If you move from the UK to the US, your tax position may change before, during and after the move. US federal tax, state tax and UK tax rules can overlap, particularly where you retain UK property, pensions, investments or business interests.
This guide will help you understand American tax requirements, whether you’re already in the US or preparing to relocate soon. We’ll also explain how getting professional tax advice for UK expats in the USA can help you plan your finances more efficiently and stress-free.
What You Will Learn
- What taxes do you have to pay to the US as a UK expat?
- How does the American tax system work?
- What reliefs and planning options may be available?
- How can financial advisors help UK expats with tax planning?
Tax Residency in the US—Eligibility Criteria
The US tax governing agency is the Internal Revenue Service (IRS). The IRS is responsible for administering and enforcing federal tax laws, including collecting taxes, processing tax returns, and overseeing the issuance of refunds. To be considered a US resident for tax purposes, you must pass one of two tests:
- The Green Card Test.
- The Substantial Presence Test.
The Green Card Test
You generally meet the Green Card Test if you are a lawful permanent resident (Green Card holder) of the United States at any time during the calendar year and your status has not been formally revoked or treated as abandoned.
In most cases, this means you are treated as a US tax resident and are subject to US federal income tax on your worldwide income from your residency starting date. Different rules can apply in your first and final year of residence, and treaty provisions may also affect your position.
The Substantial Presence Test
You generally meet the Substantial Presence Test if you are physically present in the US for at least 31 days during the current calendar year and your weighted presence over the current year and the two preceding calendar years totals at least 183 days. The calculation is based on:
- All the days you were present in the current year.
- One-third of the days you were present in the first preceding year.
- One-sixth of the days you were present in the second preceding year.
Not every day of physical presence counts towards the Substantial Presence Test. Exclusions may apply to certain students, teachers, trainees, diplomats and people who are unable to leave the US because of a medical condition.
Someone who meets the day-count test may also qualify for the closer-connection exception or claim UK residence under the US–UK tax treaty. Separate forms and reporting requirements may apply.
If you qualify as a US tax resident, you are generally subject to US federal income tax on your worldwide income, including income arising in the UK.
If you do not meet either the Green Card Test or the Substantial Presence Test, you will generally be treated as a non-resident alien for US federal tax purposes. Non-resident aliens are generally taxed on income effectively connected with a US trade or business and certain other US-source income, subject to applicable treaty provisions.
The first year in which you become a US tax resident may be a dual-status year. Your residence starting date depends on how and when you satisfy the Green Card Test or the Substantial Presence Test, and different rules can apply in your first year of US tax residence.
UK Tax Residence After Moving to the US
Moving to the US does not automatically make you non-UK resident for tax purposes. Your UK tax residence is determined under the Statutory Residence Test (SRT), which considers factors such as the amount of time you spend in the UK, your work pattern, accommodation and personal ties.
Split-year treatment may be available where the statutory conditions are met, but it is not automatic. In some circumstances, you may be treated as a tax resident in both the UK and the US under each country’s domestic rules. Where this happens, the residence provisions of the US–UK tax treaty may determine which country has primary taxing rights for treaty purposes.
What if both countries treat you as a tax resident?
It is possible to be treated as a tax resident in both the UK and the US under each country’s domestic tax rules. Where this happens, the US–UK tax treaty contains provisions that help determine which country has primary taxing rights for treaty purposes.
Making a treaty claim does not necessarily remove your US filing or reporting obligations, and additional disclosures may be required. If you are treated as resident in both countries, your position should be reviewed before relying on the treaty.
