In this three-part article series, Oliver Burton of Blick Rothenberg, together with Tahir Mahmood and Todd Cowan of London & Capital give a comprehensive overview of expatriation. They discuss the basics of expatriation and who it impacts, all the way through to the planning opportunities available.
In the first part of the series, they have discussed what is expatriation, why do people do it, what happens to an individual’s US tax return obligations and the costs associated with expatriation and abandonment of permanent resident status. Click here to read part 1.
In the second part of the series, they have discussed the expatriation process and the exit tax. Click here to read part 2.
Are there any opportunities to reduce the tax impact?
In certain situations, proactive planning before the expatriation or abandonment process has started can help to reduce an individual’s tax exposure.
Green card holders who are planning to abandon their Green Card should, wherever possible, look to do so before they meet the 8 out of 15-year test. This will prevent long term resident status, which in turn helps them to avoid any exit tax exposure.
US citizens and long-term residents will want to avoid covered expatriate status at all costs:
- Is there way to bring the individual’s net worth down below $2,000,000 by accelerating asset disposal or via gifting?
- Can the average income tax liability be managed in the 5 years leading up to the date in question?
- Is it possible to fix any non-compliance and avoid triggering covered expatriate status in that context?
Assuming that covered expatriate status is unavoidable, minimising the exposure to the exit tax becomes key:
- Can married couples review the ownership of their assets to take advantage of two exit tax exemptions?
- Is it possible to reconfigure an individual’s asset holdings to minimise the impact of the mark-to-market calculations? Cash assets, for example, will not generate a deemed gain for exit tax purposes.
Is expatriation even worth it?
The last planning point to mention here takes us right back to the start of the decision-making process and poses the question – is it even worth it?
Expatriation can be very costly. For some individuals, that cost is a price worth paying to relieve themselves of ongoing US tax exposure and filing obligations.
For others, the numbers will not add up. If an individual has significant net assets and the exit tax is looming, it may make sense to take a second look at the impact of holding on to their US passport or Green Card. Meeting those annual tax obligations can all of a sudden look very palatable when compared to the cost of the expatriation or abandonment process.
The previous articles of our expatriation can be found here and here. Sign up to our newsletter to get this delivered straight to your inbox.
