British Expatriates moving to the United States
Listening to Sting’s 1987 hit, “Englishman in New York” for the first time, makes the term “legal alien” sound artistic and perhaps extreme, but in the U.S., it remains a title reserved for a non-U.S. citizen, legal resident or expatriate, and unsurprisingly, the IRS does not disappoint.
Tax planning for British expatriates is complicated and although made easier by a U.K./U.S. dual tax treaty, overseas assets must be accurately reported to the IRS to avoid heavy fines. This includes non-income producing assets and accounts valued >$10,000.
Most employees who relocate will be given access to a global mobility accountant, usually one of the big 4, but this advice is often remote and fails to consider personalized financial planning for assets back in the U.K. It’s therefore important for British expats who make the jump across the pond to have adequate support of an advisor who understands both jurisdictions and consider your ongoing life events and goals.
As a British/American cross border wealth planning firm, we wrote this guide as a comprehensive checklist, listed in priority order, to help identify key planning areas for British expatriates moving or having recently moved to the U.S. Should you have any questions or wish to arrange a complimentary consultation after reading, please contact us: [email protected] or schedule here: https://fwi.as.me/
1. Currency, Banking & Credit Cards
Currency Risk Management: Moving to the U.S. makes your financial life subject to exchange rate fluctuations, especially if you retain U.K.-based assets. Consider specialist Currency Exchange firms, such as those selected on Fawley’s professional network. Banks can charge up to 1% built into the rates whilst specialist firms will achieve <0.3% (with no commissions) depending on the amount transferred. Bank Accounts: Many U.K. banks have accounts designed for expats, while U.S. banks may offer international options. It is, however, important to compare FOREX charges and rates. Many online currency exchanges offer single day international transfers, Credit Cards: If you maintained an internationally recognised credit card in the U.K., such as AMEX, the provider can usually set-up a U.S. account given your U.K. credit history, which may allow greater spending limits and rewards. If this isn’t possible and you have adequate income, it may be beneficial to apply for a credit card and to start paying this off in full each month, to develop a credit history- which is the biggest bearing on your ability to qualify for a Mortgage or personal lending in the U.S.
2. Healthcare, Homeowner’s & Auto Insurance
Health Insurance: The U.S. has a private healthcare system, so purchasing adequate health insurance is essential. Many British expats obtain coverage through their employer or an international provider. If a highdeductible healthcare plan is appropriate for your individual or family circumstances, establishing a HighDeductible Savings Account (HSA) to run in-tandem can be particularly tax effective. It is however important to consult with a financial planner to assess if it is appropriate based on your personal circumstances.
Homeowner’s & Auto: It is important to select a good broker who can establish adequate auto/home and liability insurance, to fit with your assets and lifestyle, consolidated with a single provider where possible, to reduce costs.
3. Will & Estate Documentation
Writing a U.K. and U.S. Will, whilst updating your U.K. Pension Expression of Wishes, is important to allow to direct assets to intended beneficiaries and ensure swift transition of post-death asset ownership or probate in both countries. U.S. documentation must align with U.S. state laws, as U.S. and U.K. rules differ. Include guardianship arrangements if you have minor children, as U.S. courts may not recognize U.K.- specific arrangements. In the U.S., there are additional documents that may assist you if untoward events were to take place, such as a Living Will, Power of Attorney and Irrevocable Life Insurance Trust (ILIT) that wraps around a personal life policy. Professional advice via an Estate Attorney and Cross Border Financial Planner is useful to ensure suitability.
4. Tax Residency & IRS Reporting Obligations
U.S. Tax Residency: Once you reside in the U.S., you may become a tax resident, subject to U.S. income tax on worldwide income. U.S. tax residency is often determined through the Substantial Presence Test. If you spend 183 days or more in the U.S. over three years, considering specific weighting for each year, you’re likely a tax resident.
Tax Filing Requirements: As a U.S. tax resident, you must file a U.S. tax return each year, typically due by April 15. The U.S. also has extensive reporting requirements for foreign assets and income (e.g., FBAR and Form 8938 for foreign accounts).
Double Taxation: The U.S. and U.K. have a tax treaty to prevent double taxation. However, certain income types may still face double taxation risk, so using foreign tax credits and the foreign earned income exclusion may help.
5. Income & Investment Taxation
Foreign Investments: Investments in foreign mutual funds, such as U.K.-based ISAs, can be treated as PFICs (Passive Foreign Investment Companies) under U.S. tax law, which triggers punitive tax treatment. U.S. tax laws around PFICs make foreign funds costly, so U.S.-based investments or ETFs may be more taxefficient. Some expats work with advisors specializing in cross-border portfolios to create compliant and tax-efficient plans. You may also consider selling or restructuring certain foreign investments before moving.