US Taxes That UK Expats Must Pay
If you are a UK expat in the US, some of the main tax obligations you need to be aware of include:
| Tax Type | Explanation |
|---|---|
| Income Tax | US citizens and resident aliens are generally subject to US federal income tax on their worldwide income, subject to applicable exclusions, deductions, credits and treaty provisions. Non-resident aliens are taxed only on their US-based income. State and local tax must be considered separately from federal tax. Many states impose their own income taxes, and some cities or local authorities also levy income tax. State residence and domicile rules vary, and a state may not follow the US–UK treaty or federal treatment of pensions, foreign tax credits and other income. Selling UK property after becoming a US resident can produce tax and reporting obligations in both countries. The US generally calculates the gain in dollars using historic acquisition and disposal values, so exchange-rate movements can affect the US result even where the gain measured in sterling is modest. The UK may also tax disposal of UK land by a non-UK resident. The two countries can calculate the taxable gain differently, and foreign tax credits may not remove all double taxation. Main-home relief, filing deadlines, the property’s original cost and any sterling mortgage should be reviewed before the sale. |
| Capital Gains Tax | Net long-term capital gains are generally taxed at federal rates of 0%, 15% or 20%. The rate depends on filing status and total taxable income, and different portions of the gain may fall within different bands. The thresholds are adjusted periodically and should be checked for the year in which the disposal takes place. The 3.8% Net Investment Income Tax may also apply. |
| Social Security/Medicare Tax | Employment in the US is generally subject to Social Security and Medicare taxes. Exemptions can apply under specified visa categories, statutory rules or the US–UK Social Security Agreement, so the position depends on the employee’s status, employer and working arrangements. Note that this applies to US-sourced income only (certain services performed for qualifying international organisations may be exempt, depending on the organisation, the employee’s status and the nature of the work). Employers normally withhold employee Social Security and Medicare taxes through payroll. The employee may still need to address under-withholding, excess withholding or Additional Medicare Tax on their federal return. |
| Additional Medicare Tax | The Additional Medicare tax is a 0.9% tax on high-earning taxpayers who make: – Over $200,000 as individuals. – More than $250,000 for taxpayers who are married filing jointly. Employers generally begin withholding Additional Medicare Tax when wages paid by that employer exceed $200,000. The employee’s final liability is then calculated using the threshold for their actual filing status – Over $125,000 as married individuals filing separately.Note that this 0.9% surcharge applies to earned income only. This includes wages, self-employment, and RRTA compensation. The parallel surcharge on investment income is the Net Investment Income Tax (NIIT) outlined below. |
| Net Investment Income Tax | NIIT may apply at 3.8% to the lesser of an individual’s net investment income and the amount by which their modified adjusted gross income (MAGI) exceeds the relevant threshold. For individuals, the thresholds are $200,000 for single filers and $250,000 for married taxpayers filing jointly. Estates and trusts are subject to separate rules, and non-resident aliens are generally not subject to NIIT. Net investment income generally includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Where NIIT applies, it can increase the top federal tax rate on long-term capital gains from 20% to 23.8%. Unlike many other federal tax thresholds, the NIIT income thresholds are not indexed for inflation. As a result, more taxpayers may become subject to the tax over time. For UK expats with significant US-taxable investment income, NIIT should be an important part of cross-border tax planning. |
| Self-Employment Tax | US self-employment tax generally includes Social Security and Medicare contributions. The combined headline rate is 15.3%, but the calculation is subject to statutory adjustments and the annual Social Security wage base. Additional Medicare Tax may apply to higher earnings. The US–UK Social Security Agreement may instead assign coverage to the UK in some cases. |
Additional taxes may apply depending on your individual circumstances. To ensure you are fully compliant with US tax laws, consider seeking professional advice from expat tax consultants. They can help you better understand your responsibilities and deadlines.
What Tax Reliefs Are Available to UK Expats?
There are several tax relief options available to UK expats to help them manage their tax obligations more effectively.
- The US-UK Double Taxation Agreement (DTA): The US–UK tax treaty allocates taxing rights between the two countries and can help reduce double taxation. It does not guarantee that every item of income will be taxed only once. The outcome depends on factors including your tax residence, citizenship, the type and source of the income, domestic foreign tax credit rules and the treaty’s saving clause. In certain circumstances, you may need to file Form 8833 with your US tax return to claim treaty benefits.
The form is generally required where a treaty-based position overrides or modifies the Internal Revenue Code, although exceptions apply. An individual who fails to make a required disclosure may face a $1,000 penalty unless relief is available, including where reasonable cause can be established. If you are relying on treaty provisions, it is advisable to confirm the correct treatment with a cross-border tax adviser. - Foreign Tax Credit (FTC): A foreign tax credit may reduce US tax on income that has already borne qualifying UK tax. The credit is subject to US limitations and is calculated by reference to categories of income, sourcing, timing and the amount of US tax attributable to that income. It may therefore be less than the UK tax paid and may not remove the whole US liability. Individuals commonly claim foreign tax credits on Form 1116, although limited exceptions to filing the form may apply.
