Part 1: Before You Leave — Ending UK Residence

The UK Statutory Residence Test

UK residence is not determined by where you live in a common-sense way. It is determined by the UK Statutory Residence Test, which was introduced by the Finance Act 2013 and is set out in Schedule 45 of that Act. HMRC's detailed guidance on the SRT is published in RDR3. The test has three components: automatic overseas tests, automatic UK tests, and the sufficient ties test. They are applied in a specific order.

If you meet any of the automatic overseas tests, you are not UK resident for that tax year — regardless of anything else. If you do not meet any automatic overseas test but you meet an automatic UK test, you are UK resident. If you meet neither, the sufficient ties test determines the outcome based on how many UK ties you retain and how many days you spend in the UK.

The Automatic Overseas Tests

The first automatic overseas test applies where you were UK resident in one or more of the three preceding tax years and you spend fewer than 16 days in the UK in the current year. The second applies where you were not UK resident in any of the three preceding tax years and you spend fewer than 46 days in the UK. The third — the most commonly relevant for people leaving to take up full-time employment abroad — applies where you work full-time overseas throughout the year, spend fewer than 91 days in the UK, and spend no more than 30 days working in the UK.

For most people relocating to the United States to take up employment, the third automatic overseas test is the relevant one. Meeting it requires genuine full-time work overseas and strict attention to the day count in the UK during the year of departure.

Day Counting Under the SRT

A day counts as a day of UK presence under the SRT if you are in the UK at midnight. There are specific rules for transit days and exceptional circumstances beyond your control. The day count is not the same as the number of nights spent in the UK — it is the number of midnights. Someone who arrives in the UK on a Monday evening and leaves Tuesday morning has spent one day in the UK for SRT purposes.

Planning note: The day count in the UK during the year of departure is critical. Exceeding the thresholds in the automatic overseas tests — particularly the 90-day threshold for the third test — can result in remaining UK resident for the entire tax year, with all the consequences that follow for income and gains.

The Sufficient Ties Test

Where neither the automatic overseas tests nor the automatic UK tests produce a definitive answer, the sufficient ties test applies. UK ties include: a family tie (a spouse, civil partner, or minor child resident in the UK); an accommodation tie (available accommodation in the UK that you make use of); a work tie (working in the UK for 40 or more days in the year); a 90-day tie (having spent more than 90 days in the UK in either of the two preceding tax years); and a country tie (spending more days in the UK than in any other single country). The number of ties required to be UK resident decreases as the number of days spent in the UK increases.

The Date UK Residence Ends

The SRT operates on a whole tax year basis — you are either UK resident or not for the entire year from 6 April to 5 April. Split year treatment (covered in Part 4) creates a functional split within the year for income tax purposes, but the underlying SRT determination is annual. This means the date your UK residence ends for treaty purposes and the date it ends for SRT purposes are not necessarily the same date, and the distinction matters when determining which country has taxing rights over income received at different points in the year.

Pre-Departure Planning: The Assets That Need Attention Before You Leave

Capital Gains

The UK charges capital gains tax on gains realised by UK residents. Once you cease to be UK resident, the UK generally cannot tax gains on most assets — with important exceptions for UK residential property and certain UK business assets. The year of departure therefore represents both an opportunity and a risk.

If you hold assets standing at a gain, realising them before departure keeps the gain within the UK CGT regime, where the rates and annual exempt amount may be more favourable than US treatment. Once you are a US resident, gains on disposals are subject to US federal tax — and potentially state tax — at rates that can be significantly higher depending on the nature of the asset and how long it has been held.

Conversely, if you hold assets standing at a loss, it may be worth deferring the disposal until after you become US resident, so the loss can be used in the US system rather than the UK one.

Planning note: Article 13, paragraph 6 of the U.S.-UK Tax Treaty gives the UK the right to tax gains on UK assets realised by a former UK resident within six years of departure. This is the six-year lookback provision. It applies to gains that would have been taxable in the UK but for non-residence. The existence of this provision means that departure does not create a clean break for all UK-situs assets.

UK Pensions

The year of the move is the most important year in the lifecycle of a UK pension for US tax purposes. The interaction between UK pension rules and the US-UK Tax Treaty — particularly the saving clause and Article 17 — means that decisions about pension distributions, lump sums, and scheme structuring need to be made before US residency is established, not after.

In particular, the pension commencement lump sum — the tax-free cash entitlement under UK domestic law — is most cleanly protected when taken while still UK resident. Once US residency is established, the saving clause in Article 1(4) of the treaty overrides the source-State allocation in Article 17(2), and the US may assert taxing rights over the lump sum regardless of its UK tax-free status.

