Moving to the UK: key considerations for US citizens

• 1 June 2025
• News

Moving to the UK

In this article, we explore some of the key considerations for US citizens who are moving to the UK for the first time.

Managing the risk of double taxation from ‘Day One’

Upon becoming tax resident in the UK, individuals will become exposed to UK taxation in respect of their worldwide income and gains (subject to the “foreign income and gains” regime, discussed below). US persons, unlike those moving from most other jurisdictions, will also carry with them an exposure to US income tax on their worldwide income and gains. This leads to the risk of double taxation.

Benefiting from the UK’s foreign income and gains (“FIG”) regime

Although the default position is that UK residents have a worldwide exposure to UK tax on income and gains, the FIG regime offers a more generous method of taxation for qualifying new UK residents. The FIG regime is available to those in their first four tax years of UK residence, provided they have not been UK resident in the previous 10 tax years.

A US person moving to the UK in these circumstances could claim the FIG regime, which would mean that their non-UK source income and capital gains would not be subject to UK tax, even if the income and gains are brought to or used in the UK.

This could be particularly helpful for US taxpayers who commence UK residence whilst holding investments that are not tax-efficient in the UK. Although double taxation for US persons can generally be managed through use of the US-UK income tax treaty (as set out below), the dual exposure can have a significant impact on the tax-efficiency of certain types of investments – for example, where an asset is treated favourably for US purposes but is subject to higher tax rates in the UK. A common example is US mutual funds that do not have “reporting” status in the UK.¹ While profits on those investments will typically be subject to capital gains rates (currently 20%) in the US, they will be subject to income tax rates (currently up to 45%) in the UK. 

By claiming the FIG regime during their first four tax years of UK residence, US persons have the opportunity to ensure that their investment portfolios are ‘UK-friendly’ (e.g. by replacing any investments that have different UK tax profiles) before becoming exposed to UK tax. As there will be a US tax exposure on the disposal of any ‘non-UK-friendly’ investments, care should be taken around the timing of crystalising gains and losses. Accordingly, any investment review should not be left until the end of the FIG period, as this may not be an efficient time to make such disposals. 

Welcome relief under the US-UK income tax treaty

The double taxation agreement between the US and the UK (also known as the “income tax treaty”) is designed to provide relief from double taxation. Broadly, the treaty operates by allocating taxing rights between the two countries and, to the extent that both countries have a right to tax, providing for a system of credits that allows tax paid in one country to be credited against the liability arising in the other.

The operation of the income tax treaty depends primarily on where an individual is considered to be tax resident for the purposes of the treaty. A US citizen who moves to the UK may still be “treaty resident” in the US, which would give the US the exclusive right to tax most types of income. In this case, their exposure to UK tax would be limited to certain types of UK income (such as rental income from UK property). If the individual becomes UK treaty resident, they will generally be exposed to tax at the higher of the two countries’ effective rates on a given item of income or gain. US persons moving to the UK may therefore want to retain significant ties to the US, with a view to being considered US treaty resident for as long as possible. This planning strategy can be particularly effective for those planning to stay in the UK only for a short period. However, it comes at the cost of the individual potentially being unable to use the FIG regime because if they are UK resident in a given tax year under the UK’s domestic rules this still counts towards their four-year eligibility period. 

What steps should be taken ahead of time?

• Determine the number of days to spend in the UK to be UK resident – The UK has a statutory residence test that is largely formulaic. For those that are internationally mobile, have business interests that straddle the Atlantic and around the world, or who spend time visiting friends and family outside the UK, it is important to know how many days they need to spend in the UK to be resident (or non-resident, as appropriate) under the UK’s domestic rules. Because residence is now the determining factor for an individual’s exposure to IHT, understanding the application of the residence rules to an individual’s circumstances is critical.  
  
• Consider risks associated with existing trusts – Any existing trusts of which the individual is a settlor, trustee and/or beneficiary should be examined before the individual becomes UK resident. For instance, it is common for US citizens who are moving to the UK for the first time to already hold assets in revocable living trusts, which they have been advised to put in place in the US as a probate avoidance vehicle. The individuals will very commonly be the trustees of those trusts themselves. Consideration ought to be given to how the trusts will be characterised for UK tax purposes, as there is a risk of tax inefficiencies resulting from a mismatch in the US and UK treatment.
  The double tax risks for UK resident beneficiaries of US trusts are considered in detail in our article, ‘Welcome Relief’.
  
• Consider risks associated with existing company interests – It is common for US persons to hold assets through US Limited Liability Companies (“LLCs”), which can produce tax traps for the unwary. Again, there is a likely mismatch between the US and UK treatment of these entities, which can give rise to double taxation. Broadly, this is because the US generally treats LLCs as partnerships (i.e. transparent entities) for tax purposes, whereas the default position in the UK is that HM Revenue & Customs treat LLCs as companies (i.e. opaque entities).
  As a result, the US will typically tax the members of the LLC on their respective shares of the underlying profits of the LLC as they arise, whereas the UK may seek to tax distributions of profits from the LLC as dividends. This mismatch can cause treaty protection to be lost, with the result that the same income or gain suffers tax twice. The options for mitigating this risk will need to be considered.
  
  The position regarding LLCs is considered further in our article, ‘Anson Revisited‘.   
  
  Additionally, any existing non-UK incorporated entities of which the individual is a director or key decision maker should be examined before the individual becomes UK resident. If such an entity becomes “centrally managed and controlled” in the UK (in broad terms, if the individual makes strategic business decisions in the UK), it will become subject to UK corporation tax on its worldwide income and gains. Accordingly, steps should be taken before moving to the UK to ensure that the entity remains managed and controlled outside the UK. 
  
• Consider planning opportunities before purchasing a UK home – Many US citizens who move to the UK will acquire a home there. This raises various tax, estate planning and other considerations, including mitigating exposure to UK inheritance tax and putting in place a UK will.

Contact Us

It is essential to plan in advance of a move to the UK, to take advantage of available tax reliefs and ensure arrangements are as efficient as possible. This is particularly pertinent for those with connections to the US due to their global exposure to US income tax, regardless of where they live. It is therefore important that advice is taken from advisors with an understanding of how the two legal systems interact; ideally before any action is taken. Please contact a member of our specialist US/UK team to find out more.

¹To be a reporting fund, a fund must register with HMRC as such. In doing so, the managers of the fund must agree to comply with reporting obligations regarding the performance of the fund and the distributions that are made to investors. Most non-UK mutual funds will be non-reporting funds unless they have been designed with UK resident investors in mind.

Disclaimer

The members of our US/UK team are admitted to practise in England and Wales and cannot advise on foreign law. Comments made in this article relating to US tax and legal matters reflect the authors’ understanding of the US position, based on experience of advising on US-connected matters. The circumstances of each case vary, and this article should not be relied upon in place of specific legal advice.