- Exemptions on income: Government-service pensions are subject to specific treaty provisions. The result can depend on the nature of the pension, the recipient’s residence and nationality, and the treaty’s saving-clause rules. The particular scheme should be checked before treating the income as taxable in only one country.
- Totalisation Agreement: The US–UK Totalisation Agreement helps prevent individuals from paying Social Security contributions in both countries on the same earnings. Which country’s system applies depends on your employment status and the nature of your work.Employees are generally covered by the Social Security system of the country in which they work.
However, where an employee is temporarily seconded from a UK employer to the US (or vice versa), they may remain covered by their home country’s system if the conditions of the agreement are met, commonly where the assignment is expected to last no more than five years. A Certificate of Coverage should normally be obtained to confirm which country’s system applies.
The agreement also allows contribution records from both countries to be taken into account where necessary to help meet minimum eligibility requirements for certain retirement benefits. Each country calculates and pays its own benefit under its own rules, so combining contribution records does not transfer contributions or guarantee a full pension from either country.
From 6 April 2025, the UK replaced the remittance basis of taxation for non-UK domiciled individuals with the new four-year Foreign Income and Gains (FIG) regime. An eligible individual who becomes a UK tax resident after at least ten consecutive tax years of non-UK residence may claim relief on qualifying foreign income and gains arising during their first four UK tax years of residence. The relief is not automatic and must be claimed for each relevant tax year. A FIG claim can also affect entitlement to certain UK personal allowances and capital gains tax exemptions.
The UK also introduced a residence-based system for inheritance tax (IHT), replacing the previous domicile-based rules. From 6 April 2025, an individual will generally become a long-term UK resident for IHT purposes after being a UK tax resident for at least ten of the previous 20 tax years. While long-term resident, non-UK assets may fall within the scope of UK IHT. If you later leave the UK, those assets may remain within the UK IHT regime for a residence-based ‘tail’ of between three and ten tax years, depending on your UK residence history. Transitional and special rules may also apply.
If you expect to return to the UK after living in the US, it is important to consider how the FIG regime, UK inheritance tax rules and the US–UK tax treaty could affect your future tax position. Seeking advice before returning can help identify planning opportunities and reduce the risk of unexpected tax liabilities.
Managing Tax Between the UK and USA?
Reporting Your UK Accounts to the US: FBAR and FATCA
Beyond paying the appropriate tax, UK expats classified as US tax residents must report their foreign accounts each year. This may involve filing two forms:
- FBAR (FinCEN Form 114): An FBAR is generally required where a US person, including a US citizen or resident alien, has a financial interest in, or signature authority over, reportable foreign financial accounts whose aggregate value exceeds $10,000 at any time during the calendar year. It is filed electronically with FinCEN, separately from your tax return, and the threshold is calculated across all accounts combined. Reportable accounts commonly include UK bank, investment and ISA accounts. Whether a SIPP, workplace pension or other retirement arrangement is reportable depends on its legal and custodial structure and on the individual’s rights or authority. Pension arrangements should be checked separately. A non-wilful failure can attract a civil penalty up to the inflation-adjusted statutory maximum, subject to reasonable-cause relief. Wilful violations can lead to substantially larger civil penalties and, in serious cases, criminal exposure.
- FATCA (Form 8938): FATCA is filed with Form 1040 and applies to specified foreign financial assets above specific thresholds that depend on your filing status and residence. For an unmarried specified individual living in the US, Form 8938 is generally required where specified foreign financial assets exceed $50,000 on the final day of the tax year or $75,000 at any point during it. For married taxpayers filing jointly and living in the US, the corresponding thresholds are generally $100,000 and $150,000. Higher thresholds apply to qualifying taxpayers living abroad.
Form 8938 reporting overlaps with FBAR, but filing one form does not normally replace the other. Depending on your circumstances, you may need to file both. Failure to comply with either reporting requirement can result in significant penalties, even where little or no additional tax is payable. These reporting obligations should be reviewed each year alongside your US tax return.
UK Pensions
Many UK pensions continue to receive favourable tax treatment in the UK, but the US does not always apply the same rules. Employer pensions, personal pensions and SIPPs can each receive different treatment depending on the type of arrangement and the relevant treaty provisions.
