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Accidentally American? Get the best investment advice and plan your dream future

Categories: Finance

Investing and saving is a complex game at the best of times. For Americans living abroad, the federal government’s tax and reporting regulations make the situation even more complex. Thankfully, Beacon Financial Education is here to walk you through the financial minefield.

So you’ve got some hard-earned cash squirreled away or made a few juicy bonuses and you’re looking to plan for your retirement or save for a brighter financial future? The first hurdle to clear is establishing what exactly it means to be an American, at least to the taxman.

As Beacon’s David Bellingham explained, America assigns citizenship on the principle of Jus Soli (Latin for ‘The Right of the Soil’), meaning almost anyone born on US soil has a right to citizenship. However, that right comes with responsibility. U.S. citizens are required to comply with U.S. tax laws, even while living abroad, meaning the only way to avoid paying Uncle Sam is to renounce that citizenship, a costly decision given the power of an American passport.

“It’s one of the best passports to have,” Bellingham said, “So this is a pretty drastic measure.”

Aside from citizens, there are multiple categories of what Bellingham calls “accidental Americans.”

“Green Card holders, spouses of Americans, share owners, business partners of US residents” can all find themselves liable for US taxes, even while living abroad. “People often get confused” when they discuss this with their financial adviser, Bellingham added.

Former British Foreign Secretary discovered this for himself in 2014, after the US government tried to collect tax on the sale of his home in Islington, London. Although Johnson paid up, he called the tax “absolutely outrageous” and renounced his American citizenship in 2016. Johnson is as British as warm ale and bad weather, but was liable for US taxes simply due to being born in New York.

Although Johnson left the United States aged five, the taxman still came a-knocking across the pond.

Changing rules

At any one time there are over ten million Americans living abroad, more than 40,000 of them in The Netherlands alone. These Americans, and the countless other “accidental Americans” didn’t always come under such pressure to report their earnings back home.

The Foreign Account Tax Compliance Act (FATCA) was signed into law by Barack Obama in 2010. Although Americans always had to report their worldwide income and pay U.S. taxes on it, FATCA ensured that U.S. authorities can identify and collect the appropriate penalties for failing to report correctly. Stiff penalties for failing to do this have made global financial institutions wary of dealing with Americans.

Compliance with FATCA, Bellingham said, “is still fairly low, partly because a lot of people don’t realize they have to do it, and some people figure ‘I’m not going to bother.’”

Legal investment options, therefore, have been limited. Americans can either send their money home to the states – not an option for those staying abroad for any length of time, keep it in cash, or invest in ‘segregated accounts,’ an option for the super-wealthy, or lock it up in trusts and pensions.

Beacon, however, offers another option for Americans looking to invest. Drawing on experience in America and worldwide, Beacon connects clients with advisers who can offer a product that’s simple, accessible, and most importantly, FATCA compliant.

Getting access

This new solution is similar to investing in a US mutual fund, in that you can put money in and take it out monthly, Bellingham explained. Put simply, it allows Americans, or any expat for that matter, to invest in funds they previously would have been locked out of. The customer owns bonds that are invested in these underlying funds, themselves managed by top-tier investment managers.

As with everything, “the right solution for one person is not the right solution for another,” said Bellingham. Investing always carries an element of risk, and nothing is guaranteed to make an investor rich. A cautious investor can opt for a lower risk fund, while the more adventurous can opt for a higher risk, higher reward fund.

With the market newly open to American expats, now could be the time to start planning for your dream future. And, as Bellingham stressed, Beacon Financial Education can connect you with a locally licensed independent adviser.

“We bring together the best advisory solutions in Europe, so we can guide you and put you in touch with the right person for you, and it doesn’t cost anything,” he concluded.

 Beacon Financial Education does not provide financial, tax or legal advice. None of the information on this site should be considered financial, tax or legal advice. You should consult your financial, tax or legal advisers for information concerning your own specific tax/legal situation.