U.S. citizens face a unique set of challenges because they are taxed on their worldwide income and gains, no matter where they live. We help U.S.-connected clients living in the U.K. assess their current financial situation, understand their long-term goals and objectives, and build a robust and flexible investment plan for the future – all while considering the intricacies (and importantly, the interaction) of the U.S. and U.K. tax systems.
The U.S. and U.K. tax systems are relatively straightforward when considered individually. However, navigating the complexities that arise when both systems apply can be much more challenging.
In this brief article, we provide an overview of the fundamental principles of each tax regime and discuss how they interact—particularly for individuals who are required to comply with both.
The U.S. System (tax year: January 1st to December 31st)
The United States taxes all citizens, residents, and Green Card holders on their worldwide income and capital gains, regardless of where they live. This approach is known as a citizenship-based system of taxation.
The U.K. System (tax year: April 6th to April 5th)
In contrast, most countries—including the U.K.—operate under a residency-based tax system. Under this system, you are taxed on your worldwide income and gains only while you are considered tax resident in the U.K. This is often referred to as the “arising basis”.
There is, however, a regime for “qualifying new residents” (QNRs) which provides a window, during the first four years of tax residence, in which you can elect for non-U.K. income and gains to be exempt from U.K. taxes (regardless of whether you use the relevant funds in the U.K.). Broadly, to qualify for this regime, you cannot have been U.K. tax resident for 10 years prior to the tax year of your arrival. This offers individuals relocating to the U.K. temporary relief before they are subject to worldwide taxation.
Prior to 6 April 2025, there was a more complicated tax system for international individuals, whereby, during your first 15 years of U.K. tax residence, it was possible to choose to be taxed on either the arising basis or on the “remittance basis”. If an individual chose to be taxed on the ‘remittance basis’, then foreign income and gains would only be liable to U.K. taxes if they were brought into the UK (‘remitted’).
For newcomers, the QNR regime is therefore more generous in scope than its predecessor, the remittance basis, but is much shorter in duration. There is therefore an increased emphasis on keeping your position under review.
It is worth noting that, while the remittance basis has been abolished with effect from 6 April 2025, the rules regarding remittances will still be relevant to former remittance basis users with pre-6 April foreign income and gains.
Understanding your Tax Position
For individuals planning to relocate to the U.K., the QNR regime can be very advantageous. There may be limited cases where claiming QNR status is not warranted, and a qualified accountant will be able to help you assess your circumstances and determine the most advantageous approach.
To benefit from the exemption, you need to submit a U.K. tax return to HMRC to claim the relief, in each relevant year. In the return you will need to disclose the sources of your overseas incomes and gains. It is, therefore, also important to consult a qualified U.K. accountant to ensure you comply with this filing requirement.
If you plan to stay longer term in the U.K., the QNR regime can provide some helpful ‘breathing space’ in which to organize your affairs and where necessary optimize the tax efficiency of your investments before you become exposed to U.K. tax on the arising basis. However, if your financial situation is complex (for example it includes existing trusts, LLCs, or complex portfolios with meaningful investments in funds), then we would nevertheless recommend that you review and take more in-depth advice in respect of your portfolios and existing asset-holding structures, ideally prior to your arrival.
If you do end up staying for longer that the initial four-year tax-free window, then you will become liable to U.K. tax on a worldwide basis. This mirrors the U.S. system of taxation for its citizens. As an American, you will generally be eligible to claim a credit in the U.S. for taxes paid in the U.K. The result being that you will typically end up paying the higher of the two countries’ tax rates on your income and gains.
It’s often beneficial to make any required U.K. tax payments before the end of the calendar year. Doing so allows you to claim the U.K. tax credit on your current year’s U.S. tax return. If you delay payment, you may have to wait an additional year to utilise the credit in the U.S., which could temporarily result in double taxation until the credit is applied. Again, seeking advice can ensure that the correct reporting is undertaken in both countries.
At Brown Advisory, we regularly collaborate with leading accountancy firms, and other professionals with cross-border experience, and we are pleased to offer recommendations tailored to your needs and circumstances.
Life rarely goes exactly as planned. Many Americans arrive in the U.K. expecting a short stay, only to find themselves many years later settled with a family, a home, and a far more complex tax position than they ever anticipated.
Conclusion
Tax compliance can be complicated, and the complexity increases when you are required to file in multiple countries. By maintaining flexibility in your financial planning and seeking professional advice at each stage, you can prevent unnecessary stress—and potentially costly tax surprises—down the road.
Whether you plan to spend a few years, a few decades, or the rest of your life outside the U.S., Brown Advisory can deliver a comprehensive cross-border investment plan for you and your family that can move with you wherever life may take you. Learn more >
Billy Mathews, a U.S. expat himself, is a Portfolio Manager in our London office and helps U.S.-connected clients build U.S./U.K. tax efficient investment portfolios to meet their long-term goals and objectives.
This material is not intended to be, and shall not be construed as being, investment or tax advice. Investment decisions should not be made on the basis of it. You should not act or rely on this document but should contact your professional adviser. This article has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security. Past performance is not indicative of future performance and there is a risk that some or all of the capital invested may be lost.
The information contained herein is based on materials and sources that we believe to be reliable. We make no representation, either express or implied, in relation to the accuracy, completeness or reliability of that information. The views expressed are those of the author and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions including changes in tax law or practice. Brown Advisory does not provide tax advice.