Nomad Capitalist Chapter 5 Part 1: Renouncing US Citizenship - The Nuclear Option

After four chapters about going where you are treated best, getting second passports, and building a location-independent life, Henderson finally arrives at the most extreme step. Giving up your US citizenship entirely. This is the nuclear option. And he did it himself in December 2017 at the US Embassy in Tbilisi, Georgia.

Let us talk about what this chapter covers and why it matters.

Henderson’s Goodbye to America

The chapter opens with Henderson at JFK Airport in New York City. He had avoided flying through the US for four years, but this was a deliberate last visit. He wanted to say goodbye. He was on his way to Tbilisi to renounce before the end of 2017.

What struck me about this part is how calm he sounds. No anger. No dramatic speech. He says he felt like a tourist when he visited America after years away. The country was no longer his home. It was just a place he used to live.

I understand this feeling, actually. When you leave a country for a long time, something shifts inside you. The streets look the same but you are different. The culture no longer fits you like it used to. It is not about hating the place. It is just that you moved on.

Henderson is clear about one thing. He is not telling anyone to renounce. He even says he tries to talk some clients out of it. This chapter is for people who are curious and want to understand the process from someone who actually went through it.

What Renunciation Actually Means

Here is the basic idea. Citizenship is a social contract between you and a country. You get rights. You accept responsibilities. Renunciation is voluntarily giving up that contract.

Some important facts Henderson lays out:

• You cannot lose citizenship by accident. Nobody can renounce on your behalf. You have to do it yourself, on purpose, at a US Embassy or Consulate outside of the United States.
• Getting a second passport does not cancel your first one. Some countries do not allow dual citizenship, but the US does. Having a British passport does not make your US passport disappear.
• Citizenship and passport are two different things. The government can take your passport away, but your citizenship remains. If you owe $50,000 or more in taxes, they can revoke your passport under the FAST Act.

That last point is important. If they take your passport and you cannot leave the country, you cannot get to a US Embassy abroad to renounce. This is one more reason Henderson pushes so hard for second passports. Your backup passport is your escape hatch if the US government decides to play games with your travel documents.

Can you renounce and become stateless? Technically yes. But Henderson strongly advises against it. No passport means extremely limited travel, possible deportation, and nowhere to go. It adds more problems than it solves.

The YouTube Loopholes Are Fake

Henderson goes after the YouTube videos and internet schemes that claim you can somehow avoid taxes without actually renouncing. People who say they found a constitutional loophole or can keep their citizenship but not their nationality. He calls this “silliness.”

His message is direct. Either you are a US citizen or you are not. If you are, you follow US rules. There is no magic trick. These supposed loopholes have been around for decades, and people who tried them ended up with fines, penalties, or worse.

As someone who spent years working in IT and dealing with systems that have very clear rules, I appreciate this honesty. In technology, you cannot hack the rules of physics. In tax law, you cannot hack the IRS with a YouTube video. The system does not care about your clever interpretation.

Henderson’s entire approach is about following the rules legally and then choosing which set of rules to live under. That is very different from trying to cheat.

Why People Renounce - Two Big Reasons

Henderson breaks down the motivations into two categories: philosophical and financial. Many people, including Henderson himself, are motivated by both.

The Philosophical Side

Some people have been against US foreign policy for decades. Going back to Vietnam, there were Americans who burned their passports in protest. Today, people come to Henderson because they do not want their tax dollars funding wars or what they see as an inefficient government.

Henderson admits he was once angry about all this. His early podcasts and blog posts were full of sweeping generalizations. He almost renounced out of anger but wisely waited. Years later, when he finally made the decision, a close friend noticed the change. Henderson was no longer angry. He was at peace. He had a plan figured out.

This is good advice for any big life decision, not just renunciation. Never make permanent decisions based on temporary emotions. I have seen this pattern many times. People who make major moves while angry tend to regret them. People who wait until they are calm and strategic tend to be satisfied with their choices.

For Henderson, the philosophical reason that stuck was cultural identity. He never felt American. He was fascinated by other cultures, did not fit in, and eventually found places around the world where he felt more at home. When he visited the US after years away and felt like a tourist, he knew it was time.

The Financial Side

Here is where the chapter gets into the numbers, and they are eye-opening.

The United States is one of only two countries in the world (the other is Eritrea) that taxes citizens based on citizenship, not residence. In most countries, if you leave, you stop paying taxes there. Not in America. If you are a US citizen living in Dubai, earning money in Singapore, with a business in Estonia, the IRS still wants a cut.

Henderson gives a real example. A friend who works as a private banker in a tax haven. Salary: $1 million. He has not lived in the US for over a decade. His tax bill to the IRS: over $330,000 every year. He can exclude the first roughly $110,000 through the Foreign Earned Income Exclusion, but everything above that gets taxed. If he had stayed in California instead of moving to Florida before leaving, he would owe almost $100,000 more on top.

For this guy, buying a Caribbean passport for $100,000 and renouncing would pay for itself in four months. The math is brutal.

Investors have it even worse. The Foreign Earned Income Exclusion only covers earned income, not investment returns. Stock traders, crypto investors, real estate investors - they have no way to legally avoid US tax while living overseas. Some crypto investors are literally locked out of investment opportunities because ICOs refuse to work with US citizens. Too much regulatory risk.