Dividends & Capital Gains: Both the U.S. and U.K. tax dividends and capital gains, but the U.S. may have different rates and rules. Check treaty provisions and consult with a tax advisor on possible foreign tax credits.
Rental Income: If you retain U.K. property and rent it out, you will need to report this income in both countries. The U.S.- U.K. Tax Treaty can mitigate double taxation, but U.S. rules on foreign real estate are specific, especially around deductions and depreciation.
6. Retirement Accounts
U.S. Retirement Accounts: You may open 401(k) or IRAs (Traditional or Roth) once you qualify in the U.S. These accounts offer tax advantages but remember that any distributions after returning to the U.K. may be subject to U.K. tax rules, including Roths that can be caught by the U.K. split-tax year rule.
U.K. Pensions: Your U.K. Pension (workplace, personal or final salary) remains subject to U.K. rules, but ongoing reporting to the IRS can be complex as you consider electing Grantor Trust or Deferred Compensation Plan status (see Fawley’s in-depth U.K. Pensions guide for more details).
U.K. Pensions can be used to provide income from age 55 (rising to 57 in April 2028) in retirement or otherwise as a U.K. scheme upon returning home in later years. Distributions may be taxable in both countries, but double taxation can usually be avoided under the U.K./U.S. Tax Treaty.
The U.K.’s 25% tax free Pension Commencement Lump Sum, covered under Article 17 of the U.K./U.S. Treaty, should also be reported to the IRS when drawn. A dual-licensed Accountant will be able to advise on it’s Federal and State tax status when the relevant time comes, given the tax treaty and any updates to U.K. Pensions legislation.
Transfer & Consolidation: Transferring U.K. pensions to the U.S. can be complex and usually inadvisable due to tax and regulatory issues. If you intend to reside in the U.S. for the medium to long term, you may benefit from consolidating your scheme(s) into a plan such as an International Self Invested Private Pension (ISIPP), which can custody assets in multiple currencies, offer a wide range of investments and provide accurate reporting to the IRS. Using an ISIPP also allows you to include the scheme as part of your holistic financial plan which can be more accurately managed whilst you are a U.S. resident.
State & Social Security Benefits: You will start to accrue U.S. Social Security credits once you have earned U.S. income of $1,730 (2024) as an employee or whilst self-employed. To qualify for most Social Security benefits, you will need to achieve 40 credits. You can attain up to 4 credits per year, the credit amount will likely increase each year and 20 of them must be earned in the past 10 years.
If you intend to return to the U.K. in the future, you may consider voluntary National Insurance contributions to maintain your U.K. State Pension benefits.
The U.K. & U.S. have a Totalization agreement which ensures you can use your National Insurance to qualify for partial U.S. Social Security if you don’t qualify for full entitlement. The agreement also ensures that benefits are accrued in one country whilst you’re resident there.
Drawing U.S. Social Security alongside U.K. State Pension creates a U.S. Social Security restriction known as a The Windfall Elimination Provision (WEP). Planning is required if you intend to draw benefits from both countries.
7. Estate & Gift Taxes Estate Tax Exposure:
The U.S. has an estate tax on worldwide assets if you’re a U.S. resident at the time of death, although the asset hurdle is currently high, at >$12M per person. The U.K. has inheritance tax (IHT), which can also apply depending on domicile status, a qualification due to change in April 2025, with the introduction of the Residency Test and a new IHT on survivor Pensions valued at >£325,000.
Gift Taxes: The U.S. has annual gift tax exemptions, but gifts above these amounts require filing and could be subject to tax. The U.K. doesn’t impose gift tax but includes gifts within seven years of death as part of IHT.
Double Taxation Relief: The U.S.- U.K. estate tax treaty provides relief from double taxation on estates, but planning with both countries’ rules in mind is key to minimizing taxes.
Trusts & Inheritance: Trusts created under U.K. law may be taxed differently in the U.S., and U.S. tax treatment can differ depending on the trust’s nature and structure. Review any trust structures with a cross-border specialist and U.S. Estate Attorney.
8. Working with Advisors
Dual-Qualified Tax Advisors: A tax advisor familiar with both U.S. and U.K. tax rules (such as those within the Fawley network), can help navigate double taxation issues, treaty benefits, and compliance, as well as provide strategies to meet both countries’ requirements.
Cross-Border Financial Advisors: Cross-border financial planning is complex. Consider working with an advisor specializing in U.S.- U.K. taxation and investment regulations as they can help structure your assets for optimal tax efficiency whilst leveraging their professional universe depending on your needs.
