Moving to the UK? Your First 12 Months of Tax Planning Explained

Relocating to the United Kingdom involves more than finding a home, opening a bank account and starting a new job. The date you arrive, the assets you retain overseas and the financial decisions you make during your first year can all influence your UK and US tax position.

For American citizens and green card holders, the move is particularly complex. Becoming UK tax resident does not normally end US filing obligations. Instead, the individual may become subject to two tax systems, two tax years and separate reporting requirements covering income, investments, pensions and financial accounts.

The first 12 months should therefore be treated as an important tax-planning period. Establishing the correct residence position, reviewing investments and creating reliable records early can help prevent avoidable reporting problems later.

Review Your Finances Before Moving

Ideally, cross-border tax planning should begin before the move takes place.

An individual should prepare a complete list of their income sources, investments, bank accounts, retirement arrangements, business interests and properties. This makes it easier to identify assets that may be treated differently after UK residence begins.

The review should include the original purchase dates and costs of investments, details of reinvested income, pension contribution records and any unrealised gains.

The UK generally calculates Capital Gains Tax by reference to the gain made on an asset rather than the total sale proceeds. Retaining evidence of the original acquisition cost is therefore important, particularly for investments that have been held for many years.

Waiting until an asset has been sold can make it much harder to reconstruct the necessary records.

Establish Your UK Tax Residence Date

The first major question is when the individual becomes UK resident for tax purposes.

Residence is determined under the Statutory Residence Test. The test considers factors including the number of days spent in the UK, work patterns, available accommodation and connections with the country.

Residence must be assessed separately for each UK tax year. A person may be resident in one year and non-resident in another, even where their overall lifestyle has not changed significantly.

The date on which a person physically arrives in the UK is important, but it does not automatically determine the complete tax result. Visits made before the formal relocation, time spent working in Britain and the availability of a UK home may all affect the analysis.

Keeping a detailed travel calendar is one of the most useful steps a new arrival can take. It should record every date of entry and departure, where the person stayed and whether they performed more than three hours of work on a particular day.

Check Whether Split-Year Treatment Applies

Under the Statutory Residence Test, an individual is normally either resident or non-resident for the whole tax year.

Split-year treatment can modify this result where someone moves to or from the UK during the year and meets one of the qualifying sets of circumstances. The tax year may then be divided into a UK part and an overseas part.

There are several possible split-year cases, including situations involving starting to have a home in the UK, beginning full-time work here or ceasing full-time work overseas.

Split-year treatment is not automatic simply because someone moved halfway through the year. The individual must satisfy the conditions of a particular statutory case.

Where it applies, some foreign income and gains arising during the overseas part may remain outside the scope of UK taxation. Income and gains arising during the UK part may be taxable under the usual residence rules.

The exact move date and surrounding circumstances should therefore be reviewed before income is received or investments are sold.

Understand the Different UK and US Tax Years

The UK and United States do not use the same individual tax year.

The UK tax year runs from 6 April to the following 5 April. The US federal tax year for most individuals follows the calendar year from 1 January to 31 December.

A person moving to the UK in September will therefore have part of the same income included in a UK return ending on 5 April and a US return ending on 31 December.

This mismatch affects the calculation of foreign tax credits, the timing of payments and the records needed for each return.

It can also create cash-flow problems. UK tax may become payable in a different period from the corresponding US tax, meaning the foreign tax credit may not be available at exactly the point expected.

A tax calendar should be created during the first year showing the relevant UK and US filing dates, payment dates and periods covered by each return.

Determine Whether You Qualify for the FIG Regime

From 6 April 2025, the UK replaced the previous remittance-basis rules with the residence-based Foreign Income and Gains regime.

A qualifying new resident may claim relief on eligible foreign income and gains during their first four UK-resident tax years, provided those years follow at least ten consecutive tax years of non-UK residence. UK residence for this purpose is determined under the Statutory Residence Test.

The regime can potentially apply to foreign interest, dividends, rental income and gains on overseas assets.

A claim must be made through Self Assessment. The individual can choose which eligible sources of foreign income and gains to include in the claim rather than necessarily claiming relief on everything.

The relief is not automatically the best choice. A claimant generally loses their UK Personal Allowance and Capital Gains Tax annual exempt amount for the year in which the claim is made.

The value of the foreign income and gains should therefore be compared with the allowances being surrendered.

US citizens must also remember that UK FIG relief does not remove US federal taxation or US information-reporting requirements. The same income may continue to be reportable in the United States.

Identify Your Worldwide Income

UK residents are normally taxable on their worldwide income unless a specific exemption, treaty provision or FIG claim applies.

New arrivals should identify all sources of income, including UK and overseas employment, self-employment, interest, dividends, pensions, rental income, partnership profits and distributions from companies or trusts.

Foreign income does not become irrelevant simply because it remains in an overseas account. Under the current residence-based system, leaving income abroad does not generally prevent a UK charge once the person is UK resident, unless FIG relief or another exemption applies.

