Living in London

The Wall Street Journal recently posted an excellent article on the financial and tax implications for American citizens living outside of the United States.

The U.S. levies income taxes on its citizens regardless of where they live. (Generally, Americans working abroad are able to exclude up to $80,000 of earned income.) "One thing that's always a kind of a shock to our clients is when they discover that as U.S. citizens they still owe U.S. taxes, even though they live in another country," says Gavin Leckie, an international wealth advisor at JPMorgan Private Bank in New York. To stop paying the U.S. income tax, you must renounce your citizenship -- but even that drastic step may not be enough to keep the tax man at bay. The government presumes that wealthy Americans who renounce their citizenship are doing so to dodge taxes.

Under a 1996 law, anyone with annual income of $100,000 or more, or a net worth of $500,000 or more, who renounces citizenship must continue to pay taxes for 10 more years unless they can prove that they should be exempt from the law. (Those figures, indexed for inflation, rise to $124,000 and $622,000, respectively, for 2004.) And it's not just income tax, which nonresidents face, but also taxes on gains on the sale of certain foreign property, stocks, bonds and other investments that generally would not be taxed for nonresident citizens. What gets you an exemption? "You get can out of it if you're a dual citizen by birth, or if [the person is] going back to live in the country in which he or she, or the spouse, was born," says Mary Clarke, a private wealth-services attorney.

Where the Americans Are

An estimated 4.1 million Americans (excluding military) live abroad in more than 160 countries, with the greatest number residing in Mexico. Below is a list of the top 10 foreign countries where most Americans live:

Source: The Association of Americans Resident Overseas.

-HrH