Renunciation of US Citizenship – Potential Tax Consequences
This is a very personal and serious decision, but one we are receiving an ever-growing number of inquiries about.
Once you have made the decision you wish to renounce your US citizenship, you need to consider the tax implications. The extent of any additional tax liability and the method of its calculation are dependent upon whether you are defined as a “Covered Expatriate.” If not, you are simply assessed for tax through the preparation and filing of annual and final tax returns.
If you are defined as a “Covered Expatriate” then you are subject to additional tax liability on the increase in value of your “property” (capital gains) using a revaluation methodology called “Mark to Market” on the day prior to renouncing your US citizenship. Essentially your property is revalued to market value as at the day before renouncing your US citizenship and you are assessed on the gains as though they are realized.
Definition of a “Covered Expatriate:”
A Covered Expatriate is primarily defined by average income over the last five years or the total value of property. It is recommended that you take advice as to whether you meet the definitions and/or any of the exceptions apply to you.
If renouncing in 2015, you are considered to meet the definition of Covered Expatriate if:
- Your average tax payable for the last five years is US$160,000 or more, or
- The total market value of your property is US$2 million or more, or
- Other as defined, and
- Subject to specific exceptions as defined.
To renounce you must be compliant from both an IRS and FATCA perspective, in that you have filed your last five years’ tax returns and your last six years FBARs.
If you are currently not compliant from an IRS and FATCA perspective, it may be worth considering achieving compliance via streamlined filing (three years tax returns and six years FBARs) as this provides a window of two years being IRS and FATCA compliant in which you can make the decision to renounce or not.
The above is a relatively simplistic guide, and if you are seriously considering renouncing your US Citizenship we recommend you contact the team at US Global Tax and ascertain the requirements as they relate to your specific circumstances:
- Current level of IRS tax compliance
- Current level of FATCA compliance
- Any additional potential tax liability
Call us – We are here to help you.