Boris Johnson’s has the unique ability to be ridiculous and charming at the same time. The London mayor and his inexplicable haircut can offend entire cities, get stuck on zip lines in front of crowds of journalists and be sacked from government for lying about an affair (“an inverted pyramid of piffle,” he claimed), yet still somehow end up one of Britain’s most important and beloved politicians. Many think he will be prime minister sooner or later.
However, Johnson’s charm may well fall flat with one organization: The U.S. Internal Revenue Service.
The mayor’s dispute with American tax-collectors was brought to light recently when he traveled to the United States and did a blitz of interviews with the American news media. While talking to WAMU’s Diane Rehm Show, Johnson explained that the U.S. government was forcing him to pay the capital gains tax on the sale of his Islington home. “Can you believe it?” he exclaimed. When asked by Rehm if he intended to pay the bill, he said that he would not. “I think it’s absolutely outrageous,” he added.
Johnson’s problem comes down to one important factor: His dual-citizenship. Despite being very, very British, Johnson was born in New York and lived in the United States until he was 5, hence becoming a natural born citizen. And despite some threats to renounce his citizenship (“After 42 happy years I am getting a divorce from America,” he wrote in 2006 after a spat with a U.S. immigration officer), he renewed his U.S. passport just two years ago.
It’s certainly tempting to dismiss Johnson’s dilemma as the simple case of a very rich man attempting to float the law (“Come on, Boris!,” the New York Times’s Roger Cohen wrote this week. “Give us a break.”) but there is a degree of sympathy to be found here: American citizenship carries with it a uniquely vexing taxation problem. The United States is one of only two countries where taxation is based on citizenship rather than residence (Eritrea is the other). If Johnson lived in the United States, for instance, he would not have to file a British tax return.
The unusual U.S. policy dates back to the Civil War and the Revenue Act of 1862, which called for the taxing of American citizens abroad, in part to punish men who fled the country to avoid joining the Union army.
In practice, this is usually often just an annoying bit of paperwork for foreigners — while the average citizen would have to file a tax return, it’s unlikely they’ll have to pay anything. However, it can become expensive for higher earners, especially when tax laws don’t line up. As Lisa Pollack, an American expat herself, explains for the Financial Times, this is what appears to have happened for poor old Boris:
In the U.K., gain on the sale of one’s home is not subject to tax. In the U.S., a gain above $250,000 (for a single filer) is subject to capital gains tax. Also in the US, home ownership is subsidised by a deduction against income of mortgage interest. In short, the countries have different tax breaks on housing.
Johnson’s U.S. tax bill for the sale of his home in London is thought to be in six figures. Given that the home is in the country he lives and works in, and he has not lived in the U.S. since he was 5, you can see why he thinks it’s “outrageous.”
Johnson does have the option of giving up his citizenship. If he did so, he would be joining a growing number of Americans: Last year 2,999 people renounced their American citizenship or green card status, the largest number ever revealed by the U.S. government, and its thought that number may end up being higher this year. The United States recently increased the administrative fee for renouncing one’s citizenship from $450 to $2,350, in what is unlikely to be a coincidence.
Experts believe that the increasing number of Americans renouncing their citizenship is due to a 2010 law called the Foreign Account Tax Compliance Act (FATC), which forced foreign banks to help claim back tax money from U.S. citizens living abroad. FATC has become a deeply unpopular with American expatriates. So far, it’s thought that the campaign has netted the U.S. Treasury $6 billion, the Wall Street Journal reports.
There are significant upsides to being a U.S. citizen, of course, and if Johnson wants to keep his passport, perhaps he could kick up a fuss. He might point toward the fact that the U.S. Embassy in London owes more than $10 million in fines related to the city’s congestion charge. He could also side with the legal battle being started by other expats against America’s taxation policies and the foreign governments that work with them.
Better still, he could put his very expensive citizenship to use: As an American citizen who was born in the United States, Johnson could one day run for president. His absurd charm could well win over American voters, too.