The 2025 US tax year ends on 31 December, making this an ideal time to review your position, take steps to minimise your US tax exposure, and begin planning for 2026.

What this update covers:

An overview of the key areas to be aware of before 31 December, including:

• Changes under the “One Big Beautiful Bill Act”

• IRS payment and processing updates

• HMRC’s position on US pension lump sums

• Potential UK tax changes in the 26 November Budget

• Year-end planning opportunities across income, gains, NIIT and estate/gift tax

• Roth IRA considerations and US pension planning

• FX issues on UK mortgage redemptions

• Timing UK tax payments for foreign tax credit purposes

• Key US and UK deadlines for early 2026

Before the government shut down on 1 October, the key US news for 2025 was the passing of President Trump’s “One Big Beautiful Bill Act”.As anticipated, this extended most of the provisions of his “Tax Cuts and Jobs Act” of 2017, which were due to expire at the end of 2025. 

This is welcome news for those concerned about the Estate and Gift Tax exemption reducing, as it will now stand at $15 million per person in 2026, and will continue to rise with inflation. However, it is less positive for those hoping that the State And Local Tax (SALT) deduction limitation would be repealed. Although the cap has been increased from $10,000 to $40,000, it will revert to $10,000 after five years. 

In more unwelcome news for international US citizens without an active US bank account, President Trump issued an executive order in March titled “Modernizing Payments To and From America’s Bank Account”. This order aims to eliminate the issuance of IRS paper refund checks. Effective from 30 September 2025, and with limited exemptions available, taxpayers who may be impacted should speak to their non-US banks and investment houses to see if they have US affiliates who can provide US account options. Failing that, taxpayers will need to be more deliberate when making estimated and other tax pre-payments to the IRS. 

With cutbacks at the IRS and the 1 October shutdown, reaching the IRS is becoming increasingly difficult. But this doesn’t mean that those who have fallen behind with their US tax and compliance obligations should rest on their laurels.  

The IRS’ Streamlined Filing Program is still available to eligible non-wilful non-filers who want to bring their US tax affairs up to date without penalties. Prompt action is crucial, as continued resource pressures may lead to the programme being scaled back. If you think you may be eligible, please get in touch to discuss your position.

Here in the UK, one piece of news which may have flown under the radar: in September HMRC clarified their position on the UK taxation of US pension lump sums. Historically these were treated as fully US taxable and exempted from UK tax. HMRC has now confirmed that US pension lump sums are subject to UK tax, with the US tax paid being available for double tax relief. For top rate taxpayers this results in 37% US tax plus an additional 8% UK tax (bringing the total to the 45% UK rate). As this is a clarification, rather than a new rule, it applies retroactively and will therefore encompass any US lump sums reported on 2024-25 UK tax returns onward. HMRC’s clarification is prompting consideration of alternative reliefs to mitigate UK exposure.  

At the time of writing, we await Rachel Reeves’ Autumn Budget on 26 November to understand what changes may be introduced. In the meantime,  please contact us if you have any concerns about your US or UK tax position. 

Potential UK tax rises – November 2025 Budget planning 

With the Autumn Budget scheduled for 26 November, it is increasingly important for dual US/UK taxpayers to plan for potential UK tax rises. Although Labour’s manifesto pledged not to increase taxes on “working people”, including no rises to National Insurance, income tax rates or VAT, there is growing speculation that the Chancellor, Rachel Reeves, may still introduce revenue raising measures to fund spending commitments. Even without increasing headline rates, the government could adjust bands, thresholds, or the structure of income and dividend taxation to raise the overall tax take. One key area of focus is that Labour could seek to bring dividend tax rates closer in line with income tax rates (the top dividend rate is currