Autumn Budget - The highlights series (Article 6: UK Budget considerations for Americans)

In our last article of our Autumn Budget - the highlights series, Matthew Fox, Tax Director, discusses some key considerations for Americans residing in the UK:

The replacement of the non-dom regime is likely to have less of an impact of US citizens in the UK than citizens of other countries. This is simply because Americans are liable to US tax on their worldwide income no matter where they reside. Their overall combined income and capital gains tax burden will increase once they become liable to UK tax on their worldwide income and gains.

In addition, following the US election result, US citizens will also have one eye on any potential US tax policy changes and how this will impact their overall US/UK tax position. In the lead up to the election Donald Trump vowed to end ‘double taxation’ for Americans living overseas.

The key changes that will be coming from 6 April 2025 in the UK are:

• Replacement of domicile in tax law with residence-based taxation
• The abolition of the remittance basis where foreign income and gains arising from 6 April 2025 can now be brought into the UK without a charge to tax
• The introduction of a new Foreign Income and Gains (‘FIG’) regime where qualifying individuals are only liable to UK tax on UK sourced income and gains for their first four years of UK tax residence.
• The retention of Overseas Workdays relief for the first four tax years of UK residence enabling relief on earnings for non-UK workdays up to a cap of a lower of £300,000 and 30% of earnings.
• Exposure to UK Inheritance tax on worldwide assets once an individual has been resident for 10 out of the previous 20 years. This compares to the current 15 out of 20.
• The introduction of a Temporary Repatriation Facility for previous remittance basis users which allows them to bring previously unremitted income to the UK at a rate of 12% on income remitted in 2025/25 and 2026/27 and 15% in 2027/28
• The tax on carried interest gains has increased from 28% to 32%. Furthermore, the eligibility rules will be tightened and there will be further increase in the rate to 34.6% from 6 April 2026
• The government is consulting on the introduction of calendar year reporting for overseas income as a simplification measure to align with information they receive from overseas under the common reporting standard.

With this in mind, there are a number of key points to Americans will need to consider:

• The new FIG regime will be welcomed by Americans coming to the UK for the first few years. It will mean no increase in tax burden on their non-UK income and gains for this initial period. However, compared to the remittance basis, the administrative burden will increase as they will be required to report their worldwide income and gains and make a claim for relief on their non-UK income and gains  
• Once they have been resident in the UK for four tax years, they will become liable to UK tax on their worldwide income and gains. Proactive planning will need to be undertaken in advance as well as with the timing of any UK tax payments to ensure a foreign tax credit can be claimed in the US
• The top rates of tax are higher in the UK than the US - income 45% v 37%, qualified dividends 39.35% v 20%, long term capital gains 24% v 20%
• There can be mismatches in treatment between the UK and US, for example, the UK does not allow depreciation against rental income, LLCs and S-Corps are taxed differently in the UK than the US, and the identification rules for calculating capital gains differ
• Americans will be very concerned about the shortening of the period before they potentially become subject to UK inheritance tax on their worldwide assets given the disparity between the exemptions ($13.61M in the US v £325,000 in the UK)
• The potential simplification to allow calendar year alignment with the UK tax year for overseas income will also be welcomed as it should ease the administration burden

Please note, this information is intended as a general overview. It is important that professional advice is sought on specific issues relevant to your circumstances. If you would like to speak with one of our tax advisers, please contact us to find out more.

We hope you have enjoyed our Autumn Series - the budget series, you can view all previous articles here.