Income should be recorded in the currency in which it was received and converted into sterling using an appropriate exchange rate for UK reporting.

The first-year review should also establish whether any income is taxed at source overseas and whether foreign tax credit relief may be available.

Coordinate UK Employment and Payroll

Employees relocating to the UK will usually pay Income Tax through Pay As You Earn and may also pay National Insurance through payroll.

The employer should receive accurate information about the employee’s arrival, previous UK earnings and tax status so the correct payroll documentation and tax code can be used.

A new employee should review their payslips during the first few months rather than assuming that all deductions are correct. An emergency or temporary tax code can result in too much or too little tax being withheld.

International assignments may require additional consideration where part of the employee’s duties is performed outside the UK, compensation is paid by more than one company or bonuses relate to work completed before the move.

Employment income earned during a UK-resident tax year is generally subject to UK tax when received, although residence, split-year treatment and the location of the duties can affect the result.

Review Social Security and National Insurance

An employee moving between the US and UK may also need to determine which country’s social security system applies.

The United States and United Kingdom have a Social Security Agreement intended to coordinate coverage and help prevent certain workers from paying compulsory social security contributions in both countries on the same earnings.

The answer can depend on whether the move is temporary, which employer directs the work and how long the assignment is expected to last.

A certificate of coverage may be required to demonstrate that the employee remains insured under one country’s system.

Self-employed individuals need separate advice because the rules governing employment and self-employment are not identical.

This issue should be addressed when the assignment begins rather than after contributions have already been withheld in both countries.

Do Not Assume US Filing Obligations Have Ended

US citizens and resident aliens generally remain subject to US tax on worldwide income while living abroad. They normally continue to file US federal returns under the same basic filing rules that apply to people living in the United States.

A UK salary, British investment income and rent from a UK property may therefore need to be reported in the United States as well as the UK.

Double taxation may be reduced through the Foreign Tax Credit, the Foreign Earned Income Exclusion, treaty provisions or a combination of appropriate reliefs.

These mechanisms are not interchangeable. The Foreign Earned Income Exclusion applies to qualifying earned income and requires the taxpayer to satisfy tax-home and residence or physical-presence conditions. A foreign tax credit cannot generally be claimed for foreign tax attributable to income excluded from US gross income.

The choice between exclusions and credits should be modelled rather than made automatically. It can affect future credit carryovers, eligibility for other tax benefits and the treatment of income above the exclusion limit.

Open UK Accounts with US Reporting in Mind

Opening a UK bank account is a routine part of relocating, but it may create additional US reporting.

A US person may need to file a Report of Foreign Bank and Financial Accounts where the aggregate value of relevant non-US financial accounts exceeds $10,000 at any time during the calendar year. The threshold applies to the combined maximum value of the accounts rather than to each account separately.

Form 8938 may also be required where the total value of specified foreign financial assets exceeds the threshold applicable to the taxpayer’s filing status and residence. Form 8938 and the FBAR are separate requirements. Filing one does not necessarily remove the need to file the other.

New arrivals should retain monthly statements and note the highest balance reached during the calendar year.

Accounts over which the person has signature authority may also require consideration, even where the money does not personally belong to them.

Review UK Savings and Investment Products Before Using Them

A UK savings or investment product may receive favourable UK tax treatment but still create US tax or reporting consequences.

An Individual Savings Account can shelter qualifying income and gains from UK tax, but the United States does not generally treat an ISA as equivalent to a US tax-exempt retirement account.

The underlying investments must also be considered. Certain non-US collective investment funds may fall within the US Passive Foreign Investment Company rules and can create complex annual reporting through Form 8621.

This means that a UK investment recommended to a British taxpayer may not be suitable for a US citizen.

Before opening an ISA, investment bond, unit trust or other investment account, the individual should establish how both countries will classify the product and its underlying assets.

The investment decision should be driven by its after-tax position in both jurisdictions rather than by the UK tax label alone.

Consider Existing US Investments Before Selling

US brokerage accounts and investments retained after the move may become subject to UK tax once residence begins.

An asset that has increased substantially in value before the move may carry a historic acquisition cost that is relevant to the UK gain. The UK does not provide a general automatic rebasing of all personal investments to their market value on the date an individual arrives.

Selling an appreciated asset after becoming UK resident can therefore expose part of the historic gain to UK taxation, subject to split-year treatment, FIG relief and any other applicable rules.

The position should be modelled before the relocation where a sale is already being considered.

Care is also needed before selling an investment solely to establish a new cost basis. The transaction may itself produce US tax, while repurchasing the same or a similar asset can engage identification or anti-avoidance rules.

Examine Overseas Property and Rental Income

A person who retains a US home or other overseas property after moving to Britain may need to report the rental income in both countries.

UK residents normally report foreign rental income unless relief applies. Expenses deductible under US rules may not always be deductible in the same way or in the same period for UK purposes.