See also: Antravia Advisory: UK Pension Lump Sums and the US-UK Tax Treaty — What UK Expats in the US Need to Know

ISAs

Individual Savings Accounts are one of the most misunderstood assets in the context of a US move. The ISA wrapper is a creature of UK domestic law. It has no equivalent recognition under US tax law, and the US-UK Tax Treaty does not contain any provision that extends ISA tax-free status to a US resident.

Once you become a US resident, income and gains arising within an ISA are taxable in the US in the same way as any other investment account. The UK exemption continues to apply — the UK does not tax ISA income regardless of your residence status — but the US does not recognise the exemption. Furthermore, depending on the investments held within the ISA, there may be adverse consequences under the US passive foreign investment company rules.

Planning note: ISAs holding UK-domiciled funds, unit trusts, or OEICs are likely to contain PFIC investments in the eyes of the IRS. The PFIC regime carries punitive tax treatment and complex reporting requirements. Reviewing ISA holdings and considering whether to restructure them before departure is one of the most important pre-move planning steps.

See also: Antravia Advisory: ISAs and US Taxation — What Happens to Your ISA When You Move to the United States

UK Limited Companies

A UK national who owns or controls a UK limited company and becomes a US resident will typically become subject to Form 5471 filing obligations under the Internal Revenue Code. Form 5471 is an information return — it is not a tax return — but the penalties for failure to file are substantial, starting at $10,000 per year per company. The filing obligation is not triggered by the treaty. It arises under US domestic law and the treaty provides no relief from it.

Beyond the reporting obligation, becoming a US shareholder in a controlled foreign corporation can trigger Subpart F income inclusions and, depending on the nature of the company's income, Global Intangible Low-Taxed Income inclusions under the GILTI regime. These are US domestic law concepts that the treaty does not neutralise.

See also: Antravia Advisory: Form 5471 and UK Limited Companies — What US Residents Need to Know

UK Domicile

Domicile is a distinct concept from residence under both UK and US law. For UK inheritance tax purposes, a UK domiciled individual is subject to IHT on their worldwide estate regardless of where they live. Acquiring a US domicile — which requires both physical presence and an intention to remain permanently — does not automatically extinguish UK domicile for IHT purposes. The deemed domicile rules mean that a UK national who has been UK resident for 15 of the preceding 20 tax years is treated as UK domiciled for IHT purposes.

The US-UK Estate Tax Treaty is a separate instrument from the income tax treaty and governs the IHT and US estate tax interaction. It is not covered in this article but is relevant to pre-departure planning for those with significant assets.

Notifying HMRC

On leaving the UK, you should notify HMRC of your departure using form P85 if you were employed, or through your Self Assessment return if you were self-employed. Your final UK Self Assessment return will cover the UK portion of the year of departure. National Insurance contributions cease on departure, and voluntary Class 2 or Class 3 contributions should be considered if you wish to maintain entitlement to the UK State Pension.

Part 2: Becoming US Resident — When US Taxation Begins

The Two Routes to US Tax Residency

Under US domestic law, an individual becomes a US tax resident in one of two ways: by holding a green card (the green card test), or by meeting the substantial presence test. These are separate tests and either one, standing alone, is sufficient to make someone a US tax resident for a given calendar year.

The Green Card Test

An alien who is a lawful permanent resident of the United States at any point during a calendar year is a US resident for that entire year for tax purposes, unless the green card is formally abandoned or administratively revoked. The test is status-based, not presence-based. A green card holder who spends most of the year outside the United States is still a US tax resident for that year.

The Substantial Presence Test

The substantial presence test applies to individuals who do not hold a green card. Under IRC Section 7701(b), an individual meets the substantial presence test for a calendar year if they are present in the United States for at least 31 days during that year and the sum of the following three-year calculation equals or exceeds 183 days: all days present in the current year, plus one-third of days present in the first preceding year, plus one-sixth of days present in the second preceding year.

A day of presence means any part of a day spent in the United States. Unlike the UK SRT, which counts midnights, the US counts any part of a calendar day. Arriving in the US on a Monday evening counts as a US day even if you leave the following morning.

Certain days are excluded from the substantial presence calculation: days as an exempt individual (diplomats, certain visa holders including F, J, M, and Q visa holders within specified periods, and professional athletes competing in charitable events); days present due to a medical condition that arose while in the United States; and days in transit between two foreign points where the individual is in the United States for fewer than 24 hours.

The Residency Start Date

Under IRC Section 7701(b)(2), if an individual meets the substantial presence test, the residency starting date is generally the first day they are present in the United States during the calendar year in which they meet the test. This means that if someone arrives in the United States on 15 March and meets the substantial presence test by the end of the year, their US residency is treated as having started on 15 March for that year — not on the date they crossed the 183-day threshold.

For green card holders, the residency starting date is the first day in the calendar year on which they are present in the United States as a lawful permanent resident.

The First Year Choice Election

The first year choice election under IRC Section 7701(b)(4) is one of the most important and least understood provisions in US international tax law for new arrivals. It allows an individual who does not meet the substantial presence test in year one but meets it in year two to elect to be treated as a US resident from a specific date in year one, provided they meet certain conditions.

The conditions are: the individual must be present in the United States for at least 31 consecutive days in year one; they must be present in the United States for at least 75 percent of the days from the start of that 31-day period to the end of the year; and they must meet the substantial presence test in the following year.

If the election is made, the individual's US residency is treated as beginning on the first day of the earliest 31-consecutive-day period of presence that satisfies the conditions. The election is made by attaching a statement to the tax return for the year of the election.

Planning note: Making the first year choice election is irrevocable for the year to which it applies. Before making it, the interaction with the UK SRT split year treatment must be carefully considered. Electing into US residency from an earlier date may expand the period during which US worldwide taxation applies, and may create an overlap with the period for which the UK also asserts residence — with consequences for both the treaty tie-breaker and the foreign tax credit.

The Closer Connection Exception

An individual who meets the substantial presence test may nonetheless be treated as a non-resident for US tax purposes if they can establish a closer connection to a foreign country. The closer connection exception under IRC Section 7701(b)(3) requires that the individual: was present in the United States for fewer than 183 days in the current year; maintained a tax home in a foreign country during the year; and had a closer connection to that foreign country than to the United States. The exception is claimed by filing Form 8840.

For someone in the process of relocating from the UK to the US, the closer connection exception is most relevant in the year of the move itself, where presence in the US may be sufficient to meet the substantial presence test but the individual's connections to the UK remain strong. However, it cannot be used if the individual has applied for, or taken steps to apply for, a green card.

Part 3: The Gap, the Overlap, and the Dangerous Middle

When the Two Systems Do Not Align

The UK tax year runs from 6 April to 5 April. The US tax year is the calendar year, 1 January to 31 December. UK residence is determined under the SRT. US residence is determined under the green card test or the substantial presence test. These systems operate entirely independently of each other, and they do not produce the same start and end dates.

This means that in the year of a move from the UK to the US, an individual may experience one of three situations:

• A gap period, during which they are neither UK resident nor US resident under the domestic law of either country.

• An overlap period, during which they are simultaneously resident in both countries under the domestic laws of both.

• A clean sequential transition, which is the ideal outcome but requires careful planning to achieve.

The Gap Period

A gap period arises most commonly where an individual has met the automatic overseas tests for the UK SRT — and is therefore not UK resident for the tax year — but has not yet met the US substantial presence test or green card test and has not made the first year choice election. During this period, neither country has a full residence claim on the individual under its domestic law.

The gap period sounds attractive. In practice it creates uncertainty and risk. Income arising during a gap period may fall between the two systems in ways that produce unexpected results. Capital gains realised during a gap may avoid UK CGT on the basis of non-residence, but if US residency is subsequently established for the full year under the substantial presence test — which looks backwards across the year — the gains may be drawn into the US tax net from the residency start date.

The Overlap Period

An overlap period arises where the individual is UK resident under the SRT for part of the year — typically because they have not met the automatic overseas tests — and simultaneously US resident under the substantial presence test or green card test. During an overlap, both countries assert residence and both countries assert the right to tax worldwide income.

The Article 4 tie-breaker in the U.S.-UK Tax Treaty is the tool for resolving a dual residence overlap. As set out in the treaty article, it runs through permanent home, centre of vital interests, habitual abode, and nationality in sequence. However, the tie-breaker determines treaty residence — it does not override the domestic law of either country. Both countries may still require returns to be filed. The tie-breaker determines where the individual is treated as resident for the purpose of claiming treaty benefits, and therefore which country has primary taxing rights over different categories of income.

See also: Antravia Advisory: The U.S.-UK Tax Treaty Explained — Article 4 and the Dual Residency Tie-Breaker

Planning note: The tie-breaker in Article 4 requires the individual to be a resident of both Contracting States under their domestic laws before it can be invoked. If domestic law residency in one State has already been severed — for example, because the UK SRT automatic overseas tests have been met — there is no dual residence to resolve and the tie-breaker does not apply. This means the tie-breaker is available only in genuine overlap situations, not in gap situations.

Why the Gap Period Is Not a Planning Opportunity

Some advisers suggest that engineering a gap period — a window during which neither country has a residence claim — creates a tax-free window for realising gains or taking distributions. This analysis is superficially appealing and structurally flawed.

On the US side, if the individual subsequently meets the substantial presence test for the calendar year, the residency start date is pulled back to the first day of presence in that year — not the date the substantial presence threshold was crossed. Income and gains from the beginning of the year may therefore be drawn into the US tax base regardless of the apparent gap.

On the UK side, realising gains or taking income distributions during a period of claimed non-residence does not guarantee immunity. HMRC may challenge the non-residence position if the SRT conditions are not clearly met, or may apply the six-year lookback under Article 13(6) of the treaty to gains on UK assets.

Part 4: Split Year Treatment

What Split Year Treatment Is

Split year treatment is a UK domestic law concept, not a treaty concept. It applies under Schedule 45 of the Finance Act 2013 where an individual is UK resident for part of a tax year and meets certain conditions. It divides the tax year into a UK part and an overseas part. During the UK part, the individual is taxed as a UK resident. During the overseas part, they are taxed as a non-resident — meaning UK source income may still be taxed but overseas income generally is not.

Split year treatment does not apply automatically. The individual must meet one of eight defined cases set out in Schedule 45. For someone leaving the UK to move to the United States, the relevant cases are typically Case 1 (starting full-time work overseas), Case 4 (ceasing to have a home in the UK), or Case 5 (starting to have a home only overseas). The conditions for each case are specific and must be satisfied in full.

Case 1 — Starting Full-Time Work Overseas

Case 1 applies where an individual starts to work full-time overseas during the tax year, the overseas work period begins during the year, and for the remainder of the year after the split point the individual meets the conditions of the third automatic overseas test. The split date is the date on which the overseas work begins.

Case 4 — Ceasing to Have a Home in the UK

Case 4 applies where at the start of the tax year the individual had a home in the UK and at some point during the year they cease to have any home in the UK. From the date they cease to have a UK home, the overseas part of the year begins. This case requires that for the remainder of the year after the split date the individual either has no UK home or has only a UK home that they spend a limited number of days in.

What Split Year Treatment Does Not Do

Split year treatment applies for UK income tax and capital gains tax purposes. It does not affect the National Insurance position, which is governed by separate rules. It does not affect the domicile analysis. It does not determine the date from which the US-UK Tax Treaty tie-breaker applies — that is a treaty question determined by reference to the facts. And it does not affect when the US treats the individual as becoming resident, which is determined entirely by US domestic law.

Planning note: The most common misunderstanding about split year treatment is that it creates a treaty-defined break date that both countries recognise. It does not. The UK recognises the split year date for its own tax purposes. The US does not recognise UK split year treatment and applies its own residency start date rules independently. A period that the UK treats as the overseas part of a split year may nonetheless be fully within US residence for US tax purposes.

The Tax Year Mismatch

The UK tax year ends on 5 April. The US tax year ends on 31 December. In the year of the move, this creates a period from 6 April to 31 December that falls within two different UK tax years but within a single US calendar year. An individual who moves to the US in, say, September 2024 will file a US return for the calendar year 2024 and UK returns for the tax years ending 5 April 2024 and 5 April 2025. The income that appears on the US 2024 return will overlap with income that appears on two different UK returns.

This mismatch requires careful mapping when computing the foreign tax credit under Article 24 of the treaty. UK tax paid in a UK tax year that straddles two US calendar years needs to be allocated to the correct US year for credit purposes, and the timing of when UK tax is paid relative to when the US return is filed adds further complexity.

Part 5: Income in the Year of the Move

The Dual Status Return

In the year of the move, a US tax return is filed as a dual status return. This reflects the fact that for part of the year the individual was a non-resident alien and for part they were a resident alien. The return covers both periods but they are taxed differently.

During the resident period, the individual is subject to US tax on worldwide income. During the non-resident period, the individual is subject to US tax only on US-source income. The dividing line is the residency start date established under the substantial presence test or green card test rules.

A dual status return is more complex to prepare than a standard resident return. Certain elections available to full-year residents — including the ability to file jointly with a spouse — are not available on a dual status return unless a specific election is made to treat the non-resident period as a resident period.

Employment Income

Article 14 of the U.S.-UK Tax Treaty governs income from employment. Paragraph 1 provides that salaries, wages, and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State.

In the year of the move, employment income earned while UK resident and working in the UK is taxable in the UK and not in the United States for the non-resident period of the US return. Employment income earned after the US residency start date is subject to US tax, and UK tax paid on overlapping income gives rise to a foreign tax credit under Article 24.

