This is in spite of a new and, say critics, extraordinarily punitive “exit tax” that effectively prevents many Americans with assets of more than $2m (£1.4m €1.6m) from being able to surrender their navy blue passports.
By not renouncing, though, they are consigned to paying out thousands of pounds or dollars in accountants’ fees every year, just to manage their US tax reporting obligations.
Under the new exit tax, introduced in June 2008, a so-called “mark-to-market” tax is applied to the net unrealised gain on the expatriate’s entire worldwide assets as if such property had been sold for its fair market value on the day before his or her “expatriation date” – above an inflation-linked exemption currently standing at around $630,000.
An upfront tax on most forms of deferred compensation, such as non-US pensions, stock options and stock bonus plans, is also part of the scheme.
Renunciations treble
Some 502 expatriate Americans renounced their citizenship in the final quarter of 2009, the most of any quarter in recent memory, and more than twice the total number of renunciations recorded in all of 2008, when there were 231, official figures show. The 2009 total was 742, more than treble the year before’s.
While this is an insignificant proportion of the roughly 6 million Americans estimated to live abroad, lawyers and accountants who help such expatriates say they are seeing more enquiries as well as actual renunciations, as Americans wrestle with such problems as finding banks either in the US or in their adopted country that will have them as customers.
Such problems are expected to become worse after provisions contained in a recent US bill known as the HIRE Act take effect on 1 Jan 2013, which are expected to so add to the disclosure obligations of non-American financial services institutions that it is thought many more will seek to avoid having any Americans clients at all.
Almost all (95%) of a group of 48 bankers, accountants and other financial services professionals queried last week by the Withers International law firm said they expected to the Hire Act to result in more Americans being turned awawy by non-US financial services firms.
"We are getting substantially more enquiries, and some increases in people who actually are expatriating," says Andrew Aldridge, a director of London-based US Tax & Financial Services, a tax specialist which assists Americans with renunciations. The 25-year-old company also has offices in Zurich and Geneva.
Keen to simplify finances
Like others who work with them, Aldridge says the typical expatriate American interested in renouncing his or her citizenship tends to be a long-term expat married to a non-American and keen to simplify their finances.
“These are tax-payers whose families, social and economic lives for all intents and purposes are outside of the US now, but who find the US system confines them so much that they literally cannot live a normal person’s economic life,” he explains. “I rarely see anyone who is what you might call a tax-avoider type".
Paul Samartin, associate head of Laura Devine Solicitors and a specialist in US citizenship issues, agrees, noting that “escaping the hassle and expense of having to file tax returns to the IRS year in and year out” is unavoidably a key element in renunciations, but not usually the main reason.
Some have been spooked by America’s aggressive move against such Swiss banks as UBS, and believe the difficulties they are having finding banks and other financial institutions willing to have them as customers are only likely to increase, Samartin says.
Others simply don’t see the point in paying tax or maintaining complex obligations to a country they have few ties to, and never intend to live in again – assuming they ever did.
“The recession may have prompted some people to [renounce] who couldn’t before, because their assets were above the $2m threshold,” he adds.
“Now that they have lost a significant amount of money, and are under the threshold, they are taking advantage of this fact to get out” of the system altogether.
Even if someone does not owe tax, the cost of filing a tax return with the IRS every year for an American living in the UK is rarely below £400 and can run much higher, depending on the complexities of an individual’s finances, Samartin and others say.
Some urge children to renounce
So problematic and costly has it become to be an American expatriate that some who say they cannot afford to renounce themselves are urging their grown children to consider doing so, before they begin to inherit and accumulate assets in their own names that will make renouncing prohibitively costly later on.
Such youngsters are expected to file tax returns with the Internal Revenue Service as soon as they begin earning money, even if they have lived abroad for most of their lives.
“I said to my children, ‘look, you’re going to need to think very carefully about this’,” said Julie, a Europe-based American who renounced her citizenship last year, and who is herself the daughter of a lifelong American expat.
“But of course, at their age, [early 20s] having a US passport means they can go and work [in the US] without immigration issues, which to them, now, seems brilliant.”
A downside of renunciation, Julie adds, is that it is usually painful and emotional.
Even though she and her siblings grew up outside of the US, they were brought up to believe an American passport was, as she puts it, “a ‘golden ticket’ to be prized”, rather than a paper manifestation of lifelong financial obligations to a cash-strapped government on the look-out for new sources of revenue.
