Boris Johnson, mayor of London, is refusing to comply with US demands to pay capital gains taxes owed on his first property in the UK, which he claims wasn’t taxable in the UK. Johnson was born in New York and holds a US passport, but hasn’t lived in the States since he was 5 years old. He is drawing worldwide attention with his refusal to pay, calling the US demands ‘outrageous.’
According to the www.dailymail.uk, Boris said, “You may not believe this but if you’re an American citizen, America exercises this incredible doctrine of global taxation, so that even though tax rates in the UK are far higher and I’m Mayor of London, I pay all my tax in the UK and so I pay a much higher proportion of my income in tax than I would if I lived in America.”
He continued to say, “The United States comes after me, would you believe it, for the – for capital gains tax on the sale of your first residence which is not taxable in Britain, but they’re trying to hit me with some bill, can you believe it?”
The Accidental American epidemic
Accidental Americans is a term coined to describe those US citizens who were not aware that they are actually citizens with US tax filing and reporting requirements. The US requires you to report your worldwide income, regardless of where you live. For years US expats were largely unaware of their filing requirements, and the US was relatively lenient on ensuring all taxpayers were filing as required. However, with the recent US initiatives to uncover tax cheats hiding assets abroad, income and foreign asset reporting is not only becoming more widely known, but more strictly enforced. Those who fail to report assets abroad, in particular, face serious fines and penalties.
FBAR (Foreign Bank Account Report) requires that you report your foreign bank account balances if they exceed $10,000 at any point during the tax year. FATCA, the Foreign Account Tax Compliance Act, requires that you report specified foreign assets if they exceed certain thresholds (more information on the reporting requirements of FBAR and FATCA can be found right here).
Why not just renounce US citizenship?
When asked why he doesn’t just renounce his citizenship, Johnson replied “‘I have to confess to you, that you’re right, it is a very – it is very hard, but I will say this, the great United States of America does have some pretty tough rules, you know.”
One of the biggest issues with renouncing is that the US requires you to be compliant on your US taxes for the 5 years prior to renouncing. Many expats that didn’t know they had to file are not compliant and assume it will be costly to get caught up. In fact, it may be the actual cost of renouncing that makes it unreasonable for some: recently the State Department hiked the fee from $450 to $2,350.
There are millions of US expats around the world who not only sympathize with Boris’ situation but identify it as well. There are nearly 7.6 million Americans living abroad and only about half are actually filing their US taxes–clearly there are more US citizens out there who owe money to the IRS and don’t even know it. While he may have a valid point, the US law is the US law and it is unlikely to change any time soon.
What do you think?
Should Boris Johnson pay the taxes owed to the US or stand his ground?