If you’re a US citizen living in London, there’s a good chance your tax affairs are being handled by two specialists: one who’s excellent at US returns, and one who’s excellent at UK returns. Both will tell you, correctly, that your filings are accurate.
And both can still be missing the point.
The mistake isn’t technical incompetence. It’s structural. Most accountants treat the UK and US tax systems as two separate problems to solve in sequence, file the UK return, then file the US return, each correctly on its own terms rather than one integrated position to optimise. They’re playing two solid games of solitaire instead of one game of chess.
That distinction sounds abstract until you see what it costs you. Below are four places I see where it shows up most often and where “correct in isolation” and “correct for you” turn out to be very different things.
Mistake #1: Letting Foreign Tax Credits Expire While “Optimising” UK Pension Contributions
This is one of the most common and costly mistakes for US citizens in the UK.
The UK-only advice is straightforward: contribute more to your pension, reduce your taxable income, and pay less UK tax.
The problem? Your US foreign tax credit position depends on how much UK tax you actually pay.
A larger pension contribution can reduce your UK tax bill, but it can also reduce the foreign tax credits available to offset US tax. In some cases, valuable credits expire unused or leave you with a residual US tax liability.
The solution isn’t to stop contributing to your pension. It’s to model the combined UK and US outcome before making the contribution.
Before deciding how much to contribute, you should:
- Project your UK tax liability before and after the contribution.
- Assess the impact on your US foreign tax credit position.
- Compare different contribution levels based on the combined after-tax result.
- Consider whether Article 18(5) of the UK-US tax treaty allows US relief for qualifying UK pension contributions.
- Check whether a FIG claim affects your pension relief capacity.
The goal is not to maximise the UK deduction. It’s to maximise your overall UK and US tax outcome.
Mistake #2: Treating Your ISA Like It’s Tax-Free (It’s Not, to the IRS)
For UK taxpayers, ISAs are highly attractive. Income and gains are generally free from UK income tax and capital gains tax.
For US citizens, however, the story is very different.
The IRS does not recognise ISAs as tax-exempt accounts. Income and gains inside an ISA may still be taxable in the US, often with little or no UK tax available to generate foreign tax credits.
The bigger risk is what sits inside the ISA.
Many ISAs hold OEICs, mutual funds, or ETFs that can be classified as Passive Foreign Investment Companies (PFICs) for US tax purposes. PFICs can trigger punitive tax treatment, additional reporting requirements, and costly compliance obligations.
This is where many advisers miss the opportunity. A UK adviser may focus on the ISA’s tax-free status, while a US adviser may not look closely at the underlying investments.
The result? A perfectly sensible UK investment strategy can become an expensive US tax problem.
The key question isn’t whether an ISA is tax-efficient in the UK. It’s whether it delivers the best combined UK and US after-tax outcome.
Mistake #3: Either Never Using Treaty Elections or Using Them by Default
Treaty elections can be valuable planning tools, but many accountants make one of two mistakes: they either ignore them completely or apply them automatically.
A good example is Article 18(5) of the UK-US tax treaty. In the right circumstances, qualifying UK pension contributions can receive favourable US tax treatment, helping align the UK and US tax outcomes and reducing the mismatch discussed in Mistake #1.
But treaty elections are not automatic. Their effectiveness depends on the facts, including whether the contribution qualifies for UK tax relief and whether the relevant treaty conditions are met.
Just as importantly, treaty elections are often used where they don’t apply. ISAs, for example, do not become tax-exempt for US purposes simply because they receive favourable treatment in the UK. No treaty election changes that.
The key principle is simple: a treaty election should only be used when it clearly improves the combined UK and US tax position and can be supported consistently across both jurisdictions.
The best advisers don’t ask, “Can we make a treaty election?” They ask, “Does a treaty election improve the overall outcome?”
Mistake #4: Missing the Capital Gains Timing Trap Between UK and US Tax Years
The UK and US operate on different tax calendars. The UK tax year runs from 6 April to 5 April, while the US follows the calendar year.
That difference can create unexpected foreign tax credit issues. A gain realised between 1 January and 5 April may fall into one UK tax year but a different US tax year, making it harder to match UK tax paid with the corresponding US tax liability.
The problem becomes even more significant when:
- A UK property sale triggers the UK’s accelerated filing and payment deadlines.
- A FIG claim eliminates UK tax on a gain that remains taxable in the US.
- Assets are held within an ISA, reducing the UK tax available for foreign tax credits.
- Large pension contributions reduce the UK tax capacity needed to offset US tax on the gain.
The solution isn’t complex tax structuring, it’s coordination.
Before disposing of assets, consider how the timing affects both tax systems, whether UK tax credits will be available when needed, and how other planning decisions, such as pension contributions or FIG claims, could impact the overall result.
A gain can be reported correctly in both countries and still produce a suboptimal tax outcome if the timing isn’t planned carefully.
Why This Keeps Happening
None of these four mistakes comes from bad technical work. Each return, filed on its own, can be entirely correct. The problem is that the planning opportunity and the planning risk exists only in the interaction between the two systems, and that interaction is nobody’s job if your UK accountant and US accountant aren’t running one combined model.
If you’re evaluating a US tax accountant in London, the single best diagnostic question isn’t “do you handle UK and US returns?” Most firms will say yes. It’s: “Walk me through how a UK pension contribution this year affects my US foreign tax credit position, and would you model it differently if I were also claiming FIG relief?”
If the answer is fluent and specific, you’ve likely found someone solving the right problem. If it’s vague, you’ve likely found someone very good at filing two returns that don’t talk to each other.
Which US tax accountant in London coordinates UK and US filings together?
Monx is a US tax accountant in London that treats UK and US filings as one combined position rather than two independent returns, helping American expats avoid the foreign tax credit, ISA, and treaty election mistakes outlined above.
Talk to MonxDisclaimer: This article provides general information on UK-US cross-border tax planning and reflects legislation and guidance applicable to the 2026/27 UK tax year. It is not personal tax advice. The tax treatment of any arrangement depends on your individual circumstances, including your residence status, income profile, and specific facts. You should seek advice from a qualified UK–US cross-border tax adviser before making any decisions based on this article.
