Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two
Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part One
I said:
“for a third group, all that matters is the fact that their US citizenship ends with the swearing of the oath. ”
More accurately, there’s two groups:
(A) those who are concerned about US law post-renunciation, and
(B) those who are only concerned about their own country’s laws.
Those in Group B can just renounce: make the appointment at the US consulate, gather the required documentation, keep the appointment, pay the fee, swear the oath, job done. FATCA problem solved, stresslessly.
Those in Group A can do the same as Group B, or they can opt to file the 1040NR and Form 8854 in the year following the year of renunciation – whichever they think best. They just need to be aware that they have the choice.
@kabby, it is perfectly normal to have this roller coaster of emotions. One never knows where life may lead but you can only deal with the here and now. And there are other routes back to the USA if the need arises just like there is for everyone else. It is shame the USA puts their citizens through this emotional roller coaster. People do tend to feel better once the appointment is over.
@plaxy, Options have been discussed here many times. The option to file in most cases as nothing to do with following laws. Some people may still have US source income, US stock, US pensions, business interests. Some may know they will expect a US inheritance in future or some may have US heirs, some may want to keep the option open to return some day on a work visa or green card. some have jobs that may require frequent travel to the USA and want to feel comfortable that they exited the system properly or some have jobs in finance where it would not look good to not be complaint with tax laws. Some have no ties at all and some are accidentals. Some are more predisposed to worry than others.
There are even options when filing, just file a form 8854 for example. Everyone needs to weight up their own situation and make the best decision based on these facts. For some this is indeed not to file and the best option for those with no social security number or have never filed.
“Did you feel sick and regret once you sent off the renunciation forms? One part of me says Phew the other says gosh what have I done”
It took about 3 days for my regret to change to Phew.
UKRose:
“The option to file in most cases as nothing to do with following laws.”
The point is, if a person isn’t concerned about US law they don’t have to think about US tax forms at all.
This is the main distinction. People with US interests and links such as you mention, obviously are concerned with US laws and may or may not need to / want to consider whether to file US tax forms post renunciation.
People who don’t have such interests/links, needn’t. It’s simply not necessary.
People who aren’t concerned about US law, but just want to lose the citizenship legally and validly, often get very confused by the tricksy IRS “gotcha” regulations aimed at rich US leavers, the predatory “advice” on tax condor websites, assuring them that renouncing is a very difficult matter requiring professional advice to accomplish “safely”, and the extraordinary but undeniable fact that their own government apparently agrees that they should have been paying taxes to a foreign country.
Take for example a UK citizen who owns a small corporation. He discovers that his bank considers him tax-resident in the US because of his birthplace; his accounts are going to be reported to the IRS as “foreign” accounts unless he gets hold of a CLN.
He starts exploring how he can get a CLN, and suddenly he’s reading that he “can’t” renounce without backfiling five years of US taxes, paying retrospective US tax on the last 30-odd years E&P of his corporation, and filing Form 8854 to let the US decide whether to tax him also prospectively on future income from worldwide assets.
He needs to know that he can just renounce, and it’s quick and easy and stressless to do it, and he doesn’t need to give the IRS a thought.
Of course renunciation may not be so simple for those with US links and ties; they may have additional issues to consider.
They just need to know (a)that all they have to do to lose the citizenship is renounce, and that renouncing is easy though expensive, and they have a right under international law to do it.
@Kabby
Reasonable: wondering whether you should renounce if you might one day wish to return to the US.
Not reasonable: worrying that something terrible will happen if you don’t remember your past residence dates, or that you will magically receive a huge bill from the IRS, or that you will be blacklisted for cancelling an appointment and hauled in for interrogation every time you land.
Make a spreadsheet and list the pros and cons of the following four options:
1. Keep US citizenship and continue to file.
2. Keep US citizenship but stop filing.
3. Renounce US citizenship and file exit tax paperwork
4. Renounce US citizenship and ignore exit tax paperwork
The answer will depend on your future plans, US financial ties (pension, investments, etc.), difficulties in UK caused by US birthplace (i.e. need for CLN), and personal risk tolerance or anxiety issues. The more you can educate yourself about the real-world situation vis-a-vis the enforcement of US laws, the better.
If you treat this like a math problem and leave out the emotional issues, you’ll sleep better.
