Citizenship – as obvious as it seems?

My interest was captured by a UK press article this month about a very unusual case of unwanted citizenship.  Citizenship is usually easily defined.  Citizenship is “the status of a person recognized under the custom or law as being a legal member of a sovereign state.” A person may have multiple citizenships and a person who does not have citizenship of any state is said to be stateless.  Usually citizenship is defined by your place of birth and parents, so for most of us it is obvious.

Or is it?

In 2014 new rules applying to British companies working with US citizens were implemented.  They require that these companies supply details to US tax authorities about UK-residing customers who have US citizenship. This has led to some Americans renouncing citizenship of their home country if they have no intent to return.

But what if you didn’t know you were a US citizen?  The anonymous subject of the UK press article was born in the US but left as an infant.  She never held a US passport and lived her entire life in the UK.  Until her bank asked her for confirmation of her citizenship because of the new information sharing rules, she had no idea America had any claim to her at all.

With no ties to America, including no social security number, renouncing her citizenship became a costly task.  The specialist assistance required to tidy up the administrative mess was timely and costly.  Since 2010 the US has been charging a renounce fee which has crept up to $2,350 this year.  High net worth individuals may also face an exit tax of their total wealth at the exit point.  Our unknowing US citizen in the UK had no debts or taxes to pay in the US.  However, the cost to shed her citizenship was $10,000 and the filing of documentary evidence of her entire life outside the US!

As global information sharing becomes law and financial institutions must comply, there may be some more costly discoveries.  If you come from an international family or have settled in a new country to start a family – make sure you understand the local citizenship or nationality law.  It may be more than just a matter of national pride for your children.