Boris should pay up but not shut up over U.S. tax

November 24, 2014

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Boris Johnson has a point about his U.S. tax bill, but he should still cough up. The London mayor objects to the fact that his dual UK and U.S. citizenship means he has been issued with an American tax bill, and he says he won’t pay. Though many U.S. expats will share his frustration, it does not warrant civil disobedience.

U.S. tax law is highly unusual in its treatment of citizens who live overseas. Americans abroad are obliged to comply with prevailing tax rates and pay a top-up to the U.S. Treasury if the local rate is lower. This is particularly galling if – like the distinctively English, Eton-educated Johnson – you are American largely by accident of birth.

As it happens, Johnson’s case is not about income tax. The liability arises from the fact that the UK doesn’t tax capital gains on sales of primary residences. The United States levies a 15 percent charge.

Johnson is understandably annoyed about being handed a large bill on his London residence by the U.S. authorities. And, while these are not new rules and he could have renounced his U.S citizenship years ago, actually doing so could prove time-consuming and costly. U.S. law imposes what amounts to an exit tax on would-be ex-citizens. It would also come too late to sidestep this particular tax demand.

But it’s dangerous for a legislator – especially one who could one day become UK prime minister – to be seen breaking laws. It would be far better if Johnson used his public position and his personal predicament to campaign for change. Uncle Sam’s expat tax laws are worthy of reform. The costs of American taxes – both directly and in compliance terms – are excessive for both individuals and companies. The Foreign Account Tax Compliance Act, known as FATCA, places an absurd burden on foreign banks which hold U.S. citizens’ money.

The long arm of U.S extraterritoriality is a big global issue. If Johnson is motivated by anything more than the money in question, he should use his celebrity to highlight the problems. So far, Boris is going the wrong way about it.

2 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

15%? Doesn’t he have enough income to push him into the 20% capital gains band plus the Medicare surtax courtesy of ObamaCare? That’s 23.8%. Hardly a low tax rate. It’s well know in economics that taxing capital can only work in the short term. Obama ignored that and now doesn’t understand why investment in America is down.
Why should Boris pay 23.8% on the sale of his house when he doesn’t have anything to do with the US? Why as an example of the height of arrogance, should a green card holder with an expired green card have to pay tax to the IRS? Why should a long term green card holder have all the obligations of a citizen with none of the rights?
Ignore the problem while the queues to renounce grow longer and longer. You might get an appointment to renounce in 2016 if your lucky.

Posted by Neill37 | Report as abusive

Rather naïve, campaigning to change anything through the US legislative system is utterly futile.

He may well need to eventually tow the line because of his ambitions but not to protest is to accept a system that is fundamentally wrong.

Posted by Alisdair | Report as abusive