Article 14, paragraph 2 provides a short-term business visitor exemption: remuneration derived by a UK resident in respect of employment exercised in the US shall be taxable only in the UK if the recipient is present in the US for no more than 183 days in any twelve-month period commencing or ending in the relevant tax year, the pay is made by or on behalf of a non-US employer, and the remuneration is not borne by a US permanent establishment of the employer. This exemption can apply in reverse — a US resident temporarily working in the UK may similarly have relief from UK tax — but the conditions must be met precisely.

Pension Income in the Year of the Move

The year of the move is the most important planning window for UK pension decisions. The interaction between Articles 17 and 18 of the treaty and the saving clause is covered in detail in the companion treaty article, but the key practical point for the year of the move is this: the saving clause in Article 1(4) only applies to the US in respect of its residents and citizens. Before US residency is established, the saving clause does not operate, and Article 17(2) works exactly as it reads.

A pension commencement lump sum taken while still UK resident and before US residency begins is taxable only in the UK under Article 17(2), and exempt from UK tax under UK domestic law. The result — no tax in either country — is the outcome the treaty provisions were designed to produce for this scenario.

The same lump sum taken after US residency is established produces a fundamentally different result. Article 17(2) still allocates the taxing right to the UK, but the saving clause allows the US to override that allocation and impose US tax as if the treaty did not exist. With no UK tax against which to credit, the full US liability stands.

Planning note: If a pension commencement lump sum is under consideration, the single most valuable planning step is to ensure it is taken before the US residency start date — not before departure in a physical sense, but before the date from which the US asserts tax residence. The date of the distribution and the date of US residency are both facts that must be established with precision.

See also: Antravia Advisory: UK Pension Lump Sums and the US-UK Tax Treaty — The Saving Clause, Article 17, and What UK Expats in the US Need to Know

UK Rental Income

Rental income from UK property continues to be taxable in the UK regardless of the landlord's residence status, under Article 6 of the treaty which provides that income from real property situated in a Contracting State may be taxed in that State. Once the individual is a US resident, that rental income is also subject to US tax as part of worldwide income. The UK tax paid gives rise to a foreign tax credit on the US return under Article 24.

The non-resident landlord scheme requires UK letting agents or tenants to withhold 20 percent basic rate tax from rental income paid to a non-resident landlord, unless HMRC has approved the landlord to receive rents gross. Applying for gross payment approval — using form NRL1 — should be done before departure if the property is to be retained.

UK Dividends and Interest

Under Article 10, paragraph 2 of the treaty, dividends paid by a UK company to a US resident may be taxed in both States, but the UK withholding rate is capped at 15 percent in most cases and 5 percent where the recipient is a company holding at least 10 percent of the voting power. Under Article 11, paragraph 1, interest arising in a Contracting State that is beneficially owned by a resident of the other Contracting State shall be taxable only in that other State — meaning UK interest received by a US resident is taxable only in the US, and the UK should not withhold tax on it.

ISA Income After Arrival

From the date of US residency, income and gains within an ISA are taxable in the US. The ISA wrapper provides no protection under US tax law. Interest, dividends, and capital gains arising within the ISA after the residency start date must be reported on the US return. Where the ISA holds investments that constitute passive foreign investment companies under US tax law, the PFIC regime may apply, which carries its own tax rates and reporting requirements significantly more burdensome than standard investment income treatment.

See also: Antravia Advisory: ISAs and US Taxation — PFIC Treatment, Reporting Obligations, and Planning Before the Move

Capital Gains in the Year of the Move

Capital gains realised before the US residency start date are not subject to US tax, provided the individual was genuinely a non-resident at the date of disposal. Gains realised after the US residency start date are subject to US capital gains tax — at preferential long-term rates if the asset has been held for more than one year, and at ordinary income rates if held for one year or less.

The UK cost base and the US cost base for the same asset may be different, particularly where the asset was acquired before the individual became US resident. The US cost basis is generally the original acquisition cost in US dollars, converted at the exchange rate on the date of acquisition. The UK base cost is in sterling. Exchange rate movements over the holding period can create a US gain on an asset that produced a UK loss, or vice versa.

Article 13, paragraph 5 provides that gains from the alienation of property other than the specific categories covered in earlier paragraphs shall be taxable only in the Contracting State of which the alienator is a resident. Once US resident, gains on non-UK assets are taxable in the US. Gains on UK residential property remain taxable in the UK under Article 13, paragraph 1 regardless of the seller's residence.

