Wealth Planning as a US taxpayer in the UK: The US-UK Tax Treaty and Double Taxation

Written by Ollie Cutting

The Importance of Professional Guidance

In order to truly understand the extent to which the US-UK Tax Treaty can be used to alleviate the risks of double taxation or inefficient taxes there needs to be professional advice taken from a qualified team of tax professionals, lawyers and/or wealth management professionals. There exists a subset of skilled accountants that provide both US and UK tax filing for individuals who might well owe returns and/or taxes to the HMRC and the IRS each year, as well as private client and tax lawyers focused on tax-efficient structuring and estate planning for global families.

MASECO Private Wealth is a specialist Wealth Management practice focused on investing and planning for US taxpayers in the UK, Brits in the US and other families with complex dual-tax obligations. For this reason, we as wealth managers must have a broad understanding of the US-UK Tax Treaty and be aware of potential red flags for double taxation that might affect our advice.* Working in tandem with tax and legal professionals, we can help clients to build powerful long-term investment and financial planning solutions. A strong financial plan will consider the feasibility of reaching financial goals from a ‘net’ returns standpoint; after costs and taxes, the plan is expected to provide the family with what they want and need.

I have advised families in the HNW and UHNW space for several years now, many of which have both US and UK tax filing obligations. The following are some of the most common questions we are faced with when we are advising new clients, and I am hopeful that my general answers to these questions are helpful for those who might face similar challenges in the future.

Cash Flows to the UK

Q. I am an American, relatively new to the UK, and I am considering onshoring funds to the UK – how does this work?

A: Following the effective abolition of the Non-Dom regime in 6 April 2025, the first four years of tax residency in the UK for a new incumbent are relatively flexible with respect to onshoring previously untaxed assets. If you have been a tax-resident in the UK for more than four years, there would need to be an assessment of the existing assets, as any gains realised as global assets for any tax residents of over four years will be subject to UK taxation.

Bringing in or ‘remitting’ the proceeds of selling down assets outside the UK requires careful consideration of the tax implications with the help of qualified professionals. From a Wealth Management standpoint, it is important to consider how much to onshore in GBP due to limitations on what how the assets can be secured and invested tax-efficiently. The baseline target should not always be to onshore everything, as an American living here.

Prudent planning involves ensuring that there is enough of a cash buffer in the UK to cover emergencies, and that the wider plan remains tax-efficient and is invested in a diversified manner and in investments that generate expected returns on a net basis.

Professional advice should be sought around which assets might be best to draw cash from to spend in the UK, as well as whether there may be the possibility of benefitting from transitional regimes put in place as part of the abolition of the non-dom rules, which generally phase out between April 2025 and 2028.

Taxable Investments

Q. My taxable investments are in the US and I am not sure whether to bring them to the UK to invest here? How will they be taxed in the UK?

A: There can be penal tax consequences of holding collective investments that are situated outside the US. For example, a UK-listed exchange-traded fund (ETF) that is relatively straightforward in nature could, from the IRS’s perspective, be subject to higher tax rates on growth in the fund’s share price.

Equally, for long-term UK residents who are subject to tax on their global assets in the UK, caution should be applied so as not to invest in the wrong collective funds in the US, where the UK ‘offshore income and gains’ (OIG) treatment of non-reporting funds can create tax inefficiencies. The natural conclusion may be to avoid collective investments entirely, however, with advances in modern investment strategy often purchasing low-cost collective funds is preferred as a means of de-risking a portfolio from a risk perspective.

Careful consideration should be applied as to whether to keep taxable assets in the US, but ensure the investments are UK compliant, or potentially hold some individual securities in GBP currency or, in the UK, providing they are both suitable from a risk standpoint and it has been confirmed that they are taxed appropriately in the US.

Most individuals will want to ensure that their taxable investments are subject to the correct tax rates, so that if for example capital gains taxes are paid in the UK, these can help to offset liabilities in the US.

There is a real risk of double taxation through holding inefficient investments in taxable accounts, but solutions do exist, albeit potentially encouraging certain assets to remain in the US when owned by Americans in the family.

Pensions

Q. I have pension assets left in the US, and I’m starting to fund pensions in the UK – how might these be taxed?

A: Generally speaking the US-UK tax treaty can allow for historic US pensions to remain tax-efficient in the UK, providing the schemes are deemed to be qualifying pensions under the treaty rules, something to check and confirm with a professional accountant with knowledge of the space.

In practice this often means that US pensions like 401(k) plans or Individual Retirement Accounts (IRAs) are honored as tax-deferred assets as they grow, similar to the treatment of most standard UK pension products.

