
By Abby Schultz
Aug. 21, 2024
If you’re contemplating a move out of the U.S., think hard about why you want to go. Is it just the right time to retire to the tropical beaches of Costa Rica or to the European charm of Lisbon? Or is it to avoid paying taxes?
Those trying to avoid taxes may need another plan. The U.S. is one of the only countries in the world that taxes its citizens no matter where they live, says Shelly Meerovitch, co-head of global families at Bernstein Private Wealth Management, a unit of the New York-based investment firm AllianceBernstein.
“If you want to get a golden visa somewhere because you think it’s going to be the best thing since sliced bread for tax savings, that’s not going to happen unless you give up your citizenship as well, which very few are willing to do,” Meerovitch says. Golden visas provide a pathway to citizenship in several countries typically, although not always, in exchange for investment dollars.

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The U.S. election could cause some people worried about higher taxes to pull the trigger on a move, but Meerovitch says Bernstein has been hearing from families interested in having a home outside of the country increasingly since the pandemic.
That’s largely because it was the first time travel for many Americans was limited. A client would say, “I want to buy a house in Canada,” and Bernstein would respond, “O.K., but you can’t actually go into Canada because the border is closed.”
So clients began to look at how to acquire passports from other countries based on their heritage or through golden visa programs, Meerovitch says. For example, the Quebec Investor Immigration Program will offer a work permit to a wealthy investor for C$1.2 million (US$877,204), allowing them to apply for permanent residency after a year, according to Henley & Partners, a London-based global relocation firm.
Avoiding Double-Taxation
Meerovitch says she has rarely come across a client willing to give up their U.S. citizenship to live somewhere else. Therefore, it’s important to know the implications of any move you make. The first step is learning whether or not a country you want to move to has a treaty with the U.S. that would limit your overall tax bill.
Tax treaties are agreements between the U.S. and another country that spell out who gets to tax what. “We usually say that a good rule of thumb is that a U.S. citizen is going to pay the higher of the two taxes,” Meerovitch says.
A treaty could, for instance, say that gains from a real estate sale will be taxed in the country where the property is located, while the sale of something intangible—such as shares of stock—could be taxed in the country where the person physically resides, she says.
“Each treaty has its own set of requirements and agreements, and each country has its own set of rules and brackets,” Meerovitch says. Importantly, not every country has a treaty with the U.S. Often those that don’t are “very low tax jurisdictions,” or they don’t tax at all, in which case a treaty isn’t necessary.
Brazil and Argentina are two examples of countries that don’t have a treaty agreement with the U.S.
“However, that doesn’t necessarily mean that U.S. citizens who pay taxes in Brazil won’t get any credit for those taxes against their U.S. income tax liability and vice versa,” she says. “It does mean that navigating double taxation for those taxpayers will likely be more difficult than it would otherwise be if a treaty was in place.”
Avoid Onerous Taxes on Investments
Critical to understanding the impact on your taxes is to understand the tax status of your investments. Americans are subject to so-called anti-deferral rules, which are meant to discourage U.S. citizens from investing in foreign funds that aren’t transparent to the U.S. Internal Revenue Service, Meerovitch says.
“Those [foreign vehicles] can be as innocuous as a foreign money market fund or an ETF, which would look and seem O.K.,” she says, but they could trigger “an added compliance requirement and different tax treatment in the U.S.”
For that reason, Bernstein advises Americans who move abroad to know the U.S. tax status of their investments, Meerovitch says. But it’s also important “to be careful of your new jurisdiction’s rules—you don’t want to trip those up either.”
A good example is in the U.K., where residents who invest in funds outside the country could pay taxes on capital gains as high as 45% if their offshore funds have not been approved by the U.K.’s tax reporting regime, according to global consultancy EY. For funds that are approved, the capital gains taxes are just 20%.
American clients who move to the U.K. are advised to either invest in U.S. funds that have U.K. reporting status, or “avoid funds altogether and just invest directly in the underlying stocks,” Meerovitch says.
Estate Taxes Are Another Issue
U.S. citizens moving abroad actually have to consider whether the country they are moving to also has a treaty with the U.S. covering estate taxes in addition to a treaty covering income taxes.
These taxes on the property of a deceased individual can be complicated because some countries, such as the U.S., impose estate taxes on the deceased’s assets and property, while other countries impose inheritance taxes on the recipients of the deceased’s wealth. Treaties are difficult to hammer out between countries if they take different approaches to taxation, Meerovitch says.
Another issue is that countries have different legal systems. U.S. estate plans almost always involve the use of trusts, for instance, but a lot of countries don’t recognize these vehicles. Civil law countries such as Spain and Germany “have a really hard time understanding trusts,” she says.
In practice, that means trusts are “completely disregarded” in some countries, and in others, they are treated differently, giving rise to unintended consequences.
One of AllianceBernstein’s clients is a widow who wanted to move to Spain after her husband died. In the U.S., it’s common for a couple to set up a marital trust, a vehicle that can defer estate taxes and allow a surviving spouse to take advantage of the “unlimited marital deduction.” That’s a provision of U.S. estate law that allows an individual to pass property to a surviving spouse after they die, deferring the estate taxes on that property until the surviving spouse’s death, Meerkovitz says.
The property in this client’s trust was intended for her deceased husband’s children from a previous marriage.
Spain, however, didn’t recognize the trust due to the vehicle’s terms, so the country would have taxed all the income generated in the trust, including the capital gains to which the widow had no access, and would have treated the widow as the owner of the trust’s underlying assets, she says.
There was no way around this mismatch between the Spanish and U.S. legal systems so she decided not to move.
“The perfectly well-planned U.S. estate plan can go awry really quickly when there isn’t some forethought and planning given to it before a move to a country like Spain,” Meerovitch says.
This Barron's article was legally licensed by AdvisorStream.
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