Part 6: The Treaty in Year One

When the Article 4 Tie-Breaker Is Available

The Article 4 tie-breaker is available where an individual is a resident of both Contracting States under their respective domestic laws at the same time. In the year of the move, this typically arises where the individual has not met the UK SRT automatic overseas tests — and therefore remains UK resident for the full year under UK law — while simultaneously meeting the US substantial presence test or holding a green card.

Where genuine dual residence exists, the tie-breaker sequence runs through permanent home, centre of vital interests, habitual abode, and nationality. The outcome determines treaty residence — the State in which the individual is treated as resident for purposes of claiming treaty benefits — but does not eliminate the filing obligation in either country.

Article 4, paragraph 4(a) of the treaty provides that where a permanent home is available in both States, residence is determined by the State with which personal and economic relations are closer — the centre of vital interests. In the year of a move, an individual who retains a UK home while establishing a US one may find the centre of vital interests analysis turns on factors including: where their family is based, where their employment is, where their bank accounts and financial assets are held, where they are registered with a doctor, where they vote, and where they conduct their social life.

Form 8833 in Year One

Where a treaty-based position is taken on a US return — for example, claiming that treaty residence lies in the UK under the Article 4 tie-breaker, or that a particular category of income is exempt or reduced under a specific treaty article — that position must generally be disclosed on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), attached to the return. IRS Publication 901 confirms that failure to file Form 8833 where required may result in a $1,000 penalty for individuals.

In year one, Form 8833 disclosures are commonly required for: the tie-breaker position under Article 4; any pension income position under Article 17; and any position under Article 18 regarding pension scheme contribution relief.

Part 7: Reporting Obligations — What to File and When

UK Filing Obligations

A UK Self Assessment return is required for the tax year of departure if the individual was in Self Assessment before leaving, or if UK-source income arises in that year that is subject to UK tax. The return must reflect the split year treatment position if applicable and must disclose any foreign income that is taxable in the UK portion of the year. HMRC should be notified of departure via form P85 where applicable.

Subsequent UK returns may be required for ongoing UK-source income — rental income, UK dividends, interest from UK bank accounts, and any UK employment income arising from return visits. Non-resident landlords have their own filing requirements through the Non-Resident Landlord Scheme.

US Filing Obligations in Year One

In the year of the move, the US return is a dual status return covering both the non-resident alien period and the resident alien period. The return for a dual status year is more complex than a standard return and requires specific attachments to document the residency start date and the basis on which income in each period has been taxed.

Where the first year choice election is made, the election statement must be attached to the return for the election year, and the individual must also file a timely return for the following year in which the substantial presence test is met.

FBAR — FinCEN Form 114

Any US person — including a resident alien — who has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year must file FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR. The filing deadline is 15 April, with an automatic extension to 15 October.

The FBAR is not filed with the IRS. It is filed electronically with the Financial Crimes Enforcement Network. Foreign financial accounts include bank accounts, brokerage accounts, pension accounts, and other financial accounts held at institutions outside the United States. UK bank accounts, UK investment accounts, UK pension accounts, and UK ISAs are all potentially reportable.

Planning note: The penalties for wilful failure to file an FBAR are severe — up to the greater of $100,000 or 50 percent of the account balance per violation. Even non-wilful failure carries penalties of up to $10,000 per violation. In the year of the move, when an individual becomes a US person mid-year, the FBAR obligation applies from the date of US residency. If aggregate foreign account balances exceeded $10,000 at any point after that date, filing is required.

Form 8938 — FATCA Reporting

Form 8938, Statement of Specified Foreign Financial Assets, is filed with the US tax return and reports specified foreign financial assets above certain thresholds. The thresholds are higher than the FBAR thresholds and vary depending on filing status and whether the individual lives inside or outside the United States. For an individual living in the US and filing as single or married filing separately, the threshold is $50,000 at year-end or $75,000 at any point during the year.

Form 8938 covers a broader range of assets than the FBAR, including foreign stock held directly, foreign partnership interests, and interests in foreign financial accounts. There is overlap between Form 8938 and FBAR reporting, but the two forms are not substitutes for each other — both must be filed where the respective thresholds are met.

State Tax Filings

The federal US-UK Tax Treaty does not bind US states. Each state has its own income tax rules, and a state may tax income that is exempt under the federal treaty. California, for example, does not conform to all federal treaty positions and may tax income that the individual treats as exempt at the federal level. New York has its own residency rules that can result in state-level taxation even where federal residency has not been established for the full year.

