American Citizenship figures reflect looming FATCA influence for those with no tax plan
by Alexander Beard, on Dec 22, 2014 4:56:01 AM
Writing in Forbes, Robert W. Wood has noted two very interesting figures relating to American Citizenship figures during the second half of 2014.
Firstly, Wood notes that the US has raised the fee it charges its own citizens to renounce their citizenship from $450 to $2,350, an astonishing 422% rise. This fee is purely a transactional processing fee applied by the State Department. If you have a certain amount of wealth on renunciation, or trigger other clauses, then applicants are also liable to be charged an exit tax. The fee alone is more than twenty times the average level in other high income countries.
Secondly, Wood also notes that the number of Americans renouncing their US citizenship is on the rise. In 2013, the 2,999 renouncers represented a 221% increase. At the end of September, 2014 is already up to 2,353, with three months of figures still to collect. A survey cited by Forbes says that as many as 5.5 million Americans are considering renouncing their citizenship, though you suspect many may be put off by the recent fee rise!
The reasons behind the rise in both the fee the US charges and the increasing number of applicants are varied but all observers, including Wood, agree that the new FATCA rules the US government recently introduced are a large part in many renouncers’ thinking.
Under FATCA rules, the IRS has the ability to investigate US citizens’ international money holdings, which they can now newly do with the compliance of many territories banks. The territories involved include the UK, as well as previous tax havens, such as Switzerland.
What this means for US nationals abroad is that they are being newly swept up into tax problems they previously knew nothing about. An American by birth, for example, who has never previously set foot on US soil, could now fall under the looming FATCA shadow and end up with a tax liability from the IRS.
In order to avoid just this situation, many Americans abroad are choosing to renounce their citizenship, in some cases just to live a normal existence. Fearful of the FATCA consequences for non-compliance, some banks have declined to provide services to US citizens abroad, in case they themselves are landed with an IRS penalty. Renouncing citizenship not only takes money out of the IRS’ reach, but also frees the renouncer from rules such as this that can destroy their prospects of a normal expatriate life.
There is a viable alternative for American expatriates though. Though daunting, tax planning can mitigate many potential losses that could arise under the FATCA scheme. Keeping both your citizenship and your assets requires careful planning but, for many, is surely the dream scenario.
If you would like to find out more about the work we do with American citizens abroad, or would like help assessing your FATCA liability, please feel free to get in touch with either our UK or US offices, via any of the methods on our contact page.