The property should therefore have a separate record showing gross rent, management costs, repairs, insurance, mortgage interest and foreign tax paid.

The original purchase documents and evidence of later improvements should also be retained in case the property is sold.

A gain calculated in sterling can differ from the apparent gain calculated in US dollars because the purchase price, improvement costs and sale proceeds may each be converted using exchange rates from different dates.

A former main home may also receive different relief in each country. Advice should be taken before renting or selling a property that was occupied before the move.

Review Pensions Without Making Immediate Changes

Moving to the UK does not necessarily mean that US retirement accounts should be transferred, closed or consolidated.

A distribution, rollover, Roth conversion or pension transfer may receive different treatment under UK and US rules.

The UK-US Double Taxation Convention contains specific provisions for pensions, but the outcome depends on the type of plan and whether the payment is periodic or a genuine lump sum.

During the first year, the priority should be to identify each pension, retain contribution and basis records and review the tax consequences before taking benefits or making structural changes.

A decision that appears tax-efficient under one country’s rules may produce an unexpected charge or reporting obligation in the other.

Assess Business and Company Interests

An individual who owns a US company, limited liability company, partnership or other business interest should review how the entity will be treated after the move.

The UK and US may classify the same entity differently for tax purposes.

The owner’s move can also affect where management decisions are made, where income is taxed and which information returns are required.

A person continuing to operate a US business from their UK home should not assume that the business remains a purely American tax matter.

The review should cover salary, dividends, retained profits, company expenses, permanent-establishment exposure and the location from which strategic decisions are taken.

Starting a UK company or becoming self-employed should also be planned carefully. UK registration, payroll, National Insurance and Self Assessment obligations may begin even where the customers remain in the United States.

Understand Trust and Estate Issues

Trusts require particular care because the UK and US systems may define ownership, income and distributions differently.

A US person involved with a non-US trust may also have US reporting obligations on Forms 3520 or 3520-A, depending on their role and the transactions involved.

New residents should disclose any trust they created, funded, benefit from or have powers over, even where no distribution has yet been received.

Inheritance Tax should also be considered as part of longer-term planning.

From 6 April 2025, the UK moved from a domicile-based system to a residence-based framework for determining when overseas assets may fall within Inheritance Tax. Foreign assets can become exposed where an individual meets the long-term UK residence conditions.

A new arrival may not immediately satisfy the long-term residence test, but the first year is still an appropriate time to review wills, asset ownership and the potential position if UK residence continues.

Register for Self Assessment When Required

Not every employee has to file a UK tax return, but Self Assessment may be required where the individual has taxable foreign income, rental income, self-employment profits or other income and gains that are not fully dealt with through payroll.

A person who needs to file and is not already registered generally has to notify HMRC by 5 October following the end of the relevant tax year. The usual online filing and payment deadline is 31 January following the end of that tax year.

Foreign income is normally declared using the relevant foreign pages of the return, and foreign tax credit relief may also be claimed where the conditions are met.

The individual may also need the residence pages to report their residence position, split-year treatment or a FIG claim.

Registration should not be left until shortly before the filing deadline. Obtaining the necessary references and assembling overseas tax information can take time.

Create a Cross-Border Record-Keeping System

Good record-keeping is essential when income and assets are reported in two currencies and across two tax years.

The individual should retain payslips, bank statements, brokerage reports, pension statements, property records and evidence of foreign tax paid.

Investment records should show the acquisition date, original cost, reinvested dividends, later additions and sale proceeds.

A consistent method should also be used to record exchange rates.

Documents should be organised according to both the UK tax year and US calendar year so that the same information can be reconciled between the two returns.

This process is much easier when completed monthly or quarterly rather than reconstructed several years later.

Schedule a Review Before the First UK Tax Year Ends

The first formal tax review should not be delayed until the filing deadline.

A review before 5 April gives the individual an opportunity to confirm their residence status, assess a potential FIG claim and identify income or gains arising during the UK tax year.

It can also reveal whether investment sales, charitable contributions, pension payments or other planned transactions should take place before or after the year-end.

The review should estimate the UK liability and consider whether payments on account may be required under Self Assessment.

At the same time, the US position should be projected for the calendar year so that foreign tax credits and cash-flow requirements can be coordinated.

Review the Position Again After 12 Months

The end of the first 12 months is an opportunity to compare the original plan with what actually happened.

The individual should confirm their days in the UK, overseas workdays, income received, accounts opened and investments bought or sold.

Any assumptions made before moving should be updated where employment, family arrangements or residence plans have changed.

The review should also consider whether the person will remain eligible for the FIG regime in the following year and whether making another claim remains beneficial.

Longer-term planning can then address pension access, property ownership, estate planning and the eventual tax consequences of leaving the UK.

Moving to Britain creates opportunities as well as obligations, but the two tax systems must be coordinated from the beginning. Establishing residence correctly, reviewing assets before transactions take place and maintaining complete records throughout the first year can provide a much stronger foundation for future UK-US tax planning.