The uptick in the numbers of US citizens relocating to the United Kingdom is no longer an anecdotal footnote. It is recognised by practitioners and supported by the data. The moves are driven by myriad forces. US citizens are lured by London’s position as a global financial centre, the UK’s educational institutions and its restrictive approach to ‘the right to bear arms’. Other draws include its lifestyle offerings, arts and culture, its diverse housing stock and often favourable currency conditions.
In addition, following the abolition of the 125-year entrenched system of domicile for tax purposes, the UK’s new tax regime reliant on residency can be remarkably generous for those in their first four years of UK residence relating to their foreign income and gains.
However, the interaction between the United States’ citizenship-based taxation system and the United Kingdom’s residence-based framework creates scope for uncomfortable complexity and bear traps for the unwary. Without careful planning and timely advice, US-connected individuals risk exposure to double taxation, structural inefficiencies, and unintended compliance obligations.
In this briefing, private client partners Matthew Radcliffe and Julie Man summarise some of the main issues US persons should be aware of, especially if acquiring a UK home.
Exposure to dual taxation
Once UK tax resident, individuals are generally subject to UK tax on their worldwide income and gains. US citizens, however, remain subject to US federal income tax irrespective of residence, leading to the risk of double taxation on commencing UK residence. The US/UK double (income) tax treaty mitigates this risk by allocating taxing rights to one of the jurisdictions and providing mechanisms for foreign tax credits. That said, in many cases, mismatches in how income, gains, and entities are characterised in each jurisdiction reduce the effectiveness of treaty relief.
Residence for treaty purposes is a critical factor in determining how these rules apply. In certain circumstances, a US individual relocating to the UK may continue to be treated as resident in the US under treaty tie-breaker provisions, thereby limiting UK taxing rights. While this can be advantageous in the short term, it must be weighed against the potential loss of access to certain UK-specific reliefs.
The UK foreign income and gains regime
For qualifying new UK residents, the foreign income and gains (“FIG”) regime offers a significant planning opportunity. Available for the first four UK tax years of residence (provided they have not been resident in the UK for the previous 10 years), the FIG regime allows certain non-UK source income and gains to be tax free so that they fall outside the scope of UK tax entirely, even if remitted to the UK.
This window of opportunity is particularly valuable for US individuals holding assets that are tax-efficient in the United States but disadvantageous under UK rules. During the FIG period, there may be scope to reorganise investments without triggering UK tax in advance of the fifth year of UK residence, when the FIG regime is no longer available.
New arrivals to the UK need to spend time organising their affairs and should act early, ideally before arrival, and certainly not wait until the end of the four-year FIG period. Deferring portfolio restructuring until the end of the four-year period may in some cases prove too late to achieve best outcomes, particularly where large unrealised gains have accrued.
Pre-arrival planning considerations
Residence and day counting
The UK statutory residence test determines tax residence based on a combination of presence and connecting factors. This needs clear and effective planning involving the careful management of days spent in the UK, not only for income tax purposes but also because residence now drives exposure to UK inheritance tax (IHT). Clients may wish to organise their connections and day count in the UK so that they are non-UK resident under the SRT for the first year, thereby in effect delaying the start of the 4-year FIG regime period.
Trust structures
US individuals frequently hold assets through US revocable living trusts - in many cases for different reasons to those driving domestic UK trust creation - as a way to avoid the cost, delay and cumbersome process of obtaining probate in the US. While these structures are typically tax-neutral in the US, their treatment under UK law may differ significantly, leading to significant UK tax charges. It is crucial that these structures are reviewed in advance of relocation. HMRC unhelpfully provides little or clear guidance on how these structures will be dealt with from a UK taxing perspective for IHT purposes, except that they will look at them on a case- by-case basis. In many cases, it is too late to restructure the trust once individual has moved to the UK, even with the benefit of the FIG regime, particularly where the individual is the sole of trustee of the trust and brings the trust “onshore”.
Corporate interests and LLCs
US Limited Liability Companies (LLCs) present a similar challenge due to their mismatch in classification. The US generally treats LLCs as transparent entities for tax purposes, whereas the UK typically regards them as opaque. This disparity can lead to taxation on different bases (underlying profits vs. distributions), limiting the availability of foreign tax credits and increasing the risk of economic double taxation. Again, particularly in the case of sole member LCCs, it may be too late to reorganise an LLC once the individual has moved to the UK, so advice should be sought in advance of relocation.
More generally, individuals should ensure that non-UK entities do not become UK tax resident through “central management and control” being exercised from the UK.
