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Hi, we are in the planning stages of making a move back to the UK, after living in the USA. We are British citizens with a green card. I am looking for a CPA with international taxes background. If anyone can offer any advice, particularly on IRAs, 401Ks, social security, or just information in general, it would be greatly appreciated.
Thank you.
 

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Depends a bit on how long you've had the Green Cards. You may be on the hook for US taxes for a good, long time. Or you may be able to "hand in" your Green Cards and rid yourselves of the US tax obligation. Start here for information about a "sailing permit" with the IRS: https://www.irs.gov/individuals/international-taxpayers/departing-alien-clearance-sailing-permit

Your IRA, 401K and US Social Security will be subject to the provisions of the US-UK tax treaty (whether or not you are still subject to US taxation), which I think grants the UK sole authority to tax your withdrawals and payments. (Hooray for our side!) But ideally, if you can get out from the US tax obligation by surrendering your Green Card, so much the better.
Cheers,
Bev
 

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Hi, we are in the planning stages of making a move back to the UK, after living in the USA. We are British citizens with a green card.
Before you do anything else, you need to evaluate your exposure to the US's Soviet-style 'expatriation tax'.

Contrary to what you might read elsewhere about keeping the green card 'active' by visiting the US every six months or so, you will not be able keep your green cards forever once you no longer live in the US. You can get up to two years with 'reentry permit', but no more than that.

But.. if you would face a huge 'exit tax' bill on surrendering the green cards that puts you solidly between a rock and a hard place. Can't keep them thanks to USCIS, and subjected to extortion by the IRS when you get rid of them. In that case you will have to evaluate your options very carefully indeed before taking action.
 

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Just to add to the above points, if you have been in the US for 23 years then chances are high that you are already considered a long term permanent resident. For that you must have been a green-card holder IN 7 of the last 15 years . There are some visa categories that allow long term residence without the status of permanant. If you do not meet the definition of a long term permanent resident, you will want to make a considered decision one way or the other before you hit that time threshold.

My personal view is that if you cannot re-enter on it, it no longer has any value and you should hand it in personally to your local consulate.

If you are a long term permanent resident, you will want to make sure your last 5 years of returns are in order before handing it in... for example did you correctly report any UK financial assets that you had left open while you were in the US? If not, you can actually use the rules to your advantage, and amend the last three years returns using normal 1040x rules, file 2 good years and you will be able to certify you are compliant when you file 8854 in that last year.

Regardless it is best to have an exit plan (so to speak) .. read form 8854 and its instructions now .. size up your position in regards to the various thresholds for being a covered expatriate, and keep them in the back of your mind up until the day you expatriate. If you are getting close to any of the threshold act before you are considered a covered expatriate.
 

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If anyone can offer any advice, particularly on IRAs, 401Ks, social security, or just information in general, it would be greatly appreciated.
Assuming you are not covered expats under the execrable US exit tax, I can give you an outline of what you are likely to face.

I held a US green card until mid-2008, and am now a bona-fide non-resident alien living in the UK, so I have lived a lot of the issues. Hopefully this will give you a starting point to take to your adviser, should you be able to find one that is competent in this area (potentially a challenge in itself).

Before you leave.

If you hold taxable investments with a built-in capital gain, consider holding them until after you leave the US and disconnect from the IRS. UK capital gains rates can be lower than US ones, and there is an annual allowance that means you might escape capital gains tax entirely. Pay attention to what you actually hold, though. If mutual funds you will want to ensure that they have 'UK reporting status', otherwise you pay higher UK rates on them. Several Vanguard ETFs qualify, if that helps. Ordinary single-company shares should be fine, as should direct Treasury or other bond holdings.

If you own real estate, say your home, you'll want to sell that before leaving. Or at the least, before filing the I-407. Otherwise, once out of the US tax net you'll have to interact with a nasty US tax law known as FIRPTA, and a heap of withholding and unpleasantness you'll want to sidestep.

The 'sailing permit' is a nuisance. Compliance with it is virtually nil, and as a result most IRS offices seem entirely ignorant on how to issue one. We got ours before leaving in 2008 as a way to be double-sure they knew we'd gone (we rushed out to avoid the appalling 'exit tax'). The process of getting one, at least in Ca, closely resembled what you'd expect from a banana republic. Multiple visits, no clarity, wasted time and effort all round. Think carefully before diving into that cesspit, then.