The state in which an individual establishes domicile in the year of the move is particularly important. Some states assert the right to tax former residents on income attributable to the state even after departure — California is well known for this — and establishing a clean break from a high-tax state requires deliberate action, not simply leaving.

See also: Antravia Advisory: US State Taxes for UK Expats — What the Federal Treaty Does Not Cover

Part 8: Specific Assets Requiring Pre-Move Action

UK Pension Schemes — The Competent Authority Agreement

Article 18, paragraph 3 of the U.S.-UK Tax Treaty provides that the cross-border pension contribution relief in paragraph 2 does not apply unless the competent authority of the other State has agreed that the pension scheme generally corresponds to a pension scheme established in that State. Similarly, Article 18, paragraph 5(d) conditions the US citizen UK pension relief on the competent authority of the United States having agreed that the UK pension scheme generally corresponds to a US pension scheme.

In practice, this means that before relying on Article 18 relief for pension contributions made after becoming US resident, the individual needs to ensure that the competent authority agreement condition is satisfied. This is not an automatic process and requires engagement with the relevant authorities before the contributions are made.

See also: Antravia Advisory: UK Pension Schemes and the US-UK Tax Treaty — Article 18, Competent Authority Agreements, and What to Do Before You Move

ISAs — The PFIC Problem

The passive foreign investment company rules under IRC Sections 1291 to 1298 apply to US persons who hold shares in non-US corporations that are PFICs. A PFIC is broadly any foreign corporation where 75 percent or more of its gross income is passive income, or 50 percent or more of its assets produce or are held to produce passive income. Most UK-domiciled funds, unit trusts, and OEICs held within an ISA will meet this definition.

The default PFIC regime imposes an interest charge on excess distributions and gains, taxed at ordinary income rates rather than preferential capital gains rates. The result is a tax treatment significantly more punitive than would apply to equivalent US investments. Alternative PFIC elections — the qualified electing fund election and the mark-to-market election — are available but have their own conditions and ongoing requirements.

Before moving to the United States, reviewing ISA holdings and considering whether to restructure them — selling PFIC investments while still UK resident and reinvesting in non-PFIC alternatives — is one of the most consequential pre-move decisions available.

See also: Antravia Advisory: ISAs and US Taxation — PFIC Rules, Elections, and Pre-Move Planning

UK Unit Trusts and OEICs Outside ISAs

The PFIC analysis applies equally to UK-domiciled funds held outside an ISA. A UK national who has been investing in UK unit trusts and OEICs throughout their working life may hold a portfolio of investments that are entirely benign under UK tax law and produce significant adverse consequences under the US PFIC regime from the first day of US residency. Reviewing and restructuring the portfolio before the US residency start date is strongly advisable.

Premium Bonds

National Savings and Investments Premium Bonds are a UK government savings product where returns take the form of tax-free prizes rather than interest. From a UK tax perspective, the prizes are exempt. From a US tax perspective, prizes and winnings are generally taxable as ordinary income. There is no treaty provision that extends the UK tax-free treatment of Premium Bond prizes to the US. A US resident holding Premium Bonds must report any prizes won as taxable income on their US return.

EIS and SEIS Investments

The Enterprise Investment Scheme and Seed Enterprise Investment Scheme are UK venture capital reliefs providing income tax and capital gains tax benefits to UK investors. The reliefs are creatures of UK domestic law. The US does not recognise EIS or SEIS treatment and does not replicate the UK income tax relief, CGT deferral, or loss relief provisions. A US resident who holds EIS or SEIS investments does not receive the same tax treatment on those investments as a UK resident would. The PFIC analysis may also apply to the underlying companies depending on their income profile.

Part 9: Common Mistakes and How to Avoid Them

Taking a Pension Lump Sum After Arriving

As set out in Part 5, the pension commencement lump sum is most cleanly protected when taken before US residency is established. Taking it after the US residency start date exposes it to US tax under the saving clause, with no foreign tax credit available where the UK has not charged tax. For a significant lump sum — the kind of amount that makes a material difference to retirement planning — the US tax exposure on this mistake can be substantial.

Selling UK Assets After US Residency Begins

Gains on UK assets realised after the US residency start date are subject to US capital gains tax. For assets standing at a significant gain — UK property other than the main residence, investment portfolios, interests in UK businesses — the US tax on disposal may be a material consideration. Where possible, disposals should be timed to fall before the residency start date, or the cost basis implications and foreign tax credit position should be modelled before the disposal is made.

Not Making the First Year Choice Election When It Would Help

The first year choice election is not always beneficial. But in situations where it allows the individual to establish US residency from an earlier date in year one — and thereby bring forward the date from which the foreign tax credit and treaty protections under Article 24 are available — failing to consider it is a planning gap. The election is irrevocable, so it must be modelled carefully before it is made. But not making it when it would reduce overall tax is an equally significant error.