@ Kabby
Please don’t worry about a red flag at the embassy. When my husband went for his appointment there were about 10 people waiting for their less than 10 minute renunciation interviews (his was only 3 minutes total). One of them broke down in tears and said she couldn’t do this today and walked away from her appointment. I’m absolutely certain that if she returned at a later date the staff would not have cared at all about her previous cancellation. It’s a big decision and you only know what you know at this moment to decide what to do.
One aspect of my husband’s decision to get a CLN was healthcare. After spending more than half his life in Canada WITH universal healthcare and the other half in the USA WITHOUT health insurance most of that time, and considering the possibility of needing access (without bankruptcy) to healthcare as he grew older, he knew which side of the border would be home for him and therefore there really wasn’t any need to cling to his US citizenship. Also, his last family member (mother) passed away so there would be no more trips down there to help out. Whatever course you end up following we all wish you the best.
@Kabby
I see that you have much to read through here, but would just like to add a piece of practically. You say that you are near to retiring and you have doubts about health care costs, etc. If you do not have 10 yrs(40 quarters) of social security, you will not qualify for medicare there once retired. I was in the medical field and believe me it is pretty much impossible for a retired person to get health insurance without medicare. The insurance companies are not interested in taking the risk. So unless you are prepared to pay privately you are pretty much uninsurable as a retiree. Though not perfect, at least the UK has the NHS.
@Kabby
Another note of practicality, leaving emotion aside, what do you need your US citizenship for, what does it offer you?
The problem is we have all been led and conditioned into believing that US citizenship is precious, something to be valued and cherished full of opportunities. But really , ask yourself, what does it offer you now at this time in your life? Do you need it, will you be better off without it?
@Heidi, KingOfTheRoad, Dychesse,Nonoymous,plaxy,UKRose,Meaea Fleecestealer,NormanDiamond,Nonymous,Embee. Thank you so much for all the wonderful advice and words. Another sleepless night and my head spinning about am I am doing the right thing or am I not. Should I cancel and wat (but for what) or should I prcoeed.When I receive that e mail from the Embasyy acknowledging my renunciaiton forms, how will I feel and what nex?. It seems most on here have no regrets about renouncing but like me went through the roller coaster emotional ride and intesting to know of others stories and some even cancelling and rescheduling.Thanks for the idea about the spreadsheet but options 1 and 3, I would only feel conformtable with and not sure how one could keep US citizenship and suddently just stop filing tax returns or FABAR’s. The quote about renouncing saying “but being at pease does not equal being happy about a choice just satisfied” is very apt. In my case I an soon 63 and so close to retirement and so not sure the US is the best place to retire as one gets older. I would qaulify for Medicare in the US as having paid into the social security system for over 27 years but apart from that I have now, no family ties there,no family there, no finacial ties or penstions that would come form there only a bank account which I would close once renounced and the quesiton of health care in older age is very relevant to me and anyone else I guess aass we age. I actually got a quote for helath insurance out of interest before I took the decision to renounce and the quote came in for a 60- 65 year old at $1,078 a month with a $7,500 deductible and on top then you had co pays and such like!!! Add on top your homes property taxes and its a sizeable chunk to pay out each month. Obvioulsy once reaches 65 I would qualify for Medicare buit that is not free I have read and they take the monthly premium for Part B from your monthly social security cheque a minummum of $148 a month and up to around $400 depending on income. That is something retiring back to the US I had to consider whereas in the UK and Canada and most westernised countries in the world who have a national helath scheme where the health care is free or very reduced in cost and as Heidi says although not perfect its there for anyone. I have no family ties in the US anymore only friends and so the question ” what does US Citizenship offer me at this time in my life is a great question and something I am trying to find the answer! Possibly now just some friends and maybe if one moved to say one of the palces like Florida a warm climate but that is all.I read somewhere that health costs in the US are one of the biggest reasons for bankrupcy and a retired couple aged 65 needed to set aside even wth traditinal Medicare over $200,000 for health care costs in old age. Duchesse said “what if’s are reciopes for misery, a feel great solution is not likely and very apt. I guess it is a process of soul searching but once free I am sure being free of any future legislation and rules and worry that the US taxation system and its laws brings upon those that live outside the US must be a relief even though it maybe tinged with some sadness in giving up what some are clambering to get.
