Expatriation
Form 8854, Form 1040, Form 1040-NR, Form W-8BEN
Tax planning and Form 8854 filing for people giving up US citizenship or a long-held green card, including covered expatriate testing.
What does Expatriation involve?
Giving up US citizenship, or a green card held long enough to make its holder a long-term resident, is a tax event as well as a legal one. The tax result turns on whether the person is a covered expatriate. That is decided by three tests, and one of them has nothing to do with wealth.
Forms and filings involved
- Form 8854
The form that closes out US tax status after renouncing citizenship or giving up a long-term green card, and sets whether the exit tax applies.
- Form 1040
The annual federal return for US citizens, green card holders and US residents, reporting worldwide income wherever the filer lives.
- Form 1040-NR
The federal return for people who are not US citizens or residents but have US-source income, a US business or a refund to claim.
- Form W-8BEN
The certificate a non-US individual gives a US payer to confirm foreign status and claim treaty-reduced withholding on US income.
Leaving the US tax system properly
A person is a covered expatriate if any one of three tests is met: net worth of $2 million or more, average annual net income tax over the prior five years above $206,000, or failure to certify on Form 8854 five years of full US tax compliance.
The third test catches people of modest means. Failing the certification alone makes someone covered, whatever their wealth. Net worth is measured on worldwide assets, including the value of pensions and a share of jointly owned property.
A covered expatriate is treated as having sold worldwide assets at market value on the day before expatriation, and gain above an exclusion of $890,000 is taxed. Deferred compensation and certain tax-deferred accounts have their own rules, which can mean withholding on later payments or an immediate deemed distribution, and UK pensions need particular care here. Gifts and bequests from a covered expatriate to US persons can also be taxed in the recipient's hands, which matters where children remain American.
The sequence matters. The certification covers five years, so anyone behind on filing usually needs to catch up first, often through the streamlined procedures. The year of expatriation needs a dual-status return covering the part of the year as a US person and the part as a non-resident, with Form 8854 attached. There are narrow exceptions from the net worth and tax liability tests for certain dual citizens from birth and for minors. The certification requirement still applies to them.
Before and after the renunciation date
- 01
- Covered expatriate tests applied to your balance sheet and tax history
- 02
- Five-year compliance review before a renunciation appointment is booked
- 03
- Mark-to-market computation with the exclusion allocated across assets
- 04
- Dual-status return and Form 8854 for the year of expatriation
- 05
- Withholding position afterwards, including Form W-8BEN for remaining US income
Who this is for
Accidental Americans with no plans to live in the US
- Long-term green card holders returning to the UK for good
- Dual citizens from birth checking whether the exception applies
- Families weighing the effect on gifts and bequests to US children
Why US UK Tax Returns
Each return is prepared with the other country's return open beside it, so a credit, election or disclosure on one is supported by the other.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
I am not wealthy. Can I still be a covered expatriate?
Yes. The net worth and tax liability tests are only two of the three. The third asks you to certify on Form 8854, under penalty of perjury, that you have met all US federal tax obligations for the five preceding years. If you cannot, or if you never file the form, you are a covered expatriate regardless of your means. With modest assets the exit tax itself may be nil, but the status has other effects.
Do I have to be up to date with my US taxes before I renounce?
Renunciation itself is a State Department process and does not generally depend on tax filings. The tax consequences do. To avoid covered expatriate status you must be able to certify five years of compliance on Form 8854, so returns, FBARs and information returns for those years need to be in order first. People who are behind usually regularise their position before the appointment, because the expatriation date fixes the years that count.
Does giving up my green card count as expatriation?
It can. The expatriation rules apply to long-term residents, meaning people who have held a green card across a sufficient number of recent tax years. For them, formally abandoning the card is an expatriating act, and so is claiming to be a UK resident under the treaty tie-breaker. Simply moving away or letting the card lapse does not end US tax residence. Whether you are a long-term resident depends on counting the years carefully.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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