Year-End Tax Planning for Americans Living in the UK: Key Considerations for 2025

When writing about this topic last year, we noted how 2024 was one of the most eventful years for tax changes and elections. Little did we know that 2025 would bring even more complexity. From Rachel Reeves’ 2025 Budget to global tax reforms, tax advisers have never been so in demand.

Amidst all the headlines, US persons residing in the UK should not lose sight of the crucial actions to take before 31 December 2025 to optimise their global tax position. 

1. Foreign Tax Credits

For US taxpayers abroad, avoiding double taxation is essential. The most effective way is to match foreign tax credits to US income.

If you claim credits on a “paid” basis, ensure foreign taxes (including UK tax) are settled in the same calendar year as the income.

This is especially important for those now subject to worldwide taxation in the UK from 6 April 2025, following recent changes.

Consider:

• Was there a foreign tax credit shortfall last year?
  
  
• Did you become subject to worldwide taxation for the first time?
  
  
• Were there significant changes in income or gains?

Accelerating UK tax payments before year-end can help maximise credits and avoid mismatches.

2. Temporary Repatriation Facility (TRF)

The TRF, introduced in the 2024 Budget, allows UK residents to remit offshore funds at a reduced tax rate of 12%. For Americans previously using the remittance basis, this could be an attractive option—especially if TRF taxes can be credited against US tax.

If you plan to remit funds, consider doing so before 31 December 2025 to take advantage of this facility and align with US foreign tax credit rules.

3. Harvesting Capital Losses

If you have net gains, crystallising losses before year-end can reduce taxable income. US taxpayers can claim up to $3,000 of net capital losses against income ($1,500 if married filing separately), with excess losses carried forward.

Points to review:

• Will capital gains treatment apply in the UK?
  
  
• Which country has primary taxing rights?
  
  
• How will exchange rates impact your position?

Always check UK rules for reporting funds and consult your financial adviser before acting.

4. Gifting and Estate Planning

Cross-border estate planning is critical. For 2025:

• US estate tax exemption: $13.99m per individual ($27.98m for couples), rising to $15m in 2026.
  
  
• UK inheritance tax: £325,000 nil-rate band (different rules apply in Scotland).
  
  
• Annual gift exemptions: $19,000 in the US vs £3,000 in the UK.
  
  

5. Reducing Taxable Income

Contributions to 401(k) plans, IRAs, or Keogh plans can lower pre-tax income. For those in non-US pension schemes, maximising contributions may make sense if treaty relief applies or if you have excess foreign tax credits.

Other strategies:

• Group charitable deductions to exceed the standard deduction threshold.
  
  
• Consider business loss realisation before year-end, subject to loss limitation rules.
  
  

6. Pension Contributions and Conversions

Taxpayers turning 72 must take required minimum distributions (RMDs) from US retirement plans or face penalties. Roth IRA conversions remain an option for long-term tax efficiency.

If foreign tax credits are expiring, triggering foreign-source income before year-end could help utilise them.

Final Thoughts

Cross-border tax planning requires expertise in US expat tax UK, foreign earned income exclusion, and inheritance rules. Our team at Tax Advisory Partnership specialises in helping Americans in the UK navigate these complexities.

Ready to optimise your year-end tax strategy?

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