After you have left.

As soon as is practical, file I-407 with the US consulate in London to surrender your green cards and so seal yourselves off from the IRS. Date of filing is date of 'expatriation'. This can be done by mail.

After the end of the year you then file a final 1040 perhaps with a 1040NR combined, two 8854s to two separate IRS offices, and any part-year FBARs. The US has never issued instructions on how a part-year FBAR works in year of exit, so you can do whatever seems sensible as far as I can tell. (I filed one up to the date of leaving rather than the end of the year, marked it 'part year', and heard nothing back.) If memory serves, if you are married that final year return has to be under the least-favourable 'married filing separately status', so you may wish to time your exit to avoid too much income falling into that status.

As noted above, dividends and capital gains on any taxable holdings you leave in the US are fully taxable to the UK. One you are a non-resident alien the US takes 15% of dividends (treaty rate), and nothing from capital gains or interest. You can get a credit against UK tax for the 15% US tax paid on dividends.

Under the treaty the UK respects 401ks and IRAs as tax deferred until withdrawal, and Roths as tax-free. On withdrawals, non-government pensions are taxable only to the UK, and the provider should pay them out with no US withholding (that said though, quite a few apparently do not, leaving you the annoyance of reclaiming from the US on a 1040NR).

Any US social security payments are also taxable only to the UK. Expect the US to chisel away some of your social security entitlements though, under the rather nasty 'windfall elimination provision'.
 

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Hi choyland,

I am in a similar situation. I filed I-407 a few months ago and the disconnection (mail certified) from the IRS is the date received by the USCIS (my thanks to JustLurking for this information).
Check online for the correct address, for the time being I am living in France but my nearest filing office is London, UK.

I am also subject to FIRPTA but I will make no capital gains and my house still unsold, so I have asked my accountant for a withdrawal certificate for when the house is sold.

For my 1040; FBAR and 8938 I have declared my global earnings from 1st January 2017 until my disconnection date as a percentage of the whole year.

I have used the average exchange exchange rate for the 1040 but I will have to wait for the Treasury Dept to publish their figures for the FBAR and 8938 sometime early next year.

I am not filing 8854 as my permanent residency was less than 5 years.

The whole process IMO needs refining but for the moment it is what it is.

OP, if you want to confer, please PM.

Please comment anyone if I am doing something incorrectly.

JustLurking, why file at 2 offices for the 8854?
 

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Discussion Starter · #11 ·
Thank you for your advice. I will definitely take you up on the offer to message you if I need any other assistance. It is overwhelming but I am printing out all the information mentioned so that I can study it.
 

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JustLurking, why file at 2 offices for the 8854?
Because the IRS is not sufficiently competent to do its own internal communication, I guess. You attach one 8854 copy to your final 1040(NR) return sent (probably) to Austin or Charlotte, and file a standalone 8854 copy completely separately to Philadelphia. From the 8854 instructions:
Where To File
Send your Form 8854 (or a copy of your Form 8854 if you are required to attach the original to a Form 1040NR or a Form 1040) to this address.

Department of the Treasury
Internal Revenue Service
Philadelphia, PA 19255-0049
It is rather easy to miss this additional trap when filing your final 1040(NR). Quite a few folk have done so in the past.
 

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Because the IRS is not sufficiently competent to do its own internal communication, I guess. You attach one 8854 copy to your final 1040(NR) return sent (probably) to Austin or Charlotte, and file a standalone 8854 copy completely separately to Philadelphia. From the 8854 instructions:

It is rather easy to miss this additional trap when filing your final 1040(NR). Quite a few folk have done so in the past.
Many thanks JustLurking
 

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Because the IRS is not sufficiently competent to do its own internal communication, I guess. You attach one 8854 copy to your final 1040(NR) return sent (probably) to Austin or Charlotte, and file a standalone 8854 copy completely separately to Philadelphia. From the 8854 instructions:

It is rather easy to miss this additional trap when filing your final 1040(NR). Quite a few folk have done so in the past.
If you're not filing a final return (because not required to do so) you only have to send the standalone copy to Philadelphia.

Which may suggest that the Philadelphia copy gets permanently filed in PA and the Austin copy (if one is required) gets permanently filed with its accompanying 1040(NR), wherever.
 

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Before you do anything else, you need to evaluate your exposure to the US's Soviet-style 'expatriation tax'.

Contrary to what you might read elsewhere about keeping the green card 'active' by visiting the US every six months or so, you will not be able keep your green cards forever once you no longer live in the US. You can get up to two years with 'reentry permit', but no more than that.

But.. if you would face a huge 'exit tax' bill on surrendering the green cards that puts you solidly between a rock and a hard place. Can't keep them thanks to USCIS, and subjected to extortion by the IRS when you get rid of them. In that case you will have to evaluate your options very carefully indeed before taking action.
Have you had to actually pay tax to the IRS? All other countries I've lived in have far higher tax rates than the US, so I have never had to pay. Firstly, because you don't start paying until you reach that years minimum threshold, and secondly because any taxed owed to the US is first offset by the tax you have paid in your country of residence.

For me, the US is quite generous tax-wise (i.e. low tax rates) and this was a measure aimed at citizens 'escaping' to tax havens (e.g. Switzerland).
 

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...this was a measure aimed at citizens 'escaping' to tax havens (e.g. Switzerland).
To be accurate, it's a measure aimed at preventing money from escaping. So, not exactly Soviet-style, I agree. The Americans don't mind if the citizens/PRs leave, as long as they leave their money at the door on the way out.
 

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Have you had to actually pay tax to the IRS? All other countries I've lived in have far higher tax rates than the US, so I have never had to pay. Firstly, because you don't start paying until you reach that years minimum threshold, and secondly because any taxed owed to the US is first offset by the tax you have paid in your country of residence.

For me, the US is quite generous tax-wise (i.e. low tax rates) and this was a measure aimed at citizens 'escaping' to tax havens (e.g. Switzerland).
To some extent, too, FATCA and such were based on a desire to make it "inconvenient" for US residents to stash their ill gotten gains in tax haven countries and dodgy "investments" overseas established as tax dodges. I really doubt they even considered the situation of US citizens who actually live and work overseas - other than the odd jet-setting zillionaire. The regular old "overseas resident" is nothing but collateral damage in all this.
Cheers,
Bev
 

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To some extent, too, FATCA and such were based on a desire to make it "inconvenient" for US residents to stash their ill gotten gains in tax haven countries and dodgy "investments" overseas established as tax dodges. I really doubt they even considered the situation of US citizens who actually live and work overseas - other than the odd jet-setting zillionaire. The regular old "overseas resident" is nothing but collateral damage in all this.
Cheers,
Bev
The expatriation tax is aimed purely at stopping money from leaving America - regardless of whether the money belongs to US residents, regardless of whether the money was "ill-gotten".

Money should be stashed in Delaware, not some foreign tax haven. :D
 

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For me, the US is quite generous tax-wise (i.e. low tax rates) and this was a measure aimed at citizens 'escaping' to tax havens (e.g. Switzerland).
You are a citizen, not a green card holder. US citizens can live outside the US, remain US citizens, and retain the right to return to the US indefinitely. Green card holders cannot. After a period outside the US, a green card holder will find themselves with no right of residence in the US but with all of the tax responsibilities and difficulties of a US citizen. That is hardly an enviable position to be in.

The 'exit tax' is bad law. To the extent that it should be necessary at all, a measure properly aimed at folk 'escaping' to tax havens would have made a better distinction between genuine 'tax refugees' and others.

Pre-exit tax the US rules were better calibrated. There was a 10-year shadow period during which some income remained US taxable even after expatriating, but this could be made not to apply where the expatriate was returning to a country with which they had a close connection (born there or parents born there and also a citizen, for example, so very likely the case for green card holders).

The exit tax swept that nuance away and instead applied as a blanket rule to everyone, citizen and green card holder alike. You can now leave the US for high-tax Sweden -- nobody's idea of a 'tax haven' -- yet still be hit by a large exit tax. Even if you were born and educated in Sweden and moved to the US for work much later in life.

The exit tax is an active deterrent to anyone thinking about immigrating into the US. It also pushes out successful immigrants already in the US and who are getting close to reaching the asset or time limits for its application.
 
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