Following on from the news surrounding Rishi Sunak’s wife non-domiciled UK tax status (read more about this here), it seems that Rishi himself is now somewhat in the spotlight after it emerged that he was a US Greencard holder. Whilst it appears that he has since given this up, there are several points to consider for Green card holders (both former and current).
But firstly, what is a Green Card? A Green Card is a permanent residence card which allows the holder to permanently reside and work in the US. The paper on which they were printed on, used to be Green in colour (hence the name) and this document also gives the holder the freedom to travel to and from the US. However, and unlike a US citizen, you are required to live in the US else you could forfeit the right to retain this visa (this can be revoked at US immigration if you are outside of the US for too long, typically for 180 days or more). Having a Greencard can also be the first step to obtaining US citizenship and whilst a Greencard or US citizenship may be highly sought after for those wanting to live and work in the US, there can be significant US tax consequences.
For starters, Greencard holders are taxed on their worldwide income (the same as US citizens) regardless as to where they are living in the world. This, in itself, not only creates an annual US tax return filing obligation but can mean certain types of investments are taxed at punitive rates. For example, a Greencard holder that holds a UK tax free ISA would be subject to US taxes on the income generated within that investment vehicle. Not only that, and where such investments exceed $25,000 collectively, additional US reporting’s on form 8621’s may be required and this, in turn, may lead to top rates of US taxes becoming payable on the income generated. Being taxed on the sale of ones private principle residence (which is typically tax free in the UK) can also lead to US taxes becoming due and so having a Green card can potentially expose you to significant US tax which continues until the Greencard has been given up.
The process of giving up a Greencard is not all that clear either. A Greencard lapsing and not renewed (typically after 5 years) does not mean that the Greencard has been given up for US income tax purposes. It does mean, however, that you can no longer travel and work in the US from an immigration standpoint. To actually give up the Green card for US tax purposes, a form I-407 should be completed. After which, the requirement to file annual US returns should cease (assuming the individual no longer has income from US sources). My first question to Rishi would be, did you actually file a form I-407? I assume the answer to this would be yes else, technically, he could still hold this for US tax purposes!
Secondly, I would ask Rishi how long did you hold the Greencard for? The rules state that if you have held a green card for at least 8 of the past 15 years then the Individual may become subject to the US expatriation tax rules where an exit tax assessment is made for individuals whose net worth exceed $2 million. The exit tax considers the deemed sale of an individuals worldwide assets and where the deemed gains exceed a certain threshold (that increases yearly) then US capital gains tax could become payable. As such, certain wealthy Greencard holders may wish to consider giving up their Greencards prior to holding this for 8 years.
At Tax Advisory Partnership, we are able to provide both US tax advisory and compliance services and so please contact us for an initial free consultation.
