10 Financial Mistakes American Expats Make When Moving to the UK (and How to Avoid Them)

Written by Dan Keeley

For Americans moving to the UK from the US, the financial implications are often more complicated than they first appear. From navigating dual tax systems to managing cross-border investments, it is important to understand the challenges in advance. With proper preparation, you can save a considerable amount of money, time, and stress.

Here are ten common mistakes Americans make when moving to the UK, along with practical tips for US citizens living in the UK to avoid them.

1. Misunderstanding the Dual Tax System

Q: Don’t the US and UK have a tax treaty to prevent double taxation?
A: They do, but the treaty does not remove all obligations. You will still need to file a US tax return each year and understand how UK tax rules apply depending on your residency status and sources of income.

What to know:

• Even if you live full-time in the UK, you are still required to file a US federal tax return each year.
• The US and UK tax years do not align, which adds complexity when reporting income and claiming deductions.
• The treaty reduces the chance of being taxed twice on the same income, but it does not eliminate reporting requirements.

How to avoid problems:

• Work with a tax adviser who understands both US and UK tax systems.
• Keep thorough financial records so you can reconcile differences between tax years.
• Learn which types of income qualify for credits or exclusions under the treaty.
• Potentially pre-pay UK taxes (by the 31^st December of each year) to ensure tax years are aligned and that you can receive timely offsetting credits.

2. Holding Tax-Inefficient Investments (from a US perspective)

Q: Can I start to invest in funds domiciled in the UK and the rest of Europe?
A: You should be very careful about investing in non-US funds as they are very likely to be considered Passive Foreign Investment Companies (PFICs) under US tax law, which can lead to complex and punitive taxation.

What to know:

• PFICs are subject to difficult IRS rules and often result in over-taxation and complicated reporting.
• UK investment products such as OEICs or unit trusts are likely to receive unfavourable treatment from the IRS.

How to manage your portfolio properly:

• Review your investments to ensure they are compliant with both US and UK tax regulations.
• Choose US-compliant and UK-reporting funds to avoid tax inefficiencies.
• Avoid foreign pooled investments unless they are specifically recommended by a cross-border adviser.

3. Holding Tax-Inefficient Investments (from a UK perspective)

Q: Can I keep my US mutual funds and ETFs?
A: When you arrived in the UK will impact whether your assets held offshore will come into scope of UK taxes. Generally, if you have been in the UK for more than 4 UK tax years, you should be very careful about investing in, or maintaining, US funds if they do not have UK reporting funds status in the eyes of HMRC. The reason is the gains on Non-Reporting funds are likely to attract Offshore Income Gains (OIG) treatment and taxed at the individuals marginal income tax rate (up to 45%).

What to know:

• Gains on Non-Reporting Funds are subject to Offshore Income Gains (OIG) treatment and taxed at marginal income tax rates (up to 45%) instead of Capital Gains tax rates (up to 24%).
• Many US mutual funds, and ETFs, do not have UK Reporting Funds status and so understanding how your US funds are categorised is very important to ensure that your investments are as tax efficient as they can be.

How to manage your portfolio properly:

• Review your investments to ensure they are compliant with both US and UK tax regulations.
• Choose US-compliant and UK-reporting funds to avoid tax inefficiencies.

4. Misusing UK Investment Wrappers

Q: Are ISAs and SIPPs good investment choices for Americans living in the UK?
A: They are attractive from a UK tax perspective, but may create tax and reporting issues in the US.

What to know:

• ISAs are tax-free in the UK but not recognised as tax-advantaged by the US.
• Some tax accountants may view SIPPs as foreign trusts and require careful handling to remain compliant with IRS rules.
• Offshore bonds and other wrappers can seem tax-efficient locally but are often problematic under US law.

How to avoid complications:

• Only use investment vehicles that are tax-efficient in both countries.
• Check with a dual-qualified financial adviser before opening any UK-specific investment accounts.
• Understand the long-term consequences before contributing to these products.

5. Overlooking US Reporting Requirements for Foreign Accounts

Q: What do I need to report to the IRS if I have UK bank accounts?
A: Most US citizens living in the UK need to report foreign bank and financial accounts to US authorities if their value exceeds certain thresholds.

What to know:

• You must file an FBAR if your total foreign account balances exceed $10,000 at any point during the year.
• FATCA may also apply, requiring Form 8938 for certain foreign holdings.
• Failure to report, even unintentionally, can result in significant penalties.

How to stay compliant:

• Keep a record of all foreign accounts, including pensions and joint accounts.
• Make sure to file the necessary forms every year, even if there is no tax due.
• Speak to a qualified tax adviser if you are unsure whether your accounts need to be reported.

6. Transferring Money Without Understanding Remittance Rules

Q: Can I just move money freely from the US to the UK?
A:  If you had historically elected to be taxed on the Remittance Basis, bringing foreign income, or gains, into the UK may result in a tax charge.