When it comes to drawing an income, US and UK plans have slightly different rules and obligations. For example, in the US there are Required Minimum Distributions (RMDs) from age 73, and in the UK there is the ability to potentially take 25% out of a UK scheme without this being subject to income tax. It is worth sense-checking whether protections apply under the US-UK tax treaty and, to what extent you will be paying tax to the HMRC or IRS should there be a requirement to draw income from either US or UK schemes.

From an investment perspective, qualified schemes in the US can provide strong compound returns over time, as the growth within these schemes is not necessarily subject to tax in the UK, this is worth considering prior to intentionally drawing income out of the account that is surplus to spending requirements.

Wrappers/Incentive schemes

Q. I can see a range of tax-efficient savings wrappers exist in the UK, like ISAs, onshore/offshore bonds and programmes to incentivise investing in start-ups – to what extent can I participate and benefit?

A: The US-UK tax treaty provides protections around pension assets, providing they meet certain criteria, and allows for individuals paying taxes on certain types of income in the UK to offset this tax paid with what they are due in the US.

This said, when it comes to products and specific tax wrappers in the UK, which do not have a direct equivalent in the US, there can be inefficiencies and investors must plan while considering the US implications as well as the UK benefits. For example; an ISA in the UK can be a great way for Brits (non-US) to set aside £20,000 per annum post-tax and invest to grow their wealth over time, with this growth being sheltered from tax.

The tax treaty however does not cover ISAs. This means that not only might a UK ISA product be deemed to be taxable in the US, thus creating a potential US liability (due to be paid in USD) where there doesn’t exist a UK liability, but also as the ISA is effectively a taxable account in the eyes of the IRS the owner must be cautious not to invest in collective foreign investments, funds, or PFICs (which can be standard practice in UK ISAs).

Careful consideration must be applied as to whether it is worth adding specific risk to a portfolio, holding individual securities like bonds or direct stocks, yet also still facing a US liability on any realised gains, interest or dividends generated in the account.

This logic can be applied to many other types of non-US investment products, like onshore/offshore bonds or even life insurance products with an investment component, and Americans should take advice as to what suits their families’ tax exposures from an investment standpoint.

Property

Q. I am thinking of buying a home in the UK, having moved there with my family – what are the key considerations?

A: Funding any sizeable purchase might require onshoring assets from outside the UK and thought should be given to the tax consequences of selling those assets to cash for a home purchase or deposit payment.

Access to debt can require specialist advice, particularly when an individual or family does not have a significant UK credit record. Purchasing the asset itself can be relatively straightforward, however it is prudent to keep a record of the equivalent USD value that the home has been bought for.

A US taxpayer selling a property in the UK may well be subject to capital gains taxes in the US if that property has grown by more than $250,000 (or $500,000 for a married couple, who are both US tax filers) – this is true even if the home qualifies for primary property relief in the UK (i.e. zero capital gains tax on sale).

Note that this valuation is calculated in USD, hence the requirement to keep track of the purchase and potential sale valuation of a home in USD.

When it comes to debt, like a mortgage, FX rate movements can create ‘phantom gains’ from a US tax standpoint; for example taking a £500,000 loan, worth $700,000, could reduce to being worth $650,000 if the GBP/USD FX rate (or ‘cable rate’) moves over time.

Working with an accountant and your Wealth Manager to assess the risk here, particularly with respect to paying down significant sums of debt in one payment, is of prime importance.

Estate Planning

Q. In the US, I have a significant lifetime estate tax exemption at the moment – how might my inheritance tax position change as a result of moving to the UK?

A: In April of 2025 the UK Government abolished Domicile as a connecting factor for UK inheritance tax purposes and replaced this with the concept of a long-term resident in the UK. This long-term residence status is triggered once an individual has been tax resident for 10 out of the last 20 of UK tax years (including partial years). Theoretically this provides a window in which to create a bespoke financial plan that might include gifting or donating excess assets outside of an individual’s estate.

The UK tax rules around inheritance tax are more limiting than in the US, however both the US and UK systems should be considered when planning. The UK system has its own set of gifting rules around transfers within ones lifetime, generally the person gifting must outlive a gift made by seven years in order for it to completely exit their estate for inheritance tax purposes. Some families with significant assets might consider making use of their higher US allowance within their lifetime and triggering UK gifting, to reduce their overall estate tax liabilities. Careful consideration must be applied as to what structures are gifted into, which involves advice from Wealth Managers, lawyers and accountants.

Trusts

Q. My family has set up a Trust for my benefit in the US and now I live in the UK – what should I be thinking about?

A: ‘Foreign’ trusts, from either a US or UK standpoint. Contributions, distributions or the growth and income produced by the assets within the trust over time can have differing tax treatments in the US versus the UK. For this reason, it is important that any existing or potential future trusts you are involved in have been reviewed properly by qualified lawyers or accountants, and that the assets within trusts are carefully managed following this advice.