Before making pension contributions, transferring benefits or taking withdrawals after becoming a US tax resident, it is worth understanding how the transaction will be taxed in both countries.
The PFIC Trap: How US Tax Rules Treat UK Investment Funds and ISAs
One of the most damaging and least visible tax issues for HNW UK expats moving to the US is the treatment of UK pooled investments under the Passive Foreign Investment Company (PFIC) rules. Many UK and other non-US collective investment funds are treated as PFICs for US tax purposes. Classification depends on the legal form of the vehicle and the statutory income and asset tests, so each holding should be reviewed separately. Investments may fall within the PFIC rules include:
- UK OEICs and other corporate collective funds
- many non-US exchange-traded funds
- some investment trusts and similar foreign companies
- other non-US pooled investment vehicles
The treatment of a unit trust or pension-held investment depends on its legal structure and the way it is held.
Under the default section 1291 regime, a gain on disposal and certain excess distributions are allocated across the holding period. Amounts allocated to earlier PFIC years are generally taxed using the highest rate applicable for those years, with an interest charge. Preferential long-term capital gains rates generally do not apply. A separate Form 8621 may be required for each PFIC, often annually. Limited reporting exceptions can apply.
The UK Individual Savings Account (ISA) wrapper provides no protection either. While Stocks and Shares ISAs allow tax-free growth in the UK, the US does not generally recognise the ISA’s UK tax exemption. Interest, dividends and gains may therefore be taxable in the US. Any non-US funds held inside the ISA must also be reviewed under the PFIC rules.
Stocks and Shares ISA full of UK funds is treated, for US purposes, exactly like a taxable brokerage account holding PFICs.
To reduce the impact of ISAs being treated like PFIC for tax purposes, you can elect one of the following tax-reporting methods:
- Qualified Electing Fund (QEF): Under a valid QEF election, the shareholder generally reports a proportionate share of the PFIC’s ordinary earnings as ordinary income and its net capital gain as long-term capital gain each year. A timely election and a compliant PFIC Annual Information Statement are normally required. A QEF election is only practical where the fund provides the information required for US reporting. Many mainstream UK retail funds do not routinely provide a PFIC Annual Information Statement, so availability must be confirmed with the provider.
- Mark-to-Market (MTM): With an MTM election, the election generally brings annual increases in value into ordinary income. Deductions for decreases in value are restricted and normally cannot exceed earlier mark-to-market inclusions that have not already been reversed. A mark-to-market election is available only for PFIC stock that meets the statutory marketability requirements. An election may be made in a later year, but prior PFIC years can create additional section 1291 tax consequences. Early advice is therefore important.
UK pooled investments should be reviewed before US tax residence begins, where practical. The appropriate response may be to retain, sell or replace a holding, depending on unrealised gains, tax residence, product access, UK reporting-fund status, investment objectives, charges and plans to return to the UK. No restructuring decision should be based on PFIC treatment alone.
Estate and Gift Tax
Moving to the US can affect more than your income tax position. Depending on your circumstances, you may also become subject to US estate and gift tax rules, while remaining within the scope of UK inheritance tax.
The way assets are owned, where they are located and whether they are transferred during your lifetime can all affect the tax outcome. If you have significant assets in either country, estate planning should form part of your wider cross-border tax planning.
What Are the Benefits of Working With a Tax Adviser?
Being a UK expat in the US requires familiarity with multiple tax types, eligibility criteria, exemptions, relief options, and due dates. Failing to comply with all the complex tax requirements can lead to fees and penalties, which can affect your financial planning and overall comfort. To reduce the chances of becoming overwhelmed with various tax laws and regulations, it’s advisable to consult a professional tax adviser. There are several major benefits of receiving professional tax advice as an expat, including:
- Ensuring legal compliance: A suitably qualified cross-border tax adviser can help identify filing obligations, apply available reliefs and reduce the risk of errors or missed deadlines. They can personalise their advice based on your residency status, sources of income, and duration of stay in the US.
- Maximising tax efficiency: Understanding your tax obligations allows you to take full advantage of available relief options and avoid overpaying taxes. However, expat tax planning can include nuances that a professional tax adviser can simplify and clarify.