What to know:

• Pre-April 2025, non-domiciled (from a UK perspective) individuals living in the UK had the option to either be taxed on the “Remittance Basis” or the “Arising Basis” of taxation.
• The Arising Basis means you are taxed on your worldwide income and gains as they are earned.
• The Remittance Basis allowed you to avoid UK tax on foreign income, but only if it is not brought into the UK. This option also comes with limitations and charges after a few years of residency.
• Your decision may have affected how income/ gains would be taxed if ever brought into the UK and what records you need to keep.
• Transferring funds that include foreign income or gains into the UK can create a taxable remittance.
• Even paying for a UK expense with a US credit card can trigger tax if the payment is linked to unremitted income.
• Mixed accounts containing both clean capital and income make it difficult to track and report accurately.

How to avoid unnecessary tax:

• Review the source of funds before transferring them to the UK.
• Consult a cross-border tax adviser before making any large transfers.
• Understand whether you can benefit from the recently introduced transitionary measures such as the Temporary Repatriation Facility (TRF).

7. Letting Your US Credit Score Lapse

Q: Why should I care about my US credit if I live in the UK now?
A: Your US credit history still matters for future borrowing, even if you do not plan to return immediately.

What to know:

• Inactive US credit cards may be closed, which can lower your credit score.
• Returning to the US and re-establishing credit can be difficult if your history has lapsed.
• A good credit score can help with refinancing or managing property and investments you may still hold in the US.

How to maintain your credit score:

• Keep one or two US credit cards active and in good standing.
• Use them occasionally and set up automatic payments to avoid late fees.
• Check your US credit report annually to monitor any issues.

8. Assuming US Trust and Estate Plans Work in the UK

Q: Will my US trust or estate plan still work if I live in the UK?
A: Likely not without changes. The UK has its own set of tax rules for trusts and estates that may conflict with US planning structures.

What to know:

• A trust created in the US may be taxed differently if it has UK-resident trustees or beneficiaries.
• Certain types of US trusts may be treated as income-generating or opaque by HMRC.
• Your estate plan may not be recognised in full under UK inheritance law.

How to align your plan:

• Have your existing documents reviewed by a legal and tax adviser with UK and US expertise.
• Adjust your estate and trust structures to remain compliant in both jurisdictions.
• Update your plan if your residency or family situation changes.

9. Ignoring UK National Insurance Contributions

Q: Why should I make UK National Insurance contributions if I might not stay forever?
A: Voluntary contributions may help you qualify for a UK state pension and could be beneficial even if you leave the country later.

What to know:

• You can often make voluntary contributions for years you did not pay into the system.
• The US and UK have a Social Security Totalisation Agreement that allows credits to be combined.
• A small contribution now can make a large difference to your retirement income.

How to take advantage:

• Apply for a UK National Insurance Number early in your residency.
• Consider voluntary Class 2 or Class 3 contributions depending on your employment status.
• Review your state pension forecast through HMRC to see where you stand.

10. Trying to Manage Everything Yourself

Q: Can I just figure this all out as I go?
A: You can try, but it may cost you. Expat financial planning in the UK involves layers of regulation, tax reporting, and legal considerations that change frequently.

What to know:

• Mistakes can lead to double taxation, penalties, or missed financial opportunities.
• Managing investments and tax planning across two countries is time-consuming and complex.
• A good adviser can help you avoid costly errors and identify beneficial strategies.

How to get the right help:

• Work with a qualified US/UK cross-border financial adviser.
• Build a long-term plan that covers tax, investments, pensions, and estate planning.
• Use your adviser to coordinate with accountants and legal professionals when needed.

Final Thoughts: A Financial Checklist for Moving Abroad

Living abroad as a US citizen in the UK comes with a unique set of financial challenges. Avoiding these mistakes is not just about compliance, it is about building confidence and creating financial security in your new home.

To stay on track:

• Educate yourself about the differences between the UK and US financial systems.
• Stay proactive with tax reporting, financial planning, and account management.
• Seek expert guidance to reduce stress and improve long-term outcomes.

The Legal Stuff

This document may not be forwarded, copied or distributed without our prior written consent.  This document has been prepared by MASECO LLP for information purposes only and does not constitute investment, tax or any other type of advice and should not be construed as such.  The information contained herein is subject to copyright with all rights reserved.

MASECO Private Wealth is not a tax specialist. This article does not take into account the specific goals or requirements of individuals and is not intended to be, nor should be construed as, investment or tax advice. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.  Information about potential tax benefits, including the levels, bases of and reliefs, from taxation is based on our understanding of current tax law and practice and may be subject to change.  We strongly recommend that every client seeks their own tax advice prior to acting on any of the tax mitigation opportunities described in this article. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at The Kodak Building, 11 Keeley Street, London, WC2B 4BA.  For your protection and for training purposes, calls are usually recorded.

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