If you're considering renouncing your US citizenship, this guide explains how the renunciation process works, the costs involved, potential tax consequences including exit tax and what happens after you renounce. It also explores why people choose to renounce and the questions you should ask yourself before making a permanent decision.
Giving up your any citizenship is one of the biggest personal, legal and financial decisions you can make, but for American’s and people with US ties, it might seem like a logical step when living abroad with no intention of returning to the US.
Unlike moving abroad or changing your tax residence, renouncing your citizenship is generally permanent and can affect your taxes, your right to live in the United States and even how easily you travel there in the future.
For some people, renouncing US citizenship provides certainty and removes years of ongoing tax and reporting obligations. For others, it creates unnecessary complications and solves a problem they did not fully understand in the first place.
This guide explains how the process works, why people decide to renounce, what happens afterwards and the questions worth asking before making such a significant decision.
This article provides general information only and should not be relied upon as legal or tax advice. Your circumstances may be very different from somebody else's, so professional advice is often worthwhile before making a permanent decision.
In a nutshell, yes, it is possible to renounce your US citizenship. US law allows most adults to voluntarily renounce their citizenship, provided they understand the consequences of doing so and complete the required process at a US embassy or consulate.
Most Americans who move overseas remain US citizens which means that they continue to file US tax returns and retain the right to live and work in the United States whenever they choose.
Renunciation ends that legal relationship. Once complete, you are no longer a US citizen and, in most cases, the decision cannot simply be reversed because your circumstances change.
Although the decision is highly personal, the decision to renounce US citizenship is rarely to do with disliking the United States. More commonly, it’s a decision considered by people who have built their lives somewhere else and no longer feel that US citizenship reflects their future.
As the IRS taxes American citizens regardless of where they live, tax is often part of the conversation and for accidental American’s it’s a key factor.
Some of the most common reasons include living permanently overseas, the ongoing requirement to file annual US tax returns, difficulties opening investment accounts because of FATCA, running a business outside the United States or simply wanting to simplify their financial affairs.
A British-American dual citizen who has lived in the UK for thirty years, pays all of their tax in Britain and has no intention of returning to America may question whether the annual filing obligations are still worthwhile.
An "Accidental American", who left the US as a young child and only recently discovered they have US reporting obligations, may come to the same conclusion for very different reasons.
Although their circumstances are completely different, both people often arrive at the same question: is keeping my US citizenship best for me?
As you would expect, renouncing your US citizenship can be complex, time consuming and stressful. It’s not something that can be completed online or by posting paperwork to the IRS and it will require attendance at a US embassy or consulate in person.
The process generally involves:
Delays can occur depending on appointment availability and the complexity of your circumstances, so it is not something that can be done on a whim and you should not attempt to renounce your citizenship without speak to experienced professionals who can explain the pros and cons in relation to your personal circumstances.
There are a number of costs associated with renouncing your US citizenship.
The first is the US government's renunciation fee which is currently US$400 (previously US$2,350)
This fee is charged by the US Department of State and is payable when you attend your renunciation appointment at a US embassy or consulate. It is separate from any professional fees you may pay for legal or tax advice.
The second is professional advice. Regardless of how straightforward you believe your circumstances to be, it’s highly advisable to get help throughout the process.
Professional fees can range from a few hundred dollars to several thousand dollars, depending on the complexity of your circumstances.
For example:
The cost of professional advice should be viewed in context, and while spending around $1,000 might seem expensive to establish your options, understanding the consequences can be worthwhile if it helps you avoid an expensive mistake.
The third, and potentially most significant costs are US tax payments.
Although the US exit tax receives a lot of attention, most Americans who renounce their citizenship do not pay it. The rules mainly affect people with substantial wealth, high incomes or those who have not kept their US tax affairs up to date.
The exit tax is primarily designed to prevent people from avoiding US tax by renouncing their citizenship immediately before selling valuable assets or realising significant gains. Whether it applies depends on whether you are classified as a covered expatriate which would apply if any one of the following applies when you renounce:
For many Americans living overseas, it is the third test that causes the most concern, particularly for people who were unaware they still had US filing obligations.
The US generally treats many of your worldwide assets as though you sold them on the day before you renounce your citizenship. This is known as a deemed sale.
For example, if those assets have increased in value, you may have a capital gain. After applying an exemption (which is adjusted annually for inflation and is around US$900,000 in recent years), any remaining taxable gain is generally taxed using the normal US capital gains rules. Different rules apply to certain assets including pensions, trusts, investments and business interests.
This means the calculation can become quite technical for people with more complex finances.
If you have modest savings, your home, retirement accounts and have kept your US tax filings up to date, you may not meet any of the covered expatriate tests. The people most likely to need specialist advice include:
Not necessarily. It’s likely that you will normally still need to complete your final US tax filings and may have additional reporting requirements depending on your circumstances. Even after renouncing, certain types of US-source income may still be subject to US taxation.
For that reason, renouncing citizenship should never be viewed simply as a way of avoiding tax. It should be viewed as a citizenship decision that also has tax consequences.
Once your renunciation has been approved, you cease to be a US citizen which means you will no longer be entitled to a US passport and if you wish to visit the United States in the future, you will usually do so under the immigration rules that apply to your remaining nationality.
Even if you continue to own property in the United States, receive Social Security benefits or inherit assets from US relatives after renouncing, you may still involve US tax or legal considerations, but they do not necessarily prevent you giving up your citizenship.
For someone who has lived overseas for decades, has another nationality, no intention of returning to the United States and finds the ongoing compliance burdens disproportionate, renunciation may provide certainty and simplify their financial affairs.
For somebody who expects to return to America, has close family there, plans to work there again or simply feels uncertain about the future, giving up citizenship may create more problems than it solves.
The important point is that citizenship decisions are difficult to reverse. Temporary frustrations with tax reporting or banking restrictions may not justify giving up rights that could be valuable later in life.
Paying for formal advice which is based on your own unique circumstances is the best and recommended way of establishing which is the most suitable path for you.
Before beginning the process, it is worth taking a step back and asking yourself a few simple questions, for example:
Professional advice is particularly valuable if you have substantial investments, are a business owner, have worldwide assets worth over $2m, are a dual citizen with pension arrangements in more than one country, or not kept your US tax filings up to date.
Even if you ultimately decide not to renounce your citizenship, understanding the consequences of each option can provide reassurance and help you make an informed decision rather than one based on assumptions.
