Leveraging a position

Boris Johnson and attention-grabbing headlines are no strangers to each other.
In 2012, he was left dangling
20 feet in the air above a crowd of people when he became stuck on a zip line during the London Olympic celebrations. And, just a few weeks ago, he spontaneously broke into song in support of the ‘Save Soho’ movement.

So, it came as no surprise that, when Johnson was asked last year whether he was going to pay the US taxes he owed on
the gain he made from the
sale of his family home in north London, his response was:
“No, is the answer. I think it’s absolutely outrageous. Why should I? I haven’t lived in the United States since I was five years old.”

Dual citizenship

Johnson was born in New York and is a dual US and UK citizen.
America taxes its citizens on their worldwide income and gains. That means that if a US citizen living in the UK makes a gain on the sale of their UK home (as Johnson did), that gain is potentially taxable in America, even if there is no tax to pay in the UK.

This policy of worldwide taxation is unusual. If I, as a UK citizen, left the UK and moved to, say, Australia, I would pay tax in Australia rather than in the UK. The only UK tax I would pay would be on any income or certain gains that I made in the UK. The same could be said for citizens of almost every other country in the world.

But, although unusual, America’s policy of worldwide taxation is not unique. One other country charges its citizens on their worldwide income and gains even after they have left the country: the small African country of Eritrea.

But Eritrea’s government only charges its non-resident citizens
a 2 per cent tax, whereas America applies their full tax rates to their non-resident citizens.

So, in reality, the US is alone
in its policy and, unsurprisingly, Johnson’s views reflect those of many US ex-pats. No doubt Johnson would be even more outraged to learn that, in 2011, the United Nations passed a resolution condemning the Eritrean government for imposing a tax on non-resident citizens, and that the US voted
in favour of that resolution.

Ultimately, Johnson did pay up, and wisely so. But was his initial protest well placed? What does US citizenship get you? And how easy is it to give up?

Navy SEAL

US citizens can give up their citizenship, and with it the obligation to pay worldwide US taxes and file extremely lengthy US tax reports. However, the process can be time consuming and, thanks to a potential exit
tax, expensive. Those who do renounce lose the protection that US citizens benefit from when abroad; even if it is unlikely that you will ever need to be rescued by a Navy SEAL, it must be nice to know that they are there if you need them.

Expatriates also lose US consular services, the right
to vote in US elections, unhindered access to the US job market and unrestricted travel into and out of America. So, even once emotions have been set aside, renouncing is rarely an
easy decision.

And, while expatriation may
be the solution for an individual,
it does not get to the root cause
of the problem. Johnson is reportedly pursuing the American embassy for £8m
in unpaid congestion charges.
But perhaps he should also be using his position and the ‘outrageous’ situation in which he found himself to highlight America’s unusual worldwide taxation policy.

At the very least, it would remind US ex-pats that they may need to file US tax reports and pay US taxes in some instances to avoid unnecessary fines and penalties.

As David Cameron said: “If any other politician anywhere in the world was stuck on a zip wire, it would be a disaster. For Boris, it’s an absolute triumph.”

The same could be said for Johnson’s, until recently, unpaid US tax bill. SJ

Kate Davies is a solicitor at Wedlake Bell

@WedlakeBell