U.S. citizens who are planning to live abroad or renounce their citizenship need to consider several tax changes that could take effect under the Biden administration. The proposals focus on capital‑gains taxation, an expanded exit‑tax regime, and higher rates on foreign‑derived income for U.S.‑based businesses operating overseas.
Capital‑gains tax could rise to ordinary‑income levels
- The Biden plan calls for raising the top ordinary‑income tax rate to 39.6 %.
- If enacted, long‑term capital gains on high‑income earners would be taxed at the same rate, eliminating the current preferential 20 % (plus the 3.8 % net‑investment‑income tax).
- For a business owner who sells a company for $10 million, the tax bill could double—from roughly $11 million under current rules to $20 million or more under the proposed rates.
Exit‑tax (expatriation) costs may increase
- U.S. citizens who give up their passport are subject to an “exit tax” on unrealized capital gains.
- The tax applies when a person meets any of the following “covered expatriate” thresholds:
- Net worth > $2 million
- Average annual U.S. tax liability > $171,000 (adjusted for inflation) over the previous five years
- Failure to certify compliance with U.S. tax filings for the five prior years
- Higher capital‑gains rates would raise the amount owed on those unrealized gains, potentially making expatriation financially prohibitive for owners of rapidly appreciating assets.
GILTI (Global Intangible Low‑Tax Income) and foreign‑income taxation
- The “GILTI” provision already requires U.S. shareholders of foreign corporations to include a portion of foreign earnings in U.S. taxable income, even if those earnings are not repatriated.
- Biden’s budget proposes to increase the GILTI rate from the current 10.5 % (effective 2026) to as high as 21 %.
- This would affect small and medium‑size overseas businesses owned by U.S. citizens, meaning they could owe U.S. tax on foreign profits despite never having a physical presence in the United States.
Minimum corporate tax on overseas structures
- A new minimum corporate tax is being discussed, targeting U.S.‑controlled foreign corporations that currently benefit from low‑tax jurisdictions.
- The proposal would limit the ability to use offshore entities to defer or reduce U.S. tax liability, potentially adding a baseline tax burden regardless of the jurisdiction’s local rates.
Why timing matters now
- Many of the proposed changes are slated for implementation after 2025, but the legislative process could accelerate them.
- Acting before the thresholds are reached—by either restructuring assets, selling high‑value businesses, or securing a second passport that facilitates future relocation—may reduce exposure to higher rates.
- For entrepreneurs with net worth approaching the $2 million covered‑expatriate limit, early planning can avoid the compounded effect of higher capital‑gains tax and the exit‑tax calculation on unrealized gains.
Practical steps for U.S. expatriates and high‑net‑worth individuals
- Assess current exposure – Determine whether you meet any covered‑expatriate criteria and estimate the potential exit‑tax liability on unrealized gains.
- Model tax scenarios – Compare the impact of selling assets now versus later under both current and proposed tax rates.
- Consider restructuring – Explore legal structures (e.g., foreign corporations, trusts) that may mitigate GILTI exposure, keeping in mind the upcoming minimum corporate tax.
- Monitor legislative developments – Stay informed about the progress of the Biden tax proposals, especially any changes to capital‑gains treatment and GILTI rates.
- Plan for diversification – If feasible, diversify assets across jurisdictions with favorable tax treaties and consider acquiring additional citizenships that could simplify future relocation.
The combination of higher capital‑gains rates, an expanded exit‑tax regime, and increased taxation on foreign‑derived income creates a tighter fiscal environment for U.S. citizens living abroad. Proactive tax planning and timely asset management are essential to avoid costly surprises should the proposed legislation become law.