Then there was the Tax Cuts and Jobs Act of 2017. One provision retroactively taxed all retained earnings from the prior 30 years at 15%. People who had been paying taxes in high-tax countries like the UK for decades suddenly owed the US for money that had already been taxed elsewhere. Many chose to renounce rather than pay 30 years of back taxes in one hit.

The FATCA Disaster

This part of the chapter made me shake my head. FATCA stands for the Foreign Account Tax Compliance Act. The US government requires all foreign banks to report accounts held by US citizens.

The result? Many foreign banks said “forget it” and simply stopped accepting American customers. The paperwork was too much trouble.

So now you have US citizens living abroad who cannot open bank accounts. Cannot get mortgages. Cannot participate in normal financial life. Henderson tells the story of an accidental American who discovered her US citizenship when her bank demanded her tax identification. She risked losing her loan. Another person almost lost their home mortgage because the bank did not want the hassle of having an American client.

Henderson himself, even after renouncing, still encounters banks that say “once an American, always an American.” They view any connection to the US as a risk.

One client came to Henderson and discovered it would cost $70,000 to $80,000 per year just to file his taxes. Not to pay them. Just to do the paperwork to stay compliant. He chose to renounce.

The reporting burden is real. If you have a foreign bank account, report it. Foreign corporation? Report it. Foreign brokerage? Report it. Basically, whatever you do overseas, you must report it. The only exceptions are privately owned foreign real estate (with no income) and precious metals stored outside the banking system. Everything else gets a form.

The Growing Trend in Numbers

Henderson shares the official renunciation numbers, and the trend is clear:

• 2008: 231 people renounced
• 2010: 1,534
• 2013: 3,000
• 2016: 5,411
• 2020: 6,705

That is a nearly 30x increase in twelve years. Something is pushing more and more people to make what Henderson calls “a very difficult and even emotional decision.”

The numbers jumped after FATCA was introduced and kept climbing with each new regulation. The 2020 spike happened despite embassies being mostly closed due to COVID. People were that determined to get out.

Accidental Americans

Here is something I did not know before reading this. Because the US grants citizenship to anyone born on its soil, there are people around the world who were born in America decades ago, never grew up there, and are only now discovering they are US citizens. And they owe taxes.

These “accidental Americans” often find out when their bank asks for a US tax identification number. The confusion and panic this causes is real. Most of them end up renouncing because dealing with the reporting and tax obligations of a country they have no connection to makes no sense.

Every US citizen must pay taxes. Even if they do not know they are a citizen.

Should You Actually Renounce? Henderson Says Think Carefully

Despite his own decision, Henderson is surprisingly cautious in his advice. He does not recommend renunciation for most people. Here is what he says you need to consider:

What you give up:

• The right to live and work in the US
• US passport travel privileges
• Consular protection abroad (no more emergency evacuations)
• The right to vote in US elections
• The ability to pass US citizenship to your children
• Easy access to family in the US

What you need to figure out:

• Can you find work outside the US?
• Where will you establish tax residence?
• Will your second passport’s travel privileges be good enough?
• What is the return on investment of renouncing versus other tax strategies?
• Will you trigger the exit tax?
• Could you lose existing residence permits obtained with your US citizenship?

Henderson even mentions Puerto Rico as an alternative. Its tax incentives might be enough for some people without the permanent step of renunciation. Others can get by with tax planning, an offshore company, and a new home base.

His honest assessment: renouncing is best for those who no longer rely on the United States for money or lifestyle. If you are not investing there, living there, working there, and do not plan to, then consider it. But if your life and income are still tied to the US, renouncing could make things worse.

My Thoughts So Far

This is the heaviest chapter in the book so far. Henderson is talking about permanently severing your connection to a country. That is not a business decision you make on a spreadsheet. It is deeply personal.

What I respect about Henderson’s approach is the honesty. He waited years until he was at peace with the decision. He did not renounce out of anger. He followed every rule to the letter. He talks openly about the emotional weight of it.

The financial arguments are compelling if you are in a certain income bracket. A high-earning expat paying $330,000 a year to a country they do not live in has a clear incentive. But most people are not in that bracket. For the average American living abroad, the reporting burden and FATCA problems might be the bigger motivator.

The FATCA section is what really got me. A law designed to catch tax evaders ended up punishing ordinary people who just want to live and bank in another country. Banks refusing to serve you because of your nationality is a real problem, and it is not one that gets talked about enough.

In Part 2, Henderson will cover the actual process of renouncing, the exit tax details, and what life looks like after you hand in your passport.

Key Takeaway

Renouncing US citizenship is a permanent, life-changing decision that should never be made out of anger or emotion. The US is one of only two countries that taxes citizens worldwide regardless of where they live, and this system creates real hardship for expats through taxation, reporting burdens, and banking restrictions via FATCA. But before considering renunciation, you need a complete plan: second passport, tax residence, banking, investments, lifestyle, and family access all figured out. Henderson’s message is clear - follow the rules legally, choose the rules that serve you best, but think it through from every angle first.

Book: Nomad Capitalist by Andrew Henderson | ISBN: 9798461831486

Previous: Chapter 4 Part 2 - Second Passports Next: Chapter 5 Part 2 - Renouncing Citizenship Continued

Part of the Nomad Capitalist series