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How are my UK investments taxed in the USA?
As a US citizen, the IRS taxes you on your worldwide income and gains every year – no matter where you live or invest. This means you must report all foreign assets, including your UK investments, and file the relevant US tax returns.
Key points to be aware of:
- UK Funds – PFIC exposure
Most non-US registered funds are treated as Passive Foreign Investment Companies (PFICs). These rules create punitive tax and reporting requirements, so such investments are generally unsuitable for US taxpayers. - ISAs – tax-free in the UK, fully taxable in the US
Although ISAs grow free of UK tax, the IRS does not recognise the ISA wrapper. Most ISA-eligible funds are PFICs, meaning practical investment choices are usually limited to cash and individual securities. - UK pensions – covered by the UK–US tax treaty
Standard UK pensions are recognised under the treaty, meaning investment growth is not taxed in either the UK or the US. Tax may be payable on pension income in retirement, so you should confirm your specific position with your tax adviser. - Property – capital gains and currency movements
The US allows a $250,000 exemption on gains from selling your main residence (or $500,000 if married filing jointly). Gains above this are taxable, and currency fluctuations between sterling and the dollar can increase your reportable gain.
How are my US investments taxed in the UK?
As a UK resident, you pay UK tax on your worldwide income and gains.
Since April 2025, the UK has no longer offered the remittance basis. Instead, new arrivals may qualify for a four-year exemption on foreign income and gains under the Foreign Income & Gains (FIG) regime, provided they have been non-resident for at least ten years. Most long-term US taxpayers in the UK will not meet the FIG requirements, meaning your US investments will be taxed annually in both countries.
Key points to be aware of:
- US Mutual Funds and ETFs
If a fund does not have UK reporting status, all profits are taxed at your marginal UK income tax rate (up to 45%). This can be significantly higher than the UK capital gains tax rates of 10% or 20%. - Municipal bonds
While municipal bond interest is tax-free in the US, it is fully taxable in the UK. As the UK is often the higher-tax jurisdiction, these bonds may not offer the benefit they do in the US. - US pensions – 401(k), IRA, etc.
These are covered by the UK–US tax treaty. Investment growth is not taxed in the UK, and US taxation generally applies when you take distributions. We recommend that you confirm the details with your tax adviser. - Currency gains
Currency movements can create unexpected taxable gains in both the UK and the US. Stronger dollars and stronger pounds can both affect your tax position.
What investment account types can I use?
You can use regular investment accounts that may be taxable in both the UK and the US. Not all UK platforms accept US citizens and not all US providers accept UK residents. The companies that do accept both can change over time, so it’s worth reviewing your options to find the most suitable provider for you.
When investing through taxable accounts, ensure you understand how UK and US tax rules apply to funds and ETFs. Only a small number of US funds have UK reporting status, and many UK platforms do not offer these to retail investors.
Other common account types:
- ISAs – tax-free in the UK, taxable in the US
ISAs may still be useful when your UK tax rate is higher than your US rate, or when cash ISA rates are competitive. Investment choices are typically limited to cash and individual securities. - UK pensions – with treaty protection
Pensions usually avoid PFIC issues because they are treaty-recognised. However, some personal pensions can be treated differently under US rules, so confirm your position before relying on this assumption. - US pensions – also treaty-protected
Accounts such as 401(k)s and IRAs allow you to invest in standard US funds without triggering UK offshore income gains issues.
How can I make savings for my minor children?
Gifting assets to your children does not necessarily mean you are no longer responsible for the taxation of those assets. Careful planning is important, as the tax treatment depends on both the structure used and the source of funds — in both the UK and the US. If you decide that investing in your child’s name is appropriate, the following account types are commonly used:
- Bare Trust / Nominated Account
A simple structure where the assets belong to the child but are managed by you. The tax outcome depends on who contributed the money, so take advice to avoid unintended results. - Junior ISA
Grows tax-free in the UK but is taxable in the US. PFIC issues will apply unless investments are restricted to cash or individual securities. The child can access the funds at age 18. - 529 Savings Plans
These are attractive in the US because of tax-free growth, but the UK treats them as trusts. The tax and reporting position can be complex and depends on the contributor. Specialist guidance is important.
When should I consider using a professional adviser or investment manager?
Cross-border planning is complex, and many US taxpayers find value in taking professional advice — whether as a one-off consultation or an ongoing partnership. As with any professional service, you should weigh the cost against the potential benefits, particularly as cross-border mistakes can be expensive.
- One-off financial advice
There is no fixed minimum investment amount or earnings level for taking advice, but there will usually be a minimum cost. Many advisers offer an initial complimentary meeting to understand your needs and provide a fee quote. - Ongoing investment management
If you prefer to delegate portfolio management, ongoing services typically start from around £100,000. - Bespoke discretionary management
If you want a fully personalised discretionary investment portfolio, these services generally begin at around £1 million of investable assets. For portfolios between £100,000 and £1 million, the level of advice and investment management can usually be tailored to your needs.
What should I do first?
Everyone’s circumstances are different, but the following early priorities can help:
- Understand your cross-border tax position
Confirm your US and UK filing requirements, FIG eligibility (if relevant) and how foreign tax credits may apply. These foundations influence every planning decision. - Build a cash reserve
Aim to cover your annual expenses and short-term needs. The right amount depends on your lifestyle, income stability and upcoming commitments. - Review your pension position
Your workplace pension is often the most efficient place to save. In the UK you can contribute up to £60,000 a year (subject to tapering rules) and carry forward unused allowances from the previous three years. - Reduce high-interest debt
Focus first on borrowing with the highest interest rates, while considering flexibility and any tax implications. Currency movements can also affect US tax outcomes when repaying UK loans.
A final word
Cross-border financial planning can be complex – and it’s easy to make costly mistakes without specialist advice. We work closely with many US taxpayers in the UK and can help you build a structure that is compliant, tax-efficient and aligned with your long-term goals.
If you would like support, we’re only a phone call or email away.
Nathan Prior
Partner, Head of PWM International
nprior@partnerswealthmanagement.co.uk
020 7444 4053
The contents of the article have been prepared solely for information purposes. The article contains information on financial products and services and such information is designed for and addressed solely to individuals seeking generic industry information.
Partners Wealth Management does not provide tax, legal or accounting advice. It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. Taxation is based on your individual circumstances and may be subject to change.
