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.