The £97k Lesson: Renounce Early—or Pay the IRS
Ben & Liza, dual UK–US citizens, sold their UK home to retire—then lost £97k to a surprise IRS capital gains bill; renouncing a year earlier could have avoided it.
British Couple’s UK Home Sale Triggers £97,000 U.S. Tax Bill
LONDON — Ben and Liza thought downsizing their UK family home would set them up for retirement. Instead, because Liza holds US citizenship, the couple were hit with a £97,000 capital gains tax bill from the Internal Revenue Service (IRS).
In Britain, most homeowners don’t pay capital gains tax when selling their main residence. But the United States taxes its citizens on worldwide income, including gains from a UK home sale. Liza—born in California but resident in Britain since age five—says she had “no idea” her American passport could reach into their UK nest egg.
Hunting for ways to cover the liability, Liza considered taking the UK pension 25% “tax-free” lump sum—only to learn the IRS would tax that too, a double whammy that would have made the bill even worse.
Advisers say timing can be decisive. Had Liza renounced US citizenship the year before the sale, she would not have been liable for the IRS charge—saving the full £97,000. Renunciation is a serious step that involves fees, paperwork, and, for some, potential “exit tax,” but for Ben and Liza the lesson is brutally simple: plan early, or risk a costly surprise.
Related: Boris Johnson’s IRS cautionary tax tale
Former UK prime minister Boris Johnson faced a similar cross-border trap, settling a US capital gains bill in 2015 tied to the sale of a London property years earlier; he later renounced US citizenship.
The episode underscored how US tax can reach British residents with American passports.
After the hit: why renounce if the horse has already bolted?
For Liza, the answer was simple: the bill was paid, but the US tax obligations wouldn’t stop.
Annual US tax returns—on very low income. Because her husband isn’t a US citizen, Liza would file as Married Filing Separately. That status carries a $5 filing threshold—meaning almost any income in retirement would keep her filing US returns every year.
FBARs to the US Treasury. Liza would also have to file an FBAR annually, reporting her UK bank and savings accounts and their highest balances—with potential civil penalties that can run to $10,000+ for late or incomplete filings.
Pension planning constrained. The UK’s 25% pension lump sum may be tax-free in the UK, but while Liza remained a US citizen, the IRS would tax it—turning a UK perk into a U.S. liability.
💭 “With the UK rules we’d planned for one retirement,” Ben said, “but the US rules kept dragging us into another.”
Liza decided there was little upside to keeping her US citizenship. She worked with Expat Tax Online to renounce and exit the US tax system—meeting the compliance tests so there was no IRS “exit tax.”
💭 “I wish we’d understood all this a year earlier,” Liza said. “But at least now our retirement planning matches the country we live in.”
Considering renouncing US citizenship? Get a quote today.
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