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  1. Besides property and UK pensions, it’s worth noting that the pension double-tax jeopardy you describe above also applies to US retirement plans such as 401k and IRA. Art 17 para 1(a), not excepted by the saving clause, says that pension plans are only taxable by the country of residence (in this case the UK, and making the exit tax arguably a treaty override).

    Some mitigation against double-tax may however be possible for all three. The final tax bill and financial loss for doing these may end up higher than before the exit tax, but will likely not be anything like as bad as the execrable exit tax itself.

    For the property, selling to a third party to realize the gain for UK purposes will re-set the UK basis. This generates a concurrent tax liability in both countries but one can then be used as a credit for the other with no timing issues.

    For a 401k or IRA, convert to a Roth. The UK fully recognizes Roths via the treaty, so out of the wood in future there. If Roth is impractical for some reason, collapse it and take early withdrawals. Probably a higher tax bill than the Roth route but still much better than the exit tax.

    For UK pensions, extremely tricky because there are no early withdrawals permitted. The best (only?) solution may be to defer (unfortunately interest payable to IRS for deferring) the exit tax payments until the pension can be withdrawn. At that point again both country’s taxes become payable at the same time and under the treaty the US is bound to give credit for UK tax, Art 24 para 6. In this case the ability to rely on the treaty may be limited because the UK’s recognition of tax on former citizens extends only for ten years after renouncing.

    Still, very unsatisfactory all round. It seems like it should be only a matter of time before somebody challenges the exit tax in the US courts as a breach of treaty.

  2. Besides property and UK pensions, it’s worth noting that the pension double-tax jeopardy you describe above also applies to US retirement plans such as 401k and IRA. Art 17 para 1(a), not excepted by the saving clause, says that pension plans are only taxable by the country of residence (in this case the UK, and making the exit tax arguably a treaty override).

    Some mitigation against double-tax may however be possible for all three. The final tax bill and financial loss for doing these may end up higher than before the exit tax, but will likely not be anything like as bad as the execrable exit tax itself.

    For the property, selling to a third party to realize the gain for UK purposes will re-set the UK basis. This generates a concurrent tax liability in both countries but one can then be used as a credit for the other with no timing issues.

    For a 401k or IRA, convert to a Roth. The UK fully recognizes Roths via the treaty, so out of the wood in future there. If Roth is impractical for some reason, collapse it and take early withdrawals. Probably a higher tax bill than the Roth route but still much better than the exit tax.

    For UK pensions, extremely tricky because there are no early withdrawals permitted. The best (only?) solution may be to defer (unfortunately interest payable to IRS for deferring) the exit tax payments until the pension can be withdrawn. At that point again both country’s taxes become payable at the same time and under the treaty the US is bound to give credit for UK tax, Art 24 para 6. In this case the ability to rely on the treaty may be limited because the UK’s recognition of tax on former citizens extends only for ten years after renouncing.

    Still, very unsatisfactory all round. It seems like it should be only a matter of time before somebody challenges the exit tax in the US courts as a breach of treaty.

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.