Renounce US Citizenship from the UK
For many American expats permanently living in the UK, experiencing US tax obligations can be confusing and stressful. This burden has led some to consider renouncing their American citizenship in the UK to escape these pressures.
WHY ARE SO MANY GIVING UP THEIR U.S. CITIZENSHIP?
DOUBLE TAXATION
Tax treaties can help with double taxation, but they don’t cover everything. Selling your home in the UK, Australia, and many other countries can carry a large US capital gains tax bill with it.
EXPENSIVE FEES
Only a few years ago, the admin fee to renounce your US citizenship was $400. That fee is now $2,350 and could go beyond $5,000 in the coming years.
FINANCIAL FREEDOM
Investing for your future outside of the US can be an expensive ordeal due to heavy restrictions, tax compliance costs and additional taxes.
ACCIDENTAL AMERICAN
Little or no connection to the United States comes with a heavy tax burden, which to many, is reason enough to renounce their citizenship.
How do I renounce my US citizenship in the UK?
Initially, schedule an appointment with a US Embassy or Consulate. During this appointment, you will complete several forms, including the DS-4079 (Request for Determination of Possible Loss of United States Citizenship) and DS-4080 (Oath of Renunciation of the Nationality of the United States).
To book an appointment in the UK, use this embassy link:
https://uk.usembassy.gov/u-s-citizen-services/citizenship/loss-of-u-s-citizenship-i-e-expatriation/
You can renounce at the US embassy in London or the US consulate in Belfast.
The US consulate in Edinburgh does not accept appointments for citizenship renunciation.
What does renouncing U.S. citizenship entail?
Renouncing US citizenship means formally relinquishing your nationality through a legal process. This decision is irreversible; some common motivations include avoiding complex US tax obligations, political disagreements, or wanting to integrate fully into life in another country.
Who is eligible to renounce U.S. citizenship?
You must be an adult with citizenship in another country and be up-to-date on U.S. taxes. It’s essential to understand the consequences of your decision entirely.
You should already possess citizenship in another country, as the U.S. government aims to prevent statelessness. Holding another citizenship before renouncing your U.S. citizenship ensures you have the legal rights and protections of a citizen in another country.
Renouncing your U.S. citizenship is a complex and irreversible process. It’s essential to understand the legal and tax implications thoroughly. Consulting with a tax professional or legal advisor specializing in citizenship can provide personalized guidance and help navigate this significant decision.
Renunciation Packages
Standard Renunciation Program
If you don’t qualify for the Relief Procedure for Certain Citizens, then use this program.
1. You must have citizenship of another country.
2. You’ll need a Social Security Number, if you don’t have one, we can help.
3. Tell us if your net worth is above US$2m
Relief Procedures For Certain Citizens
If you meet all the criteria, you can use this program…
1. You’re a U.S. citizenship holder that has never filed a U.S. tax return, except a 1040NR.
2. You have U.S. citizenship but not necessarily a Social Security Number.
3. You have U.S. citizenship and your net worth is below US$2m
What if I’m way behind my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties.
STREAMLINED AMNESTY
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years!
What are the steps to legally renounce U.S. citizenship from the UK?
- Schedule an Appointment: Contact the London U.S. Embassy or Belfast Consulate to schedule an appointment for renunciation.
- Complete Necessary Forms:
- Fill out Form DS-4079 (Request for Determination of Possible Loss of United States Citizenship).
- Complete Form DS-4080 (Oath of Renunciation of the Nationality of the United States).
- Don’t sign the forms until you’re in the presence of an officer during your interview.
- Attend the Interview:
- Go to your scheduled interview at the U.S. Embassy or Consulate.
- Discuss your reasons for renouncing citizenship and understand the consequences with a consular officer.
- Pay the Renunciation Fee: A fee must be paid for processing the renunciation and paid during the interview. The fee is currently US$2,350, but it used to be $450, and it’s currently under review at the time of this article’s publication.
- Take the Oath of Renunciation:
- Formally renounce your citizenship by taking the Oath of Renunciation.
- This step is irreversible, so ensure you are fully committed to this decision.
- Final Tax Responsibilities:
- Get specific US tax advice to check if you’re a covered or non-covered expatriate.
