As it is now more than five years since I renounced my American citizenship and the front door has not been breached by a SWAT team, it now seems safe to publish this account I wrote in 2018.
One venue the current U.S. president is avoiding this week is the gleaming U.S. fortress embassy in New Covent Garden, which you have to penetrate in order to renounce your American citizenship. In 2012, worldwide, fewer than a thousand Americans jumped ship, but since then the number has trended sharply upward, more than 5,000 in each of the past two years.
Monty Python’s Terry Gilliam turned in his passport to protest the policies of George W. Bush. Boris Johnson renounced too, presumably for less noble reasons. Both appear in the Federal Register (‘The List of Shame’, as some call it), a quarterly publication naming all Americans who have rejected their birthright. Or maybe not. Some ex-Americans say that their names have never shown up in that database. However, you will now find mine there.
The glass-walled embassy is a visual metaphor of a two-tier society. In the vast waiting room on the second floor with a sweeping view of the Thames a few renouncers lurk in black leather armchairs, watching monitor screens. Like so many animated Amazon parcels, they rise to obey the instructions of the speaking screens: “Number 0523 proceed to window 17”. On the ground level the huddled masses of ‘aliens’ as non-Americans are called, queue to beg entry visas. So I entered a sheep and emerged a goat.
There are ample provocations, political and moral, for turning in your American passport. When I emigrated from what they now call the ‘Homeland’, John F. Kennedy was the new man in the White House and Richard Burton was his avatar on Broadway. An almost tangible sense of promise shimmered in the air. In his clipped New England accent Kennedy threw down the gauntlet: “Ask not what your country can do for you, ask what you can do for your country.” And, in his rolling Welsh vowels, Burton declaimed “In short, there’s simply not, a more congenial spot, for happy-ever-aftering, than here, in Camelot.”
It’s been downhill ever since. But it was not anger at American foreign policy nor disenchantment with its political processes which forced my decision. Emotional ties restrain. I didn’t jump, I walked the plank.
How many Americans live abroad? The US is the only developed country that doesn’t attempt an official count of its absent citizens. However, unofficially, the State Department has let slip there were as many as 9 million in 2016. The Expat Network website guesstimates that more than half of American expatriates don’t bother to file the obligatory annual U.S. tax returns. Their government is now actively targeting these slackers. So why are they not renouncing in their tens of thousands? Perhaps they’re in denial, as I was. And the process is arduous.
Potential renouncers are cautioned never to mention the T-word. No, not ‘Trump’. ‘Tax’. The Immigration and Nationality Act states that if you’ve renounced citizenship in order to avoid tax, then you may still be barred from entering the United States. Which suits me, but perhaps not everyone.
“Only two countries in the world tax their citizens who live in other countries and pay taxes there. They are the United States of America and – er – Eritrea.”
Only two countries in the world tax their citizens who live in other countries and pay taxes there. They are the United States of America and – er – Eritrea. In 2015 the national media got into a tizz about the Eritrean Embassy in London, deploring the “illegal use of a diaspora tax to ‘punish and control’ Eritreans living in the UK.” The Foreign and Commonwealth Office, the Metropolitan Police and even the UN Security Council were on their case. That tax is a flat 2% of income. No such fuss has ever been made about the top 39.6% federal tax rate that expat Americans have to pay, even if they earn that income abroad and never set foot in the U.S.
I used to receive income tax forms automatically each year from the U.S. Internal Revenue Service (IRS). A couple of years after I settled in Britain they stopped arriving. A lawyer told me that a reciprocal tax agreement existed between Britain and the U.S. Below a certain level of income, which I was unlikely ever to achieve, if you paid tax in Britain it would be foregone in the U.S. So, what should I do about the errant tax forms? The lawyer put a finger to his lips. “Go shtum.” Okay, he was a divorce lawyer, so perhaps not at the top of his game in international tax affairs, but it was the advice I wanted to hear, and so I contented myself with filing British tax forms.
Fast forward five decades.
In 2010 the U.S. government introduced the gristly acronym FATCA, the Foreign Account Tax Compliance Act, to combat tax evasion. The U.S. government outsourced enforcement, applying powerful commercial pressures onto foreign financial institutions – banks, stock brokers, hedge funds, pension funds, insurance companies, trusts – forcing them to scour their files and disclose confidential data on accounts held by American citizens. For many reasons put forward by the American Citizens Abroad website it is a nightmare piece of legislation unfit for purpose.
Though I was now also a British subject, I had opened my bank accounts and some investments as a U.S. citizen. I began to receive intimidating letters threatening to close my accounts unless I could prove that I had filed U.S. income tax returns.
The U.S. tax officials are chasing those four-and-a-half million or so missing taxpayers beyond their borders. And they are strong-arming the international banks into doing the job for them. You will note that if you apply for a bank account these days, you will be asked whether you hold non-British citizenship. That’s to flush out American applicants. The banks don’t want them on their books because acting as bailiff for Uncle Sam is an onerous and costly imposition.
I have no desire to set foot in the Homeland again, so my instinct was to ignore these prods. My accountant thought otherwise. Apart from the difficulty of trying to live without a bank account, upon my death the US tax authorities could attempt to seize my assets, applying vast penalties and creating a nightmare for my executor (and any hypothetical descendants, who would be technically American even if they had never set foot there.).
There is a get-you-out-of-stück option with the Big Brotheresque title of Streamlined Compliance Procedure. To be accepted into this programme, you have to submit a Maoist-style confession which attempts to legitimise your oversight. (In my mea culpa I thought I might earn some brownie points by reminding Uncle Sam that I had been one of his foot soldiers during the Korean War.) You can then submit U.S. income tax forms for just the past five years.
Only then can you renounce your citizenship. Afterwards, the IRS uncharitably treats you as if you were dead, imposing a capital gains “exit tax.” It only applies if your net worth exceeds $2 million, to which I would never aspire. Except that when I bought the flat I live in it was in a bed-sit area; now the street is blocked by heavy vehicles mining basements to install swimming pools for the one per cent. My residence on the Monopoly board has turned into a blue square and the increase in valuation is enormous. Sir Philip Green, former owner of British Home Stores, would have an answer to that: put it in your (British) wife’s name.
US Internal Revenue forms are mind-numbing and run to ninety pages or more. It is impossible for the uninstructed mortal to fill one out, so I had to seek competent advice.
In Mayfair I was quoted the going rate: approximately the same as having a tooth implant in Harley Street. Every year for five years. Plus a final form for the time you were still a citizen in the year of renunciation. Plus VAT. And it’s more painful than dental work. Because the consultants, while vague on detail, put the frighteners on, with threats of punitive tax penalties up to 100% of your assets and/or a ten-year gaol term for any mis-step. Or mis-statement, as the American euphemism for fraud has it.
For extra peace of mind one is also urged to engage a specialist American lawyer to guide you through the entire process. I gained some useful perspective by investing in an hour of legal advice, at the cost of one-half a tooth implant. Plus VAT.
I abandoned Mayfair. In the London suburbs the international tax consultant’s rate drops one-third. Plus VAT. But he used the same hard-cop routine, while quoting legal paragraphs verbatim, complete with italics, achieving my total incomprehension.
Exasperation drove me beyond the final extremity of the Northern Line, where, harboured in a tiny cubicle behind the steel shutters of a shopping parade quickprint shop, I found a fully qualified consultant. The price was less than half the Mayfair rate, with no threats, no obfuscation and no VAT.
After processing five years of data, even though British taxes you’ve paid are reciprocally recognised and are generally higher, I nevertheless owed the U.S. a couple of hundred dollars. That’s because investments which are tax-free in the UK are taxable in the U.S. That includes ISAs, NS&I bonds, even Premium Bonds. As luck would have it, I won £1,000 from Ernie last year. Kerchung! Uncle Sam sticks his hand out.
I discovered that under U.S.law it was illegal for me to own multi-company unit trust investments – which is what most ISAs are – other than those offered by American companies.
There is another irksome data requirement. FBAR (Report of Foreign Bank and Financial Accounts) is a U.S. tax law introduced in the 1980s but news to me. For every banking account you have, and this includes bonds and ISAs, you have to list the maximum amount registered in the till each year. And this goes back eight years. Conceptually, this is mystifying: a single transferred investment might show up in two or three accounts in a single year.
The entire tax regime is rigorously protectionist. Right down to the detail of how to pay your taxes. Only cheques drawn on American banks, or credit cards issued by American companies, are acceptable. And the parcel of ninety-page forms has to be conveyed to Texas by an American courier because only such are granted easy access to the IRS post room.
Some of the questions lurking in the sheaves of questionnaires you have to fill out seem to have been devised by Homer Simpson. “When did you first become aware that you were an American citizen?” Duh, I must have stumbled across this information somehow before the day I was drafted into military service. “Have you ever voted in an American election? Please explain.” Explain what? Are they trying to provoke me into a traitorous anti-Trump rant?
Why was I resigning my citizenship? I rehearsed an answer: “As an American citizen living abroad, there is no one in Congress who represents my interests. You may be familiar with the phrase, ‘Taxation without representation is tyranny?’”
A bit smart-alec, and that statement included the T-word. And the wit would not have penetrated the mindset of the box-ticker who interviewed me from behind a bomb-proof glass window. This substantial personage who looked to have been force-fed a diet of sweet fizzy drinks from an early age, would have thought irony was a form of physical restraint imposed during waterboarding. So . . . I funked it.
Although my inner spirit bridles at being no longer citizen but subject, I walk with a lighter step. My pockets are lighter, too: there is a charge for the privilege of resigning from this bureaucratic kleptocracy. Post-FATCA, as renunciation demand grew, the U.S. Department of State, sniffing a business opportunity, raised the fee from $450 to $2,350. No foreign currency cheques allowed, but credit cards happily accepted. Even from alien providers. Have a nice day! Kerchung!