Republicans Seriously Looking at Reducing Expat Taxes
Alistair Bambridge looks at potential upcoming tax proposals by Republicans which could affect Americans living overseas
By Alistair Bambridge, Managing Partner at Bambridge Accountants
Texas Republican and Chairman of the House Ways and Means Committee, Kevin Brady, responsible for drafting the tax reform bill, said he can guarantee that every American will be better off under the new bill.
Speaking with the Financial Times, Brady is quoted as saying lawmakers were taking “seriously” the call to switch from a citizen-based tax system to one that is residence-based. For the 8.7 million US expats that would eliminate US tax on foreign income and potentially remove the US tax filing requirement for millions of Americans.
For many US expats living in the UK, they are concerned that when they sell their UK home they may be penalised with a US tax charge. Under UK tax law, your main home is exempt from UK tax when you sell the property, no matter how large the gain. Under current US tax rules, Americans are liable to US tax on any gain over $250,000 – something which Boris Johnson was caught out by when he sold his Islington home.
A shift to residence-based taxation would be a welcome change for Americans who feel it is outrageous that the US can tax their home when in many cases they haven’t lived in the US for a number of years or they inherited citizenship from their parents and have never lived in the US.
The change may also go some way to reduce the surge in US expats renouncing their US citizenship. In the first two quarters of 2016, US Treasury figures show 1,666 Americans gave up their US passports. For the first two quarters in 2017, that figure has risen to 3,072 – a whopping 84% year on year increase.
With many Americans struggling with the impact of FATCA – additional reporting, closure of bank accounts, refusal of financial products and the threat of huge penalties from the US Treasury – easing the US tax burden by switching to residence-based taxation would be a step in the right direction.