It’s hard to think of a more British politician than Boris Johnson.
The Old Etonian’s bumbling toff persona may charm Brits, but it leaves foreigners baffled.
Remarkable then to think that all his life Boris has also been a US citizen. Born in New York, Boris is a natural-born American and consequently eligible to be US President.
Or rather he was until last month, when it emerged that the Foreign Secretary has renounced his US citizenship. No doubt Boris’s rejection of the land of his birth will go down a storm when he next meets the US Secretary of State.
He may simply have accepted that his blond locks could never compete with Donald Trump’s famous barnet, but Boris's decision is likely to have been motivated more by tax planning than either diplomacy or politics.
The USA is one of only two countries in the world (Eritrea is the other) to make its citizens file an annual tax return.As a US citizen, Boris had to file an American tax return every year - and he recently had to pay thousands in US capital gains tax on the sale of his Islington home.
No UK CGT was due as the property was his main residence, but US tax rules are different and as a result he had to send a large cheque (rumoured to be in six figures) to Washington.
The real reason for Boris’ decision to give up his American passport is a quirk of US tax law that is a constant source of frustration for the estimated 200,000 American expats living in Britain – the obligation to complete a US tax return each year and to declare any savings they, their spouse or children have in a British bank account.
The USA is one of only two countries in the world (Eritrea is the other) to make its citizens file an annual tax return, wherever they are in the world.
The policy is a relic of a Civil War-era law designed to punish US Army deserters, but arcane though it is, it is still rigorously enforced – and failure to comply can result in a large fine.
In 2010 the screw was turned further on Americans living abroad with the introduction of America’s global tax law, the Foreign Account Tax Compliance Act (FATCA). This forces non-US banks to declare savings held by American expats – and is designed to help Washington claim back unpaid tax money.
One important side-effect of FATCA that UK financial advisers with American expat clients are likely to have encountered is the growing reluctance of UK banks and fund managers to take investments from Americans.
The tax return rule applies to all Americans living in Britain, however much they earn. In practice, many will be spared a tax bill as they can offset what they pay to HMRC from their US tax liability.
However high earners can still be hit with a sizeable US tax bill on top of the UK tax they pay, and there are anomalies over things like capital gains tax. Under US law, only the first $250,000 of a capital gain made on the sale of your home is exempt from tax – hence Boris’s eye-watering tax demand from Washington when he banked a large profit on the sale of his London home.
The Foreign Secretary was always an ‘accidental’ American – he hasn’t lived in the US since he was five. But such is the frustration among Britain’s sizeable US community at the burden imposed on them by Washington’s tax laws that even All-American, Apple-Pie expats are now queuing up to renounce their citizenship.
Waiting times for US expats wanting to surrender their passport at the American embassy in London have risen from one to six months, and last year 5,411 Americans around the world gave up their US citizenship – a 26 per cent rise on the 2015 figure.
Cutting ties with their homeland is neither cheap nor easy, and for many it is often a highly emotional step.
Surrendering their coveted blue passports was once all but unthinkable, but for increasing numbers of US expats this has become the least painful option.
For advisers with US expat clients the implications are clear – they don’t just need to be aware of the extra tax obligations such clients face, but they should also learn which financial service providers are unwilling to deal with the FATCA bureaucracy involved in taking investments from US citizens.
While US tax law is highly complex and best left to the experts, financial advisers have an important part to play – and can seize a strong commercial opportunity – by guiding their US clients through the maze to find the right investment, both in terms of return and of whether it will take their money in the first place.
Alistair Bambridge is a partner at Bambridge Accountants
