US exit tax: renouncing citizenship or giving up a green card from the UK

Renouncing US citizenship, or formally abandoning a long-held green card, ends future US filing. It can also trigger a one-off exit tax under section 877A, and it has consequences for anyone in the US who later inherits from you. Whether to do it is a personal decision; the tax position should be known before the appointment is booked.

Who the exit tax applies to

It applies to covered expatriates: US citizens who renounce, and long-term residents (green card held in at least 8 of the last 15 tax years) who give up their status, if any one of these is true:

• Net worth of US$2,000,000 or more on the expatriation date (this figure is not indexed).
• Average annual net income tax liability for the five preceding years above the indexed threshold (US$206,000 for expatriations in 2025).
• Failure to certify, under penalties of perjury on Form 8854, five years of full US tax compliance.

The third test catches people with modest wealth: if the past five years are not clean, you are covered regardless of net worth. Streamlined or amended returns often come first for that reason.

How the tax is calculated

A covered expatriate is treated as having sold all worldwide assets at fair market value on the day before expatriation. The net gain above the indexed exclusion (US$890,000 for 2025) is taxed on the final return. Separately:

• deferred compensation and most pensions are either taxed as a deemed distribution or, for "eligible" items, subject to 30% withholding on later payments;
• specified tax-deferred accounts such as IRAs are treated as fully distributed;
• interests in non-grantor trusts are taxed as distributions are made.

Tax on the deemed sale can be deferred asset by asset by election, with security posted and interest running.

UK assets

• UK home and property: valued in dollars on the expatriation date; the deemed gain is US-taxable. Section 121 can apply to a main home. UK capital gains tax will apply separately when the property is actually sold.
• UK shares and funds: deemed sold; PFIC rules apply to UK funds held outside a pension.
• UK pensions: generally treated as deferred compensation. Whether a UK scheme is an eligible deferred compensation item (withholding on future payments) or ineligible (deemed distribution now) turns on the facts and a treaty analysis.
• ISAs: included at market value.

Form 8854

Every expatriate, covered or not, files Form 8854 with the final dual-status return. It certifies five years of compliance, lists worldwide assets and values, and computes the mark-to-market gain. Failing to file it makes you a covered expatriate automatically and keeps the US tax position open.

The inheritance consequence

Under section 2801, US citizens and residents who receive gifts or bequests from a covered expatriate pay tax at the top estate and gift rate (40%) on what they receive, above the annual exclusion, reported on Form 708. If your children or other heirs live in the US, this can matter more than the exit tax itself.

The dual-citizen-at-birth exception

Someone who became a US citizen and a citizen of another country at birth, remains a citizen and tax resident of that other country, and has been US resident in no more than 10 of the last 15 years can escape covered status on the net worth and tax liability tests. Certification of five years of compliance is still required.

Before you decide

Sequence matters: catch-up filings, timing relative to asset values, pension treatment and any gifts to US family members should be looked at together. We set out the tax consequences in writing; the decision is yours.

Frequently asked questions

Does the exit tax apply to every green card holder?

Only long-term residents (8 of the last 15 years). Others file Form 8854 to certify compliance but are not subject to section 877A.

Can I defer the tax?

Yes, by election on Form 8854, asset by asset, with adequate security and interest. Withholding on eligible deferred compensation is separate.