Kabby
“…no finacial ties or penstions that would come form there ”
Presumably you’ll have a SSA pension since you say you paid into it for 27 years. You may want to be aware, if you aren’t already, that
(a) This is likely to be subject to WEP, assuming you’re also going to receive the UK State Pension (whichever country you live in; and
(b) Both the SSA pension and the UK State Pension are taxed exclusively by the country of residence; this is protected from the Saving Clause. (Art. 17(3))
@plaxy. Yes sorry, I do realise the social security will come from the US the equivalent of the UK pension but nothing else. What is a WEP? I have no idea how much the SSA is taxed in the UK.
Kabby – WEP is the US Windfall Elimination Programme (or maybe Provision – not entirely sure what the P stands for). It reduces your SSA benefit if you’re receiving a non-SS-contributory pension, as I understand it. The SSA has calculators on its website which should be able to give you an approx prediction of your benefit, allowing for the WEP reduction.
The SS pension when paid to a UK resident gets taxed by HMRC at your top rate. The UK State Pension is paid gross but taxed via PAYE at 20%, by reducing your Personal Allowance.
@Kabby, this may not be relevant any more since it happened many, many years ago now, but if you’re having trouble getting the tax side sorted out you could try the Citizen’s Advice Bureau to see if they can help. When my mother was receiving her widow’s pension from the US the UK wanted to tax it horribly, but luckily there was a retired accountant at the CBA who was happy to take it on and prove their figures wrong. As said this was many years ago, back in the 70s/80s, but it never hurts to ask.
Medea – that was probably the 10% of a foreign pension that used to be non-taxable. It was eliminated last year. Nowadays, the whole of the SS benefit is taxed at the taxpayer’s top rate.
Not significant for me, as 10% of my small SS pension isn’t much. But it could be a sizable difference for a larger benefit.
@MedeaFleecestelaer,plaxy. Thanks. I dont have any private US pesnion only my US social security and thanks for the (CBA)advice inf.Is that citizens advice bureau? I had no idea that US socal security was taxed when this was taken from earnings already taxed! My focus right now isn’t on that, its dealing with the renunciaitin and the emotional roller ride its causing and gettitng that out of the way. Not heard from the embassy yet and still going back and forth have I dont the right thing but I think I just need to say the decison is made and go forward. My stomach is in knots but it seems many have felt the same going through this. Appreciate your comments as I do everyone.
Kabby –
“I had no idea that US socal security was taxed when this was taken from earnings already taxed!”
Are SS taxes taken from earnings already taxed? I thought not, but I may have been mistaken.
I understand US SS is partly exempt under US tax law. But when received by a UK resident, it’s taxed as a foreign pension under UK tax law.
Investopædia says no:
https://www.investopedia.com/ask/answers/081915/how-social-security-tax-calculated.asp
@plaxy. So the US social security if you are resident in the US or say retire back to the US is not taxed when you receive it but if stay in the UK it is taxed by the UK?
Kabby –
Correct. If you live in the US and receive social security from both the US and the UK, the US pension is treated by the IRS as social security, and the UK pension is treated by the IRS as a foreign pension.
If you live in the UK and receive a social security pension from both the UK and the US, the UK pension is treated by HMRC as social security and the US pension is treated by HMRC as a foreign pension.
@plaxy Im talking abouyt only a US Social security. So the US social security if you are resident in the US or say retire back to the US is NOT taxed when you receive it in the US if you are living there but if stay in the UK the US Social security is taxed by the UK? What happens if I have renounced my US Citizenship. Does that mean I wont get my US Socail seecurity or is thee no difference between being a US citizen or non US citizen as far as social security payments
Kabby
“Im talking abouyt only a US Social security. ”
If you receive it while living in the US, it’s taxable by the US, the same as for other US residents. I understand it’s partly exempt but I don’t know for sure.
If you receive it while living in the UK, it’s taxable by the UK and there’s no exemption.
Renouncing US citizenship doesn’t affect your US SS, under the US-UK treatied.
Under the US-UK treaties, I meant to say.
In a nutshell:
whichever country you retire to – the US or the UK – you’ll get taxed more favourably on the social security you get from that country, and less favourably on the cross-border pension.
@plaxy
My US SS is taxed with a 15% withold in the US. I get a tax credit for this in Switzerland per the treaty which actually works out better for me than being taxed living in the US