Tax Planning
Form 1116, Form 2555, Form 8621, 183 Days
Forward planning across the US and UK tax systems: timing income, choosing investments, arriving, leaving and organising family finances.
What does Tax Planning involve?
Most expensive cross-border outcomes are fixed by decisions taken earlier: an investment bought, a move timed, an account opened in the wrong name. Planning looks at those decisions while they can still be changed. We model the combined US and UK result, not the result in one country alone.
Forms and filings involved
- Form 1116
The form that turns UK income tax into a credit against US tax on the same income, with carryovers for unused amounts.
- Form 2555
The election to exclude a capped amount of foreign earnings from US tax, with a separate housing exclusion or deduction.
- Form 8621
The annual return for US persons holding passive foreign investment companies, which includes most UK funds, unit trusts and ETFs.
- 183 Days
How the IRS decides whether a non-citizen without a green card is a US resident for tax, and the exceptions that change the count.
- US v UK
The structural differences between the US and UK income tax systems that cause most cross-border problems, from tax years to ISAs.
Planning for the combined bill across both countries
Moving between the countries is the clearest planning point.
A UK resident moving to the US generally brings assets in at their original cost for US purposes, so gains that built up before the move are taxable in the US on a later sale, and some people sell and repurchase beforehand. Someone who leaves the UK and returns after a short period of non-residence can find gains on assets owned before leaving taxed in the year they come back.
For US citizens in the UK, much of the planning concerns investments. UK tax-free wrappers are not tax-free in the US and UK funds are commonly PFICs, so what is held matters as much as where. Where one spouse is not a US person, holding certain assets in that spouse's name can keep them outside the US system, though gifts to a non-citizen spouse above $190,000 a year need a US gift tax return.
Timing matters because the two tax years do not align. A bonus, dividend or disposal in late March falls in one UK tax year, while the same event a few weeks later falls in the next UK year but the same US calendar year. Choosing between the foreign tax credit and the foreign earned income exclusion, managing credit carryovers, and deciding when to draw a pension all depend on the pattern of income across several years in both countries.
Planning points we review each year
- 01
- Pre-arrival and pre-departure steps timed around both countries' residence rules
- 02
- Investment choices checked for PFIC status before money is committed
- 03
- Asset ownership between spouses where only one is a US person
- 04
- Income timing across the April and December year ends
- 05
- Credit or exclusion choice modelled over several years at once
Who this is for
People planning a move between the UK and the US
- Americans in the UK building investments outside a pension
- Mixed-nationality couples deciding whose name assets should be held in
- Business owners timing dividends, bonuses or a company sale
Why US UK Tax Returns
Each return is prepared with the other country's return open beside it, so a credit, election or disclosure on one is supported by the other.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
I am moving to the US next year. Is there anything I should do before I go?
Often, yes. The US generally uses your original cost when you later sell assets acquired before arrival, so gains built up in the UK can be taxed by the US. Some people realise gains while still only UK resident. UK funds and ISAs kept after arrival raise PFIC and reporting issues. The date US residence starts, under the substantial presence test or a green card, affects all of this.
My wife is British and I am American. Should our savings be in her name?
It can reduce US reporting and tax, because a non-US spouse's own assets are outside the US system when you file separately. But moving existing money to her is a gift for US purposes, and above $190,000 a year it requires Form 709. UK income tax and inheritance tax treatment also change with ownership. The right split depends on your incomes, your plans and which country you expect to retire in.
Is it worth planning around the different tax years?
Where income is lumpy, often. A payment made in early April falls into a later UK tax year than one made in late March, although both fall in the same US calendar year. That can change the UK rate band, the year in which UK tax is paid, and so the year in which it can be credited in the US. For regular salary the effect is usually small.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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