When Americans ditch the motherland and head for the UK, they don’t leave behind all of the rules and restrictions of the U.S. Unfortunately, you are in a new land, but the United States government doesn’t want to let you go. There are certain rules that apply to you as long as you are still a legal citizen of the U.S.A. Here’s what you need to know about your investments abroad.

FATCA

FATCA is the Foreign Account Tax Compliance Act. It is special legislation that was passed in 2010 as a way to help reign in some of the lost tax revenue the IRS experiences when Americans leave the country. It consists of a complex set of rules designed to increase compliance with U.S. tax laws when people like yourself leave the country or hold assets outside of the U.S.

The United States taxes all income, including investment income, from worldwide sources. So, it doesn’t matter if your investment gains come from India or the UK – you will owe tax on them.

In general, you have a self-reporting requirement each year on all foreign assets you own. Even if you live in the UK, you still have to report your taxes to the U.S. Internal Revenue Service.

Of course, if all of your money is in pounds, you may need to use a service like ACE-FX and perform an international money transfer to the U.S. to pay your tax debts. Otherwise, there’s no simple way to get the money back into the U.S.

If you live in the U.S., you will need to sell some of your foreign assets and convert the money into U.S. dollars or pay the taxes out of U.S. income or investment sources.

Reporting Requirements

USD Packs (PD)You must use IRS form 8938 to report financial assets you own in a foreign country if those assets exceed $50,000 on the last day of the tax year or more than $75,000 at any point during the year.

This reporting is in addition to the Treasury Department’s Foreign Bank and Financial Accounts Report that is required only if you live outside of the U.S. The Treasure requires you to report any assets that exceed $200,000 and $300,000, respectively.

Penalties

Financial firms will almost certainly comply with the U.S.’s request, since the penalties are steep. In general, the U.S. government will withhold income or payments from U.S. sources to financial institutions that are not in compliance with the mandated reporting.

The withholding amount is 30 per cent. In other words, if a foreign financial institution earns dividends on U.S. stocks, the U.S. government will withhold 30 percent of the income until the financial institution falls into compliance.

Because many financial institutions rely on foreign investments, and because many companies hold stock or investments in U.S.-based corporations, the Treasury has provided the perfect incentive for compliance.

Your Only Option For Escape

The only way to absolve yourself of these requirements is to relinquish or renounce your U.S. citizenship. However, this is not an easy process and if you do this you will have to find a new domicile. You may not be accepted by the new country and, if this is the case, you could be deported, though you will not have a home country. This is not a situation you want to find yourself in, so think carefully before you act.

By Finley Holland

Finley is an American expat and avid writer. He enjoys helping others by sharing his experiences online. Look for his informative articles on many of today's top websites.

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