For decades, many Americans living in the UK used the remittance basis. As non-domiciled residents they could keep foreign income and gains outside UK tax as long as the money stayed abroad. That option ended on 6 April 2025. Domicile no longer decides how a UK resident's foreign income is taxed, or whether their worldwide estate is within inheritance tax.
The replacement rules affect US citizens in particular ways, because the US taxes them on worldwide income throughout. A change in how much UK tax is paid on US income changes the foreign tax credit position on the US return, and a change in inheritance tax exposure has to be read alongside US estate and gift tax.
What is the new foreign income and gains regime?
New arrivals who were not UK resident in any of the previous ten tax years can claim relief from UK tax on foreign income and gains for their first four tax years of UK residence. The claim is made on the Self Assessment return, through the SA109 residence pages, and it is made year by year. Unlike the old remittance basis, relieved income can be brought to the UK without a UK tax charge.
A claim has a cost. HMRC guidance states that someone who claims loses the personal allowance and the capital gains annual exempt amount for that year. For a US citizen, there is a further consideration: foreign income relieved in the UK carries no UK tax, so there is nothing to credit against the US tax on it, and the US liability on that income is paid in full.
Who is taxed on the arising basis?
Long-standing residents, and new arrivals once their four years are over, are taxed in the UK on worldwide income and gains as they arise. For an American who previously kept US investment income offshore under the remittance basis, that income is now within UK tax each year, on the SA106 foreign pages. UK tax on it can in turn become available as a foreign tax credit on the US return.
The treaty contains specific rules for US citizens resident in the UK, deciding which country yields on US-source income such as dividends from US shares. Those rules, together with the saving clause that lets the US tax its citizens as if the treaty did not exist, determine the final credit position. It is worth working through them income line by income line.
For many Americans the change brings the two returns closer together. When the UK taxes US dividends and interest in the same year as the US, the credits line up more closely than they did under the remittance basis, where income could sit in a US account for years with no UK tax to credit. The trade-off is a higher UK bill on that income.
- US dividends and interest now generally taxed in the UK as they arise
- US funds may be non-reporting funds for UK purposes
- US retirement accounts need treaty analysis under the pension articles
- Foreign tax credits on the US return may change year to year
How does inheritance tax now follow residence?
From 6 April 2025, a person is within UK inheritance tax on worldwide assets once they have been UK resident for ten of the previous twenty tax years. Domicile, including deemed domicile, no longer sets the boundary. Above the nil-rate band of £325,000 and any other available allowances, the rate is 40%.
The exposure does not end on departure. A long-term resident who leaves the UK remains within scope for a further period, which depends on how long they were resident. For a US citizen, this runs alongside US estate and gift tax on worldwide assets, and the separate estate and gift tax treaty between the two countries needs to be reviewed against the new UK test.
What transitional rules apply?
Former remittance basis users have a temporary repatriation facility, which for a limited period allows foreign income and gains that arose before April 2025 to be designated, at a reduced charge, and then brought into the UK without further UK tax. Whether that charge can be credited on the US return, and in which year, depends on when the underlying income was taxed in the US.
Some capital gains rules also changed for former remittance basis users, including a rebasing option for certain foreign assets held at an earlier date. Each transitional measure has its own conditions, and for a US citizen each one needs to be tested against the US treatment of the same income or asset before it is used.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
