Offshore
London & Capital Eyes Opportunity As US Expats Turn Backs On Uncle Sam
The cost of maintaining non-domiciled status in the UK has become so heavy that the number of expat US citizens renouncing their citizenship has reached a record level, with 502 expats taking this course in the final three months of 2009, more than twice the figure for the whole of 2008, according to London & Capital.
In total, 743 expats decided to remove their US citizenship, L&C, which is eyeing this development as a potential new source of clients, said in a note about the matter.
Resident non-doms now have to pay an annual £30,000 (around $45,601) levy if they don’t want to pay tax on their worldwide income. Meanwhile, the US Congress recently passed legislation known as the HIRE Act, which raises the Internal Revenue Service compliance costs to firms providing financial services to expats.
“The reporting requirements facing a US Non-dom are now so complex that one can understand why renunciation seems to some the more attractive option,” L&C said in a note.
“We are witnessing the emergence of a new breed of New England Expats,” said Daniel Freedman, joint managing director at London & Capital. “The real cost of US citizenship has become increasingly apparent in recent times and with the US government keen to reduce its deficit, it seems life as a US Non-dom is set to get worse,” he said.
About 182,000 US citizens live and work in the UK (Source: Office for National Statistics), so there is potentially a large pool of individuals who need financial advice and planning, the firm says.
“The US non-dom is today more hotly pursued by the IRS ... and has become a modern day pariah,” Freedman said.
“Many of the clients referred to us have been badly advised as regards ISA and SIPP investments,” says Freedman, referring to Individual Savings Accounts and Self Invested Pension Plans, both popular forms of tax-wrappers in the UK.
“Many [expats] have been advised to take advantage of the ISA tax shelter to invest in Unit Trusts and OEICs [Open Ended Investment Companies], blissfully unaware that this is just about the only investment which will cause them to fall foul of the IRS’ ‘Passive Foreign Investment Company’ (PFIC). They will be taxed aggressively on all gains and may be subject to penalties equal to 100 per cent of value,” he said.
