US return, should you calculate whether you have made a gain or not? Will the IRS want to know? Maybe not at this time for your meagre amount, and there’s always the chance the exchange rate moved in the other direction, but by the rules, you should. And the IRS will happily accept the money if you calculate you do owe it and do pay it. BUT, what will be the case in 5 or 10 years?
And, a little icing for the cake, unrelated to homes:
Hubby, a USC living in the UK, buys an old banger. (A car in less than desirable condition. A junker.) Hubby pays £3,000 for it because it’s a classic vintage car. He works nights and weekends on it, and 3 years later, it’s in like new condition. A real stunner. He sells it for £20,000 because it’s a classic.
In the UK, as long as the car was not used for business purposes (in the garage on jacks??), his £17,000 profit is tax free.
For US taxes? It’s a £17,000 Capital Gain, subject to taxation.
Can you believe this guy?
TheViceroy’sGin says:
“No, US birth =/= US citizenship =/= US taxpayer.
No matter how often you repeat that lie, it’s still a lie.
You idiot.
You chose your station in life, just like Blow Jo.
You idiot.”
@ WhiteKat
WOW! You really socked it to Mr. Ad Hominem. I know it was hard to keep saying the same thing over and over into the obviously deaf ears of a closed mind but each time you commented you were providing good information to those who are open minded. Chillax now, you deserve a break and I’m sure Mr. Ad Hominem has a pub date you’ve been keeping from.
@Em, Yes, as annoyed as I get, I know that there are others (perhaps the author of the original article) watching us bash it out, and absorbing the truth, little bit by little bit. We all know it so well, but there is a lot to take in for those not in the know.
@ WhiteKat
Good point about the author of the article watching. They all do I’m sure because they relish the feedback. You could well be the inspiration for more and even better articles to come. Good on ya mate! A Canadian friend of mine picked up that expression while living and working in Australia — with NO TAX HASSLE from Canada I might add.
Boris is a high earner. Back in 2013 he revealed his earnings as part of his mayoral campaign: http://www.telegraph.co.uk/news/politics/conservative/9188663/Boris-Johnson-and-Ken-Livingstone-release-personal-tax-details.html
Using round numbers, that is income of > US$500K per year. The FEIE won’t help him much so he will be forced down the FTC route. As these start getting phased out at higher income levels, he will likely have a significant AMT liability. Much of his earnings was “freelance”. I hope there is a Social Security agreement between the US and UK otherwise he might be due for self-employment taxes on that income as well. The capital gains tax on the sale of his residence might be the tip of the iceberg for him. Oh, did I even mention FBAR?
The common denominator in all this is the US tax system is not comparable with Levin, Schumer, & Co’s half baked plans.
US taxation relies too heavily on direct taxation (ie Income Tax) and not enough on indirect (ie VAT).
It’s one thing if you still have financial connections with the US, it’s quite another to have all your financial life outside of the US. You can’t live with the IRS shadow in the background waiting to pounce if you forget to file an intrusive information return or screwed up understanding some IRS tax law.
If US ex-pats have no plans to return to the US, a very public middle finger is the way to go. Hiding in the shadows forever will no generate the PR needed to state knocking out the legs of CBT for good.
IBS UK must be now set up and get this issue up the EU courts (as long as the Tories don’t vote the UK out of the EU).
Cameron & Co have to realise throwing dual citizens under the IRS is not the answer to tax collection.
Perhaps the opinion of the other famous UK ex-pats?
Ruby Wax – Actress/Comedy
Zoe Wanamaker – Actress
Bonnie Greer – Writer/Playwright/TV contributor
Barbara Cassini – Ex BA, UK Olympics
Paul Gambaccini – BBC
Hilary Anderson – BBC
Or how about Cambridge, England’s former American born Mayor Sheila Stuart?
Research will undoubtedly reveal loads more of examples in British industry, politics, and other public figures.
Boris has started the ball rolling so if there are others let reveal them.
@Don
With regard to IBS UK being set up, I am currently talking with two individuals about this direction. If you are interested, pls email me at
nobledreamer16 at gmail dot com