- File your final dual-status tax return (Form 8854) with the IRS.
- Settle any outstanding tax obligations.
- Receive Certificate of Loss of Nationality: After attending the embassy, you will receive a Certificate of Loss of Nationality, confirming your renunciation, which is also required to finalize US taxes.
Do I have to file my US taxes before renouncing?
No, but it’s a good idea to start your US tax compliance journey while waiting for your embassy appointment. Gathering all the documents and statements to prepare multiple years of US tax returns can take time.
It’s highly advisable to speak with a US renunciation specialist, so you’re fully aware of your US tax situation.
What are the financial implications of renouncing US citizenship?
The financial implications primarily involve tax obligations and the potential imposition of an Exit Tax. Here’s a more detailed look at what this entails:
- Up-to-date Tax Obligations: There are two parts to giving up US citizenship. The first is to attend a renunciation interview at a US embassy or consulate, as discussed. The second is to exit the US tax system. You must ensure all your tax affairs are in order. This includes filing your final tax return and settling any outstanding taxes with the IRS.
- You’ll need to have your last five years of tax returns filed with the IRS in addition to the year you renounce.
- Complying with all tax obligations is crucial to safely exiting the US tax system, without delay or penalty.
Why do I have to file US taxes when I live in the UK?
The United States requires you by law to file a US tax return each year, regardless of where you live. The US tax system is based on citizenship, not residency—meaning you must report your worldwide income even if you’re living abroad.
The fact that the US follows a citizenship-based taxation system often leads to confusion for expats who are used to the residency-based systems of other countries.
Do I need to be tax compliant to renounce my citizenship in the UK?
Yes. However, to renounce your US citizenship while living in the UK, you need to complete a two-step process. First, you must schedule an interview with the US Consulate. Second, you need to ensure you’re tax compliant, which involves specific steps to inform the IRS that you’ve given up your citizenship.
Read more about the process here.
What is exit tax and who pays it?
Exit tax is a tax imposed on US citizens or long-term residents classified as “covered expatriates” when they choose to renounce their US citizenship or give up their Green Card.
But not every US expatriate is subject to this tax; only those who meet specific criteria are considered covered expatriates.
These criteria include meeting one of three tests: a net worth test, an average annual net income tax test, or a failure to certify compliance with US tax obligations for the five years before expatriation.
Learn more about exit tax and covered expatriate here.
“The main pros were these financial freedom…”
What’s the process like when you renounce your U.S. citizenship?
Hear it from Stephen, a bonafide American who gave up his citizenship.
Read more about Stephen’s story here>>
Am I a covered or non-covered expatriate?
Generally, a Covered Expatriate will have to pay Exit Tax. A non-covered expat does not.
If you fail any of the following rules, you’ll be deemed a Covered Expatriate, and Exit Tax may apply to you.
To determine your status, you must assess your situation against three criteria:
- Net Worth Test: If your net worth is $2 million or more on the day of your expatriation, you are considered a covered expatriate.
- Tax Liability Test: This test looks at your average annual net income tax for the five years ending before the date of expatriation. Your average annual net income tax liability for the 5 tax years ending before the date of expatriation is more than US$180,000 (for tax year 2023)
- Certification Test: You must certify on Form 8854 that you have complied with all U.S. federal tax obligations for the five years preceding the year of expatriation. Failure to do so, regardless of your net worth or tax liability, results in covered expatriate status.
Being a covered expatriate has significant implications. The Exit Tax is calculated as if you sold all your assets at their fair market value the day before expatriating. This “mark-to-market” regime can lead to a substantial tax bill, even if you haven’t realized any gains in the traditional sense. It also includes deferred compensation items, specified tax-deferred accounts, and non-grantor trusts.
In contrast, non-covered expatriates do not face these taxing provisions. They can renounce their citizenship without the immediate tax consequences imposed on covered expatriates. However, they must still settle any outstanding U.S. tax liabilities up to the point of expatriation.
Here are the key points:
- Exit Tax: (or expatriation tax), is a critical financial aspect to consider. This tax applies if you meet any of the following criteria:
- Your net worth is $2 million or more on the date of expatriation.
- Your average annual net income tax for the five years ending before the date of expatriation is less than US$180,000 (TY 2023).
