Facing U.S. capital gains tax, London mayor renounces dual citizenship

London Mayor Boris Johnson was born in New York City in 1964, and he has held dual British and American citizenship throughout his life. Recently, after months of grousing about having to pay a capital gains tax to the U.S. on the sale of his house in Greater London, Johnson announced he would renounce his U.S. citizenship.

Johnson’s disgruntlement with U.S. tax laws for expatriates and dual citizens is, of course, less cut and dried than that of the many Americans who renounce their citizenship to avoid double taxes. Johnson’s political career may necessitate a show of full and exclusive loyalty to the U.K. (think Ted Cruz’s renunciation of his Canadian citizenship.) He has much to gain by going all-in for the Crown. And his recent comments about dropping his dual citizenship have more to do with patriotism and optics than with finances. He called his U.S. citizenship “an accident of birth” and reaffirmed his “commitment is, and always has been, to Britain.”

But there’s no denying Johnson holds the same aversion many other dual citizens harbor toward the IRS. And there’s a bit of irony in observing a prominent Brit revolt against American tax oppression.

Here’s a well-explained snippet of Johnson’s tax dilemma, taken from an article in The Spectator late last year, written by American expat Anne Jolis:

So it is with great interest — and some sympathy, on the part of yours truly — that we expatriates in London learn of Johnson’s dispute with the US Internal Revenue Service (IRS). Speaking to American National Public Radio (NPR) this month Johnson said:

‘They’re trying to hit me with some bill, can you believe it?’

Yes, we can.

The IRS apparently wants its 15 per cent cut from the sale of Boris’s first home, a north London four-storey that he and his wife sold in 2009 for more than twice the 1999 purchase price. The sale of a first residence ‘is not taxable in Britain’, Johnson explained to American listeners (so there’s one stamp-duty loophole that he’s not clamouring to eliminate).

However, it is taxable for US citizens, no matter where in the world the transaction takes place and particularly if the gain has gone untouched by other jurisdictions. Asked if he plans to pay the bill, Boris retorted:

‘No. … I think it’s absolutely outrageous. Why should I?’

The short answer, to borrow the Mayor’s logic, would be because capital-gains tax on real estate is paid by virtually everyone else who holds US citizenship – except those who can afford the clever lawyers to avoid it.

That hardly makes it just, and this American wastes no love on the ‘incredible doctrine of global taxation’, as Johnson described it to NPR. Adding insult to absurdity, the IRS does not adjust for inflation in setting capital-gain tabs, so its bill to Boris probably reflects the full nominal increase on the sticker-price of his London home.

In that same conversation with NPR, Johnson elaborated on his reason for not hastening to pay the U.S. tax.

“I think, you know, I’m not a… I, you know, I haven’t lived in the United States for, you know, well, since I was 5 years old… I pay the lion’s share of my tax, I pay my taxes to the full in the United Kingdom where I live and work.”

As you’re probably aware, renunciation of American citizenship is at an all-time high, even as the government works out new ways to discourage it by making it more expensive.

“[I]t should come as little surprise that such a high number are prepared to… [renounce U.S. citizenship] because FATCA’s [the U.S. Foreign Account Tax Compliance Act’s] reporting requirements are excessively onerous, burdensome and expensive,” international financial consultant Nigel Green explained last October. “Also many non-U.S. banks and other financial institutions will no longer work with Americans which can make living outside the U.S. achingly complicated.”

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