Not Filing FBAR in Year One

FBAR is one of the most commonly missed obligations in the year of the move, because new arrivals are typically focused on their income tax position and are not aware that a separate financial account reporting requirement exists. The $10,000 threshold is low enough to catch almost any UK bank account, and the penalties for non-filing are disproportionate to the underlying account balances involved.

Assuming ISA Income Is Tax-Free

The ISA tax-free wrapper does not travel with the investor to the United States. This is one of the most widely misunderstood aspects of the move, and the consequences — particularly where PFIC investments are held — can be material. Addressing the ISA position before departure is straightforward. Addressing it after years of US residency, once PFIC gains have accumulated, is significantly more complex.

Closing UK Bank Accounts Prematurely

Some advisers recommend closing UK bank accounts before a move to the US to simplify the financial picture. In practice, retaining UK accounts is often necessary — for managing UK property income, paying UK tax liabilities, and maintaining UK pension contributions. Closing accounts before understanding the FBAR and Form 8938 reporting obligations, and before considering the practical consequences of having no UK banking access, is premature. The reporting obligations attach to accounts that exist during the year, not only to accounts held at year-end.

Forgetting About State Taxes

The federal treaty does not bind US states. Arriving in California or New York and assuming that the federal treaty position applies at state level is a mistake. State tax liabilities in a high-tax state in year one — when the individual may have significant UK income, pension receipts, or capital gains — can be material and are not offset by foreign tax credits in the same way as federal liabilities.

Part 10: Building the Advisory Picture

The year of the move is not a one-time event. It is a transition that creates a new baseline for the individual's tax position in every subsequent year. The decisions made — about pension timing, asset disposals, ISA restructuring, entity ownership, and residency elections — have consequences that run for years, and in some cases decades.

The most valuable work an adviser can do for a client planning a move from the UK to the United States is to begin the conversation at least twelve months before the intended move date. Many of the planning opportunities described in this guide require time to implement. The pension lump sum must be taken before the residency start date. The ISA portfolio must be reviewed before the PFIC rules bite. The UK company structure must be assessed before Form 5471 obligations arise. None of these can be undone after the fact.

The U.S.-UK Tax Treaty is the legal framework within which cross-border tax positions are taken. But the treaty is not self-executing. It requires active engagement — Form 8833 disclosures, competent authority applications where relevant, careful mapping of income periods to the correct tax year in each country, and a thorough understanding of which provisions survive the saving clause and which do not.

Antravia Advisory's suite of articles on the U.S.-UK Tax Treaty and cross-border planning is designed to provide the technical foundation for that engagement. Each article covers a specific topic in depth, with direct reference to the treaty text and official source guidance. The articles are interconnected — this pillar piece provides the architecture, and the linked articles provide the depth.

See also: Antravia Advisory: The U.S.-UK Tax Treaty Explained — Dual Residency, Pensions, and Cross-Border Tax Planning for UK Expats

See also: Antravia Advisory: UK Pension Lump Sums and the US-UK Tax Treaty — The Saving Clause, Article 17, and What UK Expats Need to Know

See also: Antravia Advisory: ISAs and US Taxation — PFIC Rules, Reporting Obligations, and Pre-Move Planning

See also: Antravia Advisory: Form 5471 and UK Limited Companies — A Guide for US Residents

See also: Antravia Advisory: FBAR and Form 8938 — Foreign Account Reporting for UK Expats in the US

See also: Antravia Advisory: US State Taxes for UK Expats — What the Federal Treaty Does Not Cover

See also: Antravia Advisory: UK Pension Schemes and Article 18 — Competent Authority Agreements and Cross-Border Contribution Relief

Sources referenced in this article:

Convention Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains, signed 24 July 2001. U.S. Department of the Treasury.

IRS Publication 901, U.S. Tax Treaties (Rev. September 2024). Internal Revenue Service.

HMRC RDR3: Statutory Residence Test. HM Revenue & Customs, GOV.UK.

Finance Act 2013, Schedule 45 (Statutory Residence Test). UK Parliament.

Internal Revenue Code Section 7701(b) (Definition of Resident Alien and Non-Resident Alien). U.S. Congress.

FinCEN Form 114 (FBAR) guidance. Financial Crimes Enforcement Network, U.S. Department of the Treasury.

Antravia Advisory. This article is for informational purposes only and does not constitute legal or tax advice. Individual circumstances vary and professional advice should be obtained before taking any action based on the content of this article.