- You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the five years preceding the date of your expatriation.
- Calculating Exit Tax: If you are subject to Exit Tax, it is calculated based on the fair market value of your worldwide assets as if you had sold them for their fair market value the day before your renunciation. This includes everything from real estate to stocks and other investments.
- Form 8854 – Initial and Annual Expatriation Statement: You must file Form 8854 with the IRS to provide information on your assets and certify compliance with U.S. tax laws for the past five years. This form is crucial for determining your liability for the Exit Tax.
- Potential Tax on Deferred Compensation Items: If you have certain deferred compensation items, such as pensions or stock options, these may be taxed differently upon expatriation.
- State Tax Obligations: In addition to federal taxes, consider any state tax obligations. Some states may continue to tax expatriates under certain conditions.
Given the complexity and potential financial impact of renouncing U.S. citizenship, consulting with a tax professional or legal advisor is highly advisable. They can provide personalized guidance and help ensure you meet all requirements and understand the full scope of your financial obligations.
How do you prepare for the renunciation appointment?
Preparing for your renunciation appointment involves gathering the necessary documents and mentally readying yourself for the interview. You’ll need to bring:
- Evidence of U.S. citizenship (such as your most recent U.S. passport or U.S. birth certificate, if you are not in possession of a U.S. passport)
- U.S. Consular Report of Birth Abroad, if applicable
- Bio-pages of all current foreign passports
- Certificates of Naturalization for any country, including the United States, if applicable
- Certificates of Citizenship for any country, including the United States, if applicable
- Evidence of any name changes, if applicable (for example, your marriage or divorce certificates, court orders, or deed polls)
- Completed form DS-4079
- Completed Loss of Citizenship Questionnaire
- Completed Informal Loss of Citizenship Acknowledgement, which must be signed/dated and sent as a scanned document.
What are the consequences of renouncing U.S. citizenship?
Immediately, you lose rights and privileges like living and working in the U.S., and protection from U.S. embassies and consulates. Depending on your financial situation, you’ll also need to settle any outstanding taxes and might face the Exit Tax.
“You don’t need a lawyer, just fill in the forms and there shouldn’t be a problem…”
What’s the process like when you renounce your U.S. citizenship?
Hear it from Jenny, a bonafide American who gave up her citizenship.
Read more about Jenny’s story here>>
After renouncing, can I still travel to the United States?
Yes, but you’ll need an ESTA visa like any other British citizen. The Electronic System for Travel Authorization is a requirement for all British citizens under the Visa Waiver Program. It allows you to stay in the U.S. for up to 90 days for tourism or business purposes. Remember, renouncing your U.S. citizenship changes your entry requirements, so it’s crucial to ensure your ESTA is approved before your travel. This process is relatively straightforward but requires attention to detail to avoid any travel disruptions.
What about claiming Social Security?
Renouncing US citizenship does NOT remove your Social Security entitlement. If you have accumulated enough credits, typically 40 quarters of work in the U.S., you remain entitled to these benefits. However, the payment of these benefits can be subject to specific rules depending on your new country of residence. For instance, non-U.S. citizens residing outside the United States may face certain restrictions or additional requirements. It’s important to understand that while your entitlement remains, the process of claiming these benefits might differ. Consulting with a financial advisor or a tax professional who specializes in expatriate affairs can provide clarity and ensure you receive the benefits you’re entitled to.
What are the next steps after renouncing my US citizenship?
After you’ve renounced your U.S. citizenship, there are several tasks to handle:
- Certificate of Loss of Nationality: You’ll receive this document as official proof of your renunciation.
- Visa and Residency: As a non-U.S. citizen, you’ll need appropriate visas for any future travel to the U.S.
- Financial Planning: Reassess your financial plans with a professional tax advisor, especially regarding pensions, investments, and banking, to align with your new citizenship status.
- Social and Cultural Adaptation: Embrace the local culture and community in the UK by building new networks and relationships.
The journey after renouncing U.S. citizenship involves careful consideration of legal, financial, and personal aspects. It’s advisable to seek guidance from a tax professional or legal advisor to navigate these complexities. They can offer tailored advice to ensure a smooth transition into your new life as a non-U.S. citizen.
Why work with Expat Tax Online?
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CLIENT MANAGER
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