When you live, work, invest or retire across borders, managing your tax affairs can feel like navigating a legal minefield. For high-net-worth individuals with international ties, particularly between the UK and the US, dual taxation isn’t just a financial concern. It’s an emotional and mental burden, too.
Even with tax treaties in place, the complexity of dealing with two tax regimes can quickly become overwhelming. And without joined-up advice, small mistakes can snowball into costly outcomes; missed deadlines, unexpected liabilities, and exposure to penalties that could have been avoided.
So where do the biggest risks lie, and how can you protect yourself?
Why the UK/US tax relationship is so complex
At a high level, the UK and US have a bilateral tax treaty, intended to prevent income or gains from being taxed twice. But this relief is far from automatic, and the interaction between the two systems is riddled with technical mismatches. For example:
1. Tax basis misalignment
- The UK taxes individuals based on residence, while the US also taxes based on citizenship and green card status, regardless of residency.
- This means a US citizen living in the UK is subject to worldwide taxation from both countries unless they are recent arrivers to the UK or seek to expatriate from the UK (which brings its own tax consequences).
- Dual-status years (e.g. moving mid-tax year) often trigger additional complexities in reporting and treaty claims.
2. Treatment of income and gains
- The UK and US classify certain income and gains differently, leading to mismatches. For example:
- ISAs (Individual Savings Accounts) are tax-free in the UK but not afforded any preferential status by the IRS and are taxable in the US.
- Passive Foreign Investment Company (PFIC) rules in the US impose harsh penalties on passive investments (such as UK unit trusts or Open-Ended Investment Companies), even if they are UK tax-efficient.
- Capital Gains Tax (CGT) rates differ by type and holding period, meaning one country may offer relief while the other does not.
- Foreign exchange gains can inflate gains in one or other jurisdiction.
3. Mismatch of relief mechanisms
- Although foreign tax credits are available, they don’t always fully cancel out tax exposure and need timely review:
- Tax should be paid in the right jurisdiction at the right time to get credit in the other jurisdiction.
- Some withholding taxes may be non-creditable.
- Certain income or gains may be taxable in the US but not in the UK, or vice versa.
- The US has complex Form 1116 and Form 2555 regimes to claim foreign tax reliefs; frequently misapplied or missed altogether.
4. Reporting burdens
- US citizens living abroad must file:
- Form 1040 annually unless income is very low (even if not in receipt of US-source income or gains)
- FBAR (FinCEN Form 114) for non-US accounts with an aggregate high balance exceeding $10,000
- Form 8938 (FATCA) for specified foreign financial assets
- Forms 3520/3520-A for interests in foreign trusts
- Form 8621 for PFICs (non-US mutual funds and investment companies)
- UK residents must file a Self-Assessment return with supporting schedules, particularly if they are using the remittance basis, which itself requires:
- Additional charges (Remittance Basis Charge)
- Precise tracking of foreign income and clean capital
- Detailed record-keeping and reporting of remitted funds
Even a minor misstep, such as failing to report an offshore trust, misunderstanding the remittance basis, or double-claiming relief, can trigger tax investigations, penalties, and reputational damage.
The impact of deemed domicile and the 2025 reforms
With the introduction of the Long-Term Resident (LTR) rule on 6 April 2025, UK tax exposure has increased for internationally mobile individuals.
Under the LTR rule:
- If you’ve been UK tax resident for at least 10 of the past 20 years, you are now deemed UK domiciled.
- This means you’re subject to UK Inheritance Tax (IHT) on your worldwide assets, not just your UK estate.
- You are also disqualified from claiming the remittance basis, meaning worldwide income and gains are now fully taxable in the UK on an arising basis.
- Offshore trusts, which were once protected from UK IHT and income tax under the protected trust regime, could now lose their favourable treatment once you become deemed domiciled.
These changes have significant interaction with the US tax system. For example:
- A US citizen who is deemed UK domiciled now faces estate tax and inheritance tax on the same assets unless they consider estate planning.
- Gifting strategies must consider both UK IHT rules (including PETs and the 7-year rule) and US gift tax limits.
- Non-UK situs life insurance policies held in trust (a common US estate planning tool) may still trigger UK IHT if not correctly structured.
The emotional and financial cost of getting it wrong
Beyond the obvious financial risks – fines, interest, tax bills – there’s a deeper, more personal cost. Many of our clients come to us not just with tax questions, but with genuine stress and anxiety. They’re worried they’ve missed a filing or underpaid tax. Frustrated by conflicting advice from multiple jurisdictions. Distracted from family and business priorities by endless compliance tasks. Uncertain whether their trust, estate or succession plans still work. And they’re fearful of unexpected tax bills for themselves or their heirs.
This stress is compounded when their advisors don’t talk to each other, or worse, when their advisor in one country simply doesn’t understand the tax rules in the other.
For globally mobile individuals and international families, dual taxation isn’t just a technical issue, it’s a quality of life issue. It drains time, attention and peace of mind.
What joined-up advice looks like
At HaysMac, we believe that peace of mind shouldn’t be a luxury. It should be the outcome of well-planned, well-executed advice. That’s why our Private Client Tax team takes the lead in delivering integrated, cross-border support for internationally mobile individuals and families.
We manage the complexity in-house. Our team has deep, hands-on experience advising high-net-worth individuals on UK residency, domicile, trust structures, property ownership, and inheritance planning; including the interaction with foreign tax systems. We don’t outsource strategic advice. Instead, we provide a consistent, practical and highly personal service that spans both day-to-day compliance and long-term tax planning.
We support international clients with:
- UK personal tax planning and compliance, including residency reviews
- US personal tax planning and compliance, including State taxes
- Pre-arrival and pre-departure planning, to manage exposures before they arise
- Advice on offshore structures, trusts and companies
- UK property investment structuring, to avoid unnecessary Stamp Duty Land Tax, CGT, or IHT exposure
- Worldwide estate planning, including trust restructuring and life insurance in trust
Are you carrying the burden of dual taxation alone?
If you’re juggling UK and US tax obligations, or you’re worried about what the new LTR rules mean for your global estate, now is the time to seek coordinated support. With tax legislation changing rapidly, particularly around domicile and IHT, early planning is the key to avoiding long-term stress.
Dual taxation may be unavoidable. But the confusion and chaos that often comes with it? That’s optional.
Talk to us
Whether you’re new to the UK, preparing to leave, or simply wondering if your current setup is fit for purpose, we’re here to help. HaysMac’s Private Client Tax team offers clear, calm and joined-up advice for internationally mobile individuals and families.
Let us help you simplify the complex and protect what matters most.
Book a confidential consultation with our international tax specialists.
