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Giving up your A


s an American living


in the


UK, almost noth- ing related to your financial affairs is easy. The conse- quences of seem- ingly simple deci- sions – such as how to pay for a new home or purchase a mutual fund - may create unnec- essary tax charges and complexities. There are a number of key milestones that occur, from the time you arrive in the UK to the time you poten- tially approach and eventually reach retirement. Many of these changes will impact the appropriate wealth manage- ment strategies for American expats. Understanding how rules will change for you over time will allow you to plan ahead and make prudent financial decisions. But, sometimes American expats want to give consideration to giving up their US passport. In this edition we will discuss a few of the many finan- cial considerations associated with expatriation. The process of expatriation can


be different for people depending on their individual circumstances and whether or not you are consid-


20 The American


the Internal Revenue code, your worldwide assets


are generally The financial implications explained by Andrea Solana


ered to be what is called a ‘covered expatriate’. If any of the following three scenarios apply to you, and you expatriate post June 2008, then you are considered a ‘covered expa- triate’: 1.


Your average annual net


income tax for the 5 tax years end- ing before the date of expatriation is more than $161,000 (2016). 2. Your net worth is $2 million or


more on the date of expatriation. 3. You fail to certify on Form 8854


that you have complied with all US federal tax obligations for the 5 years preceding the date of your expatria- tion or termination of residency. Under the expatriation rules of


marked- to-market at the time of expa- triation. This means that your assets are deemed to be sold and any gain arising from the deemed sale is taken into account for the tax year of the deemed sale. Indi- viduals are allowed an exclusion of $693,000 (2016) whereby gains in excess of this exclu- sion are taxed at appli- cable


capital gains


rates. If a covered expat falls within the exclusion amount or


has a net loss, they will generally not be liable for any exit tax. There are some exceptions to


covered expatriate status including individuals who are dual nationals from birth who have had limited or no period of US residence and chil- dren who expatriate prior to age 18.5. As there are very specific crite- ria that needs to be met, it is impor- tant to seek legal advice about indi- vidual circumstances to understand how the rules apply to your situation. When an individual is considered


a covered expatriate, the decision to move forward is often a family deci- sion. This is due to the fact that US gift and estate tax implications can


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