- Managing your wealth: Coordinated tax and financial advice may be particularly useful where you hold property, pensions, investments, companies or trusts in both countries.It allows you to gain a better understanding of your investment opportunities, inheritance laws, and strategies for tax minimisation.
- Staying up to date: As the economy changes, so do tax laws. Keeping up with these changes can be extremely difficult for an individual without a legal background. Changes in your personal circumstances, like choosing to repatriate, can also affect your tax responsibilities. Consulting an expat tax may help you identify changes relevant to your circumstances, but the scope and frequency of any monitoring should be confirmed with the adviser.
What To Consider When Choosing Your Tax Adviser
To successfully navigate the complexities of US and UK taxes, it’s important to find a tax consultant who is qualified and has experience with expat tax issues. Check that the adviser has relevant UK–US experience and is appropriately qualified for the work they will perform.
US tax preparation, UK tax advice, legal advice and regulated investment advice are different services and may be provided by different professionals. Ask which entity is responsible for each service, how it is regulated and whether referrals to external specialists are included. You should also consider their approach. They must have good communication skills and be able to clarify complex tax matters. Proper communication includes being transparent about their fees and what their service entails. Finally, if your financial needs include wealth solutions, you want a professional who offers more strategic advice and makes you feel comfortable about your choices.
FAQ
No. The US does not generally recognise the UK tax exemption for an ISA, so income and gains may be taxable in the US. An OEIC or another non-US fund may also be a PFIC, potentially requiring Form 8621 and producing adverse tax treatment. A QEF or mark-to-market election may change the PFIC calculation where the relevant conditions are met, but it does not make the ISA itself tax-free in the US.
Yes, you still need to file an FBAR if your UK accounts are lower than the FATCA threshold. The FBAR and FATCA Form 8938 are two separate forms and have different reporting limits. Even if you remain below the FATCA reporting threshold, which is $75,000 at any time during the year or $50,000 at the end of the year (for single filers). You may need to file an FBAR where the aggregate maximum value of all reportable foreign accounts exceeds $10,000 at any point during the year. No individual account has to exceed $10,000 on its own.
The FIG regime will usually have limited immediate relevance while you are conclusively non-UK resident, but it may become important if you remain a UK resident, have a split year or later return to the UK. The regime was introduced on 6 April 2025 as a replacement for remittance-based taxation and is designed to provide tax relief to those who return to the UK after living overseas. Under FIG, returning expats who have been non-UK residents for ten previous consecutive tax years are exempt from UK tax on foreign income and gains for the first four tax years of UK residence. After four years, UK tax applies as usual.
Potentially. Credits from both systems may be taken into account where you do not have enough credits to qualify under one country’s rules alone. Each country then calculates and pays its own benefit. Combining credits does not transfer contributions or guarantee a full benefit from either country.
No. The US–UK tax treaty contains specific provisions for pensions and lump-sum payments, but the tax treatment depends on factors including the type of pension, your tax residence, your citizenship and the treaty’s saving clause.
Where both the UK and the US tax the same payment, foreign tax credit relief may be available to help reduce double taxation. However, the availability and amount of any credit depend on the circumstances, including which country taxes the income, how it is treated under each country’s domestic tax rules and the relevant provisions of the US–UK tax treaty.
Key Takeaway
Moving from the UK to the US can affect the taxation of your income, investments, property, pensions and estate. The first step is to establish your tax residence in both countries and identify any US state tax exposure. While the US–UK tax treaty and foreign tax credits can help reduce double taxation, they do not always eliminate it.
UK funds, ISAs, pensions, companies and trusts can also create US tax and reporting obligations that do not arise while you are solely within the UK tax system. Reviewing these issues before becoming a US tax resident—or before selling assets, making pension withdrawals or returning to the UK—can help avoid unexpected tax consequences and reporting requirements.
Titan Wealth International can help you understand the financial planning implications of moving between the UK and the US and coordinate with appropriately qualified tax professionals where specialist cross-border tax advice is required.
The information provided in this article is not a substitute for personalised financial, tax or legal advice. You should obtain financial advice and tax advice tailored to your particular circumstances and in respect of any jurisdictions where you may have tax or other liabilities. Titan Wealth International accepts no liability for any direct or indirect loss arising from the use of, or reliance on, this information, nor for any errors or omissions in the content.