Acquiring residential property in the UK
Stamp Duty Land Tax (SDLT)
SDLT applies to UK residential property acquisitions and is calculated by reference to the purchase price. Additional surcharges apply in certain cases:
- A 2% surcharge for non-UK residents
- A 5% surcharge for purchasers of additional residential property
Combined rates can reach up to 19% for non-resident buyers. However, the non-resident surcharge may be recoverable where the purchaser satisfies certain UK presence conditions within a specified timeframe. It is therefore important that timely advice is obtained to maximise chance of recovery.
Mansion tax
It is important to note that the UK Autumn Budget 2025 introduced a new High Value Council Tax Surcharge for England – an annual tax charge of between £2,500 to £7,500 on properties valued above £2 million, based on updated 2026 valuations. This shows a clear course for higher taxation of high valued properties in the UK.
What this means for US owners who own premium residential property for relocation, education, retirement planning or as part of their global diversification of their investment portfolio is that it will increase the yearly costs over time and the knock-on effect is that it may affect decisions over renovations, long term estate planning, and when to do future acquisitions or disposals.
What the future holds for high‑value homeowners is higher annual property‑related costs. It will hit the greatest in fast‑growing markets where property values have risen most dramatically. With further details still to come, prudent owners need to keep a close eye on developments as the reforms progress.
Ownership structure
From a UK tax perspective, direct personal ownership, in many cases, is the right choice, as corporate and / or trust holding structures no longer provide effective protection from IHT for UK residential property and introduce a complex array of UK tax charges.
Taxation on disposal
Capital gains realised on the sale of UK residential property by US individuals are subject to UK capital gains tax (CGT), currently at rates of 18% or 24%. Relief may be available where the property qualifies as the individual’s principal private residence.
In contrast, US tax relief on gains is more limited, typically capped at $250,000 per individual. While foreign tax credits may reduce double taxation, mismatches between the jurisdictions can still result in additional tax exposure.
Ownership structuring for married couples can influence overall efficiency. In some circumstances, sole ownership by a non-US spouse may improve outcomes; however, consideration should be given to the UK tax and US transfer tax implications of such gifts between spouses.
Financing considerations
US borrowers using sterling-denominated mortgages face a unique exposure: foreign currency movements. For US tax purposes, repayments of a non-dollar mortgage can generate taxable foreign exchange gains or losses. Currency appreciation against the US dollar can therefore create unexpected tax liabilities even in the absence of economic gain.
IHT and estate planning
Long-term residence and IHT
The UK no longer relies on domicile as the primary test for IHT exposure. Instead, the concept of “long-term residence” (LTR) applies. Broadly, in default, individuals who have been UK resident for at least 10 of the previous 20 tax years become subject to IHT on their worldwide assets. New arrivals can therefore limit their exposure to UK IHT on non-UK assets by managing their period of residence. In practice, this means limiting UK residence to nine UK tax years.
IHT on UK assets
For non-LTR individuals, UK IHT applies primarily to UK-situs assets, including a US citizen’s new UK home but also to certain non-UK assets which derive their value from UK residential property and agricultural property. The standard rate is 40% on the value exceeding the nil-rate band (currently £325,000), subject to reliefs.
This threshold is significantly lower than the US federal estate tax exemption, creating scenarios in which significant UK IHT may apply, even where no US estate tax is due at all.
Planning tools
Typical IHT mitigation strategies include using borrowing to depress the value of assets, life insurance and tax-efficient Wills to defer and align taxes on death. Careful drafting is essential to ensure that spousal exemptions in both jurisdictions and deferrals operate effectively in both systems. Without alignment, estates may face taxation in both countries without adequate credit relief.
How can we help?
Relocating to the UK presents both opportunities but equally pitfalls and complexities for US citizens. While favourable regimes such as the FIG system provide valuable planning flexibility in the early years, the broader interaction between US and UK tax frameworks demands a clear overview of both the UK and US issues at play which need to be coordinated and dealt with using a forward-looking approach.
Effective pre-arrival planning is critical, in particular in relation to investments, trust and corporate structures, and property acquisition. Given the nuanced and evolving nature of cross-border taxation, advice from specialists familiar with both jurisdictions is indispensable to achieving efficient, compliant outcomes.
Based in London, we serve domestic and international clients, with dedicated support for those with US/UK connections.
Many of our clients operate between the UK and the US or relocate between the two jurisdictions.
Our US offering provides specialist support on a wide range of legal issues including:
- Trusts
- Wills
- Powers of attorney
- Estate planning
- Residency or domicile issues
We are able to liaise on matters involving cross-border collaboration and legal advice. Our lawyers offer thoughtful, practical guidance to American expats and other US-connected individuals and families, corporates and not for profits, tailored to your situation.
Get in touch
If you would like to speak with a member of the team you can contact our private client solicitors; Holborn office +44 (0)20 3826 7522; Kingston office +44 (0)20 3826 7529 or Putney office +44 (0)20 3826 7515 or complete our form.
