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Boris Johnson and US taxation

28th Nov 2014
Tax Consultant freelance
Columnist
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Boris Johnson has said that he is refusing to pay a US Capital Gains Tax assessment on the sale of his home in London, says Simon Sweetman.

He was born in New York and still hold a US passport and has dual citizenship: US citizens are required to declare and pay tax on their worldwide income.

Knowing little about US taxation I turned to Liz Zitzow of British American tax: Yes, she said, this would be the case.

“He owes massive tax on the sale in the USA. The treaty does not exempt this as Article 1 paragraph 4 means the US taxes what the UK doesn’t. This is the so called ‘saving clause’ that lets each government do what it likes to its citizens. The US tax for someone in his income bracket works out to 23.8% of the gain in excess of $250K (about £150K).”

Also the gain is computed as the Americans do, so it’s the exchange rate on the date of purchase and the exchange rate on the date of sale. They are also allowed all the renovations using the exchange rate for each and every one. Many a time a sale that is a gain in the UK works out to a loss in the US and vice versa due to fluctuations in the foreign currency exchange rates. In this case, on the sale of a private property in London, one would expect a gain to be huge.

This all raises two questions: Where were his tax advisers, and how does he think it right to ignore the US tax legislation?

Liz points out that eliminating the capital gains would have been easy. All he had to do was gift it to his wife before he sold. As long as he gifts less than $5M (about £3M) over the course of his life there’s no US gift tax. I find it hard to believe that the Mayor of London (which I understand is some sort of financial centre) does not have access to such advice.

And the other question? How can a serious politician take the stance that he should not pay this despite it being clearly a legal liability? More to the point, would he condone this approach from somebody else (as in US Embassy staff refusing to pay the congestion charge on the grounds of diplomatic privilege)? 

And incidentally, if Boris were to become Prime Minister, that is an automatic revocation of his US citizenship. If and when he revokes his US citizenship, he will have to pay an exit tax to the US as if he sold everything and cashed in all his pensions whether or not he is legally even able to do so. 

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Replies (8)

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By David Gordon FCCA
01st Dec 2014 13:18

This misses the point.

 

 This misses the point.

 It is oppressive for the US Government to attempt to tax persons on their world income, when they are clearly not resident or domiciled in the US (According to UK law)

 Tax avoidance by corporations is something different.

 Nevertheless we come back to the old argument- It is hypocritical of law-makers moaning about use of law, when people take advantage of the junk they have often written.

 The nonsense of this particular law, is that I now have to tell my 83 year old client, who was given US citizenship as part of how as a child he escaped from [***] Germany, that if he sells his home in London, where he and his family live,  he could be in tax trouble.

 Imagine the yells if Russia or India, or China, passed similar tax legislation?

 

 

 

 

 

 

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Replying to welshwizard62:
Locutus of Borg
By Locutus
01st Dec 2014 14:56

Agreed

David Gordon FCCA wrote:

This misses the point.

It is oppressive for the US Government to attempt to tax persons on their world income, when they are clearly not resident or domiciled in the US (According to UK law)

Tax avoidance by corporations is something different.

Nevertheless we come back to the old argument- It is hypocritical of law-makers moaning about use of law, when people take advantage of the junk they have often written.

The nonsense of this particular law, is that I now have to tell my 83 year old client, who was given US citizenship as part of how as a child he escaped from [***] Germany, that if he sells his home in London, where he and his family live, he could be in tax trouble.

Imagine the yells if Russia or India, or China, passed similar tax legislation?

In my opinion, it is wrong for any country to try and impose extra-territorial tax on people that have no link to that original country other than citizenship.

Ironically the US Embassy (and indeed some other embassies) refuse to follow our laws, by not paying the London Congestion Charge and associated fines, on the grounds that they view these as taxes, from which diplomats are exempt from paying.

 

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Replying to Wilson Philips:
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By Chaztax
01st Dec 2014 19:46

An unjust law

 

"In my opinion, it is wrong for any country to try and impose extra-territorial tax on people that have no link to that original country other than citizenship"

 

Indeed. It is worse than merely a bad law; it is a fundamentally unjust law.

Some commentators on other websites have stated that US citizenship is very valuable and that expats can renounce their citizenship if they wish. However, some people may not want to incur the time and expense of doing this.

The only way I can think of, of making the link between citizenship and taxation more equitable, would be to make it "Opt - in" rather than "Opt - out"; i.e. US expats have to actively elect to retain their US citizenship after a certain period of time overseas. That way they can at least be considered as having accepted ongoing US taxability as the cost of retaining the benefits of US citizenship.
 

 

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By vstrad
01st Dec 2014 14:55

Oh Simon!

Oh Simon, your socialist slip is showing. I'm backing Boris. His US citizenship is an accident of birth and the way the US seeks to control both its own nationals and foreigners through the worldwide reach of tax, criminal and commercial legislation is outrageous.

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By Justin Bryant
01st Dec 2014 19:06

An interesting question is
Could he sue his solicitor (who did the conveyancing) or his accountant for negligence if this was so easy to avoid?

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By LooksLikeSunday
01st Dec 2014 21:09

Oh Dear! It's the English disease all over again
You see, if US citizenship is not valuable, then renounce it.

If it is, then accept there are OBLIGATIONS that go along with it, and pay what's due.

And yes, I know it can be tricky financially to renounce citizenship but if BoJo needs help then we have great contacts in the US who do this on a daily basis. And they tell me their business is increasing rapidly at the moment!

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By J Lessels
04th Dec 2014 16:11

Boris fights the law

All this guff about whether the law is unjust is beside the point. Yes, if you don't agree with it, campaign against. Demonstrate! But the law is the law, whoever you are, you have to obey it even if you don't agree with it.

 

 

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By David Treitel
04th Dec 2014 22:02

Simon - A few inaccuracies

Boris sold the property in 2009. The tax rate was just 15% and the gift tax exclusion $1 million.

Boris may well not have thought it politically prudent to flip his UK home to his wife as Simon seems to recommend.

 

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