Corporate structures

Q. I am a self-employed business owner, currently with an entity in the US and thinking about setting one up in the UK – what should I do?

A: Generally, it is worth considering the tax implications both on a personal level, and at the corporate entity level, and to take professional advice with respect to both. There will need to be an analysis conducted around where your business income is being earned, what type of entity this income is currently being paid through and how this might be viewed in the eyes of the UK, should you personally take a dividend or distribution while tax resident here. Equally, when it comes to looking at setting up a UK legal entity for business activities, there needs to be consideration for both the most tax-efficient setup for your business / income type, as well as on a personal level in both the US and UK.

The US has relatively strict rules around ‘controlled foreign corporations’ whereby more than 50% of the legal entity is owned by US citizens or green card holders. This could include a simple UK business with majority US tax-filer ownership. In some cases it can be straightforward to report the business income, even at times reporting on your personal return on a ‘pass through’ basis.

Specific advice is quite varied here, hence why it is best to confirm the best approach and structure with specialist lawyers or accountants familiar with business interests and the US-UK tax treaty.

Inheriting assets

Q. My parents are elderly and they still live in the US, what happens if I inherit assets from them while I am US citizen resident in the UK, or they decide to make gifts to me?

A: Probate and death tax considerations relate to the tax status of the person passing away. Receiving assets in and of itself is generally quite straightforward, and often there is a step-up in cost basis from a US and UK perspective at the point at which the person has passed away. Planning is typically required to ensure that on a go-forward basis, the assets are set up tax-efficiently from a US and UK standpoint for the new owner. Trusts or Corporate entities can of course be more complex and require specialist advice.

Gifts of cash during the donors lifetime do not typically trigger taxes in the UK in and of themselves, however again it is important to consider how best to manage those assets. For example, it may not make sense to bring the entirety to the UK as there are limits to the tax-efficiency of available investments in the UK for a US taxpayer.

Mixed-tax families

Q. My spouse is British and we have moved to the UK to be closer to his parents. How should we be thinking about wealth planning given that we have differing tax obligations?

A: Having a spouse without the same IRS tax filing obligations presents opportunities while also warranting a cautious approach. For example, it may make sense to hold separate bank accounts and certainly separate investment accounts. Opportunities present themselves from having the ability for one spouse to access a wider range of UK centric investment and savings products.

With the correct management, a dual-nationality family can benefit from both the US and UK systems and create balance from a currency and diversification standpoint. Managed incorrectly, joint UK assets may cause tax inefficiencies in the US or additional reporting requirements, for example on the FBAR form.

Children’s accounts

Q. My UK resident children became dual-citizens as they were born in the US and we are American/British. How should I be thinking about planning and saving for their futures?

A: Holding money in accounts for the benefit of US-UK citizen children requires careful planning; the structures used often need to be efficient for the children once they become adults, and also efficient in the sense that tax filing obligations could be passed on to the parent or owner of a children’s account.

Child Trust accounts in the UK can cause issues from a US tax standpoint. Junior ISAs, while efficient from a UK planning standpoint, will also likely trigger US tax exposure and present further issues if invested in ‘non US funds’, for example UK listed ETFs. Junior SIPPs are generally more favourable from a tax standpoint, but the normal pension rules apply meaning that accessing the pot prior to the children aging to UK pension age may be less appealing to some families. US 529 College Savings plans, US UTMA accounts or UK Bare Trusts may work in specific circumstances; again there needs to be a clear understanding of the risks and limitations from a tax and functional standpoint.

In short, this is a complex space, there are fewer immediately available solutions than for adult Americans in the UK, but there can be useful solutions to put in place with the right foresight and planning.

Charitable Giving

Q. I am a US citizen in the UK and I regularly give money to various charities in both the countries that I care about. Am I doing this in the most efficient way?

A: One of the financial benefits of charitable giving is that the donor can receive a credit for tax purposes. When it comes to US-UK giving, it is possible to receive a credit for a US donation in the UK and vice versa, providing the process is properly managed. Solutions may include a Donor Advised Fund, Donor Advised Gift or Foundation for example, where the provider is able to produce gift tax receipts in both jurisdictions. This can be particularly useful if you are donating to a smaller charity that might only be registered in one of the two countries.

There are additional planning opportunities here. For example, if there was a particularly expensive year from a tax standpoint (perhaps due to selling something), an individual could opt to donate a larger amount to their DAF or Foundation, receiving a large credit in the same year, while spreading the gifting itself out over subsequent years.

* MASECO Private Wealth is not a tax specialist

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.

The views expressed herein do not necessarily reflect the views of MASECO as a whole or any part thereof.  All investments involve risk and may lose value.  The value of your investment can go down depending upon market conditions and you may not get back the original amount invested.  Your capital is always at risk.

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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