Honestly, you're screwed. Blame the US government. if you are a US citizen only and cannot hide the fact, you cannot have a "normal" financial life in the UK or anywhere else where FATCA enforcement is taken seriously. Ditching the citizenship is your only option.

Since you are self-employed, a somewhat sketchy alternative might be to explore setting up your company and a "permanent" address in the US then doing all your retirement saving, investing etc. as if you were a US resident. You would need to quasi-lie to US banks and investment firms about your residence, and no idea how you'd sort this out vis-a-vis British taxes (lifelong evasion most likely).

 

The other alternative, if you can find an investment firm willing to deal with you, is to drop off the IRS radar and go non-compliant, to fully enjoy the benefits of tax-protected investments not being double-taxed by the US etc. This might be risky if you only have US citizenship.

 

Given the provisions of FATCA, your realistic options are definitely limited. Assuming you can find a financial institution willing to open an account for a "US person" you would basically have to treat it like a plain old savings account for US tax purposes - declaring the income earned on the account each year, and applying whatever tax credit you could for taxes paid on the account to the UK government. (Which kind of negates the point of the retirement account as offered by the UK government.)

You could look into setting up an IRA back in the US. But it's difficult to establish an account from overseas. If you are headed back to the US for any reason, you may want to ask at a small to medium sized bank over there. (And there is the problem that you can't contribute to an IRA from income excluded from US taxation by the FEIE.)

So basically, we're back to a vanilla savings account on which you pay tax on the earnings each year.
Cheers,
Bev

 

Hi Bev,

Thanks for your response. I appreciate you putting it quite simply for me. I get pretty lost with all of the different laws and acronyms. It's all a bit confusing to me and I hate that there isn't a simple solution.
Considering a different type of pension plan.... What about using my pension money for purchasing a second property? I thought I read something about there being massive UK taxes for that though. Am I right or is property investment a decent option?
Thanks.

 

Hi Nononymous,

Thanks for your response. That's not what I was hoping to hear as my fingers were crossed that there would be a couple of options for me.
I spoke briefly with a financial advisor who would take me on but they require I invest a hell of a lot more money than I have available.

I don't want to do anything dodgy as I don't want to risk any large financial penalties or being arrested when I land in the states to visit family. I'm just so surprised there isn't any sort of option to efficiently save money. I feel like it's a massive flaw in the laws.

On a different note... I'm planning to apply for UK citizenship next year and also get Dual Citizenship for my new little boy. I'm not totally opposed to renouncing my citizenship but I won't be able to do that for a little while. An ill parent, is currently preventing me from making the leap. If I did decide to take that route in the future, do you know if my son would lose his citizenship once he has it, would it be completely separate to me?

Thanks.

 

Any sort of investment is a risk. Possibly a bit more so with Brexit looming on the horizon and all.

Besides, owning foreign property puts you subject to the various FATCA reporting rules, which can get really onerous once you pass the threshold amounts for reporting. ($200,000 for single or married filing separately and $400,000 for joint filers.)

Oh, and you can't renounce your kid's US citizenship. He has to decide that for himself when he hits the age of majority.
Cheers,
Bev

 

Hi Bev,
Well, at least part of that is great news! So I can get my son dual citizenship and then renounce my citizenship in a couple of years, and it won't affect him at all???

 

Hi Bev,
Well, at least part of that is great news! So I can get my son dual citizenship and then renounce my citizenship in a couple of years, and it won't affect him at all???

 

I don't know what the laws are in the UK, but your son may already have dual citizenship - if his mum is non-US. If you're relying on him getting UK citizenship when you take it, I'm not sure if it works that way.
Cheers,
Bev

 

As far as your son is concerned, what some folks have done is to simply not report the child to the consulate - but then they put together a packet of the documents the kid will need if and when he decides as an adult to claim his US citizenship. Stuff like birth certs (for Mom and Dad), marriage certificate, indication that you lived for the requisite number of years in the US after age 14 so that you were eligible to pass on your nationality as of the son's date of birth, plus anything else that might be useful in the process. Tuck it away somewhere safe and make sure your son knows where and what this packet is. Then, it's up to him what he wants to do.
Cheers,
Bev

 

Some thoughts, based on what we know. I will ignore Brexit risks in any analysis, because who knows what might happen?

Children

If your son was born in the UK and has UK citizenship, that is good. If he remains in the UK and is willing to ignore the IRS and lie to banks about having US citizenship, he can completely avoid FATCA reporting, ignore US tax filing obligations, and suffer no restrictions on financial services or employment.

Whether you report the birth to the US consulate or not does not change the fact the he is a US citizen (provided you meet the criteria of having lived 5 years in US, 2 of which past the age of 14). However, not reporting the birth means the US government is not aware of his existence (not surprisingly, since FATCA there has been a sharp drop in the number of births reported abroad). If you do report the birth, this does not mean your son will face a lifetime of tax servitude, because the IRS will not come looking for him.

There are only two reasons for reporting the birth: if the US parent is filing US taxes they may qualify for the child tax credit ($1000/year and possibly rising to $1400) so free money; if the US parent travels to the US with the child, the child not having a US passport will sometimes - but not always - cause questions and delays on entry, since technically US citizens must enter the US on a US passport.

But all that aside, even with the birth reported and the passport obtained, the child can renounce at 18 or, if they have the magical non-US birthplace, pretend the US citizenship does not exist, speak no word of it near anyone wearing a tie, and live a fully normal life in the UK.

If you don't report the birth, at least find all the documentation needed for the child to obtain a US passport later in life, should they so desire, and put it somewhere safe.

Investments

I think your options are as follows:

1. Suck it up, file your US tax returns and lose most of the benefits you'd have from UK tax-protected savings plans, either thanks to double taxation or because nobody is willing to take you on as a client.

2. Do some weird hybrid thing where your business, savings, investments etc. are effectively US-based. This might create complications with the UK.

3. If you are close to obtaining UK citizenship, go dark - stop filing US tax returns. Note however that your US birthplace means you may still be toxic to financial institutions, who will not want you as a customer for anything beyond basic banking. To solve that problem you will need to renounce and provide them with a CLN. The risk of being penalized while visiting the US is minimal to non-existent. This approach assumes you have no significant US assets, income, expected inheritance etc.

4. Get rid of your US citizenship. This is ultimately the safest and cleanest approach. It does *not* mean that you would be unable to travel to the US (though of course it's a slight risk, as you have no guarantee of being allowed to visit). If the exit tax business were to become expensive, you have the option of ignoring further filings - tax compliance is not required prior to renunciation. As with #3 above, the non-compliance version of renunciation assumes you have no significant US assets, income, expected inheritance etc.

 

Holy Cow Nononymous,
This is a really great and thorough reply. Thank you very much for taking the time to help me and explain everything. I really appreciate it. Thanks again.

 

Let me just add one final caveat on the renunciation idea. There are a number of peculiar aspects to renouncing that you need to take into consideration before shelling out all that money. (Not that I'm necessarily against the idea.)

One of the big ones is any and all financial ties you may have back to the US - especially any pension entitlements - in light of the tax treaty with your country of residence or citizenship (or possible residence come retirement time). And you may be entitled to US SS benefits for having worked as little as a couple of years back there.

Friend of mine recently renounced when she got her German citizenship and it all works out rather nicely, since Germany takes on the right to tax US pension benefits. She got me thinking about doing something similar, but the French tax treaty works the other way (i.e. US pension benefits are taxed by the US) and I'd stand to lose nearly a third of my benefits if I gave up the US nationality. Not something you normally think about until you hit retirement age, but significant when you get there.
Cheers,
Bev

 

Hi Bev,
That's a good point. I didn't really think about that but I haven't done a lot of work in the states so I don't expect my SS to be much of anything anyways. My wife just told me I'm not allowed to renounce my US citizenship in case she wants us to move to America during retirement.
It's such a shame there aren't any easy and nice options for people in our situation.
Thanks for all of your help with this Bev. I appreciate it.

 

Two points:

1. If your wife wants to move to the US, you will need to be tax-compliant to sponsor her.

2. You may at some point wish to present your wife with an estimated bill for what it will cost you to preserve the possibility of retiring to the US. (And give her an estimate health care costs while you're at it.) This could make Costa Rica look very attractive.

 

Hahaha, I can certainly try doing that!

 

Best of luck!

 

Just as a heads up - you may want to be totally legal if your son decides at some point to work in the more secure areas of UK government or some branches of the Armed Forces

 

Define "totally legal" in this context.

It's actually an interesting point, but I'm wondering how a parent's citizenship and tax compliance status would impact a security clearance. More interesting, how would a child's "undeclared" US citizenship (if the birth was never registered) potentially impact their own UK security clearance?

 

What pray tell is DV? I'm guessing that SC means security clearance.

 

Developed Vetting - one higher than SC (and yes SC is security clearance)

 

Here is a suggestion for you to consider.

The starting point is to understand that there is no prohibition in UK law or for tax purposes stopping a US citizen taking out a UK pension scheme. It is merely that most UK pension providers want nothing to do with the onerous paperwork requirements that can be inflicted on them.

Each provider defines the individuals who my not apply for their UK pension plan. Some providers use a definition from the US Securities Act of 1933. The definition of a “US person” under that Act is not simply a US citizen. Specifically, Section 902(k)(2) excludes from that definition a US citizen who is not a US resident.

Therefore if you use a personal pension provider who uses the above definition, you can truthfully say that you are not a “US person” for the purposes of their form. And so you can obtain a UK personal pension.

The income from your UK personal pension, both income and gains, need not be reported to the US for income tax purposes, until you draw your pension. I do not know the reporting position for other purposes.