Hong Kong’s ‘accidental Americans’ caught in US tax jam

A wave of wealthy Asians is hurriedly moving assets to the United States – to school their children, invest in property or even avoid political uncertainty in China. But few of those immigrants know just how much of their money will eventually end up in the hands of the feds.

“Be careful before you take the leap,” Joan Crain, a global wealth strategist at BNY Mellon Wealth Management, says to those mulling a move for a child or a spouse, or looking to make one themselves. Once there, the yoke of the Internal Revenue Service can be hard – and expensive – to shake.

That is the overarching theme of a report from the New York-based firm released last week.

The US taxes the global income of its citizen, something that can come as a shock to Asian-Americans with deep bank accounts in places such as Hong Kong or Singapore, according to the report. Even non-citizens who spend a substantial amount of time in the US can end up with a tax bill for overseas wealth.

This is the plight of many “accidental Americans”, as BNY Mellon refers to them, or people who may have sought out some advantages of US life but not the US tax burden.

The report offers some solutions for moving wealth across the Pacific without eventually coughing up estate tax. Establishing a trust in a low-tax haven such as Delaware, into which cash can be gifted, is one way of doing it, the report says. Many may simply consider “breaking up” with the US, or renouncing citizenship.

Demand for figuring out these intricacies is already strong.

A report from Barclays last year showed that nearly half of the mainland’s wealthy planned to move to another country within the next five years.

So many Chinese officials are departing the government has launched an international campaign to track down what they call “naked officials”, or those with children or spouses living abroad.

Private financial wealth in Asia excluding Japan was estimated at US$47.3 trillion last year, according to a 2015 Boston Consulting Group report. Hong Kong was home to the highest concentration of ultra-high-net-worth individuals, or individuals with more than US$100 million in financial assets, with 15.3 per 100,000 households.

“I probably get called by a real estate firm once a week,” Long said of companies trying to wrangle the flow of assets entering the US. “About 80 per cent of the clients that come to us [here] have US exposure.”