US expats, of which there are around eight million, have been urged by the global advisory firm, deVere Group, to consider all other options before renouncing their citizenship for financial reasons and without wanting to.

US Treasury data indicates that a “record number” of American expats, including HNWIs as well as those who simply happen to live and/or work abroad, have relinquished their passports or green cards over the last year.

This is certainly not the first time data has pointed to this trend, but it is intensifying –  largely because of the financial burdens of FATCA, according to deVere Group, the global provider of financial solutions to high net worth individuals and other clients.

FATCA, an acronym for the Foreign Account Tax Compliance Act, was passed in 2010 as an anti-tax evasion measure and came into full effect in 2014. The legislation requires individuals to report their financial accounts held outside of the US and foreign financial institutions to report to the Internal Revenue Service about their US clients. Failure to do so will result in a 30 per cent withholding penalty. As noted by UK-based Tanager Wealth Management in a 2014 blog, the legislation has caused a number of banks and insurances companies, as well as fund and investment managers, and some financial advisors, to review their client bases.

For large institutions, identifying who is “an American” is an expensive and onerous requirement – before taking into account the creation of systems to monitor existing and new clients, Tanager said. “Many companies decided that the easiest solution was to simply eject US citizens from their business and file a 'zero' return to the IRS. Others have introduced complex systems to ensure that they can accurately report who is American.” It is estimated that UK institutions alone have spent over £1.6 billion ($2.3 billion) on implementing FATCA, it added (this is 2014 data).

Meanwhile, US individuals must also now file IRS form 8938 with their tax return, which reports non-US financial assets, the CEO and founder of deVere, Nigel Green, explained to this publication. This includes, among other things, bank accounts, trading accounts, pensions and trusts. The account numbers and maximum balances for each account must be included on the form (for US residents with non-US assets, these thresholds start at $50,000.)

“More Americans than ever are cutting their official ties with the US,” Green said. “For the third consecutive year, a record number of people have handed back their US passports or green cards.” This year, the number is up by over a fifth, he said.

Indeed, the US is taking this project “very seriously,” Green noted, and the penalties for non-compliance are hefty.

But there are other ways that US expats, of which there are around eight million, can mitigate the burdens of FATCA, without having to renounce their citizenship, he said. “These include an additional overseas pension contract that’s specifically designed for US taxpayers with assets in their country of residence.” Other methods, depending on personal circumstances, involve investing money in ways that could potentially give them attractive tax advantages, while remaining in-line with US laws and regulations, Green said, adding: “Don’t feel forced by Uncle Sam to give up your citizenship until all the options have been fully explored.” Also of note, the State Department has increased the fee to relinquish passports from $450 to $2,350, he said.

Last summer, Green called on US presidential candidates to “come clean” on where they stand on the issue of FATCA, saying: “FATCA adversely affects millions of hardworking, middle class Americans around the world, plus US companies that operate internationally – and, therefore, it impacts US jobs and the American economy.” The issue “must play a major part in the national conversation ahead of the election,” he said.

He added: “Most Americans abroad are proud of their citizenship and indeed many find it an integral part of their identity when living overseas. Therefore, giving up citizenship is a distressing idea and something they wouldn’t do unless they felt there was no alternative. As such, and because of the other financial implications of doing so, such as exit taxes, I would urge anyone who is considering giving up their US passports for financial reasons and without wanting to, to seek specialist advice.”