10 Financial Mistakes American Expats Must Avoid in the UK

Americans move to the UK in large numbers, and a striking share repeat the same handful of financial mistakes - not because they are careless, but because the errors are invisible unless you understand both tax systems. The reassuring part is that almost all of them are avoidable with a little foresight. Here are ten of the most common, each with the rule that explains why it bites.

This article is for Americans who have recently moved, or are about to move, to the UK. Industry commentary on expat mistakes - such as well-known summaries of the errors Americans make moving to the UK - is useful background; the list below focuses on the rules behind each.

1. Buying UK funds and stocks-and-shares ISAs

The most common and most expensive mistake. Most UK funds - OEICs, unit trusts, investment trusts, ETFs - are PFICs for a US person, taxed punitively and requiring an annual Form 8621. A stocks-and-shares ISA is usually a basket of them. What looks like sensible, low-cost investing for a Briton is a tax trap for an American.

2. Closing US brokerage accounts on arrival

Many movers close their US accounts to 'simplify', then reinvest in UK retail funds - swapping a clean, PFIC-free, US-regulated portfolio for a PFIC-laden one. Keeping a US account, where possible, is usually the better path.

3. Assuming an ISA is tax-free to the IRS

An ISA is tax-free under UK law, but the US does not recognise that shelter. Income and gains inside remain fully US-taxable. Treating an ISA as tax-free on both sides leads to under-reporting and surprise bills.

4. Ignoring FBAR and Form 8938

Once foreign accounts pass $10,000 in aggregate, an FBAR is due; once foreign assets pass the FATCA thresholds, so is Form 8938. These are information returns with serious penalties, and UK accounts are already visible to the IRS through information-sharing.

5. Cashing out a US retirement account to fund the move

Withdrawing from a 401(k) or IRA before 59½ triggers US income tax plus a 10% penalty - and UK residence does not switch the penalty off. Funding relocation costs this way can be one of the most expensive choices available.

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6. Missing the treaty position on pensions

The US–UK treaty contains valuable protections - deferring US tax on UK pension growth, allocating taxing rights on pension income - but they generally have to be claimed and documented. Leaving them unclaimed can mean paying tax that the treaty would have relieved.

7. Over-contributing to UK pensions without checking US treatment

UK pension contributions attract UK relief, but the US does not treat personal contributions to a foreign pension as generously, and the funds inside can raise PFIC questions. Employer contributions are usually fine; large personal contributions deserve a second look.

8. Currency-timing errors on large transfers

Moving a house deposit or a lump sum across currencies at the wrong moment, or without a plan, can cost more than years of investment fees. Currency is a core variable in cross-border life, not an after thought.

9. Using a UK-only adviser for a dual-tax situation

A UK-only adviser may give excellent UK advice that is wrong for a US person - recommending ISAs and UK funds in good faith. Dual-tax situations need someone who can see both systems at once.

10. Leaving estate and residence questions unaddressed

The UK moved to a residence-based inheritance tax system in April 2025, under which long-term residents become exposed to UK IHT on worldwide assets. Combined with US estate tax, this is exactly the kind of issue that is cheap to plan for early and costly to ignore.

An illustrative example

Consider a hypothetical American, age 44,who in his first year in London opens an ISA, buys UK index funds, closes his US brokerage account, and never files an FBAR - each step on ordinary local advice. He has, without knowing it, made four of the mistakes above at once. Caught early, the position is recoverable; left for years, it compounds. This example is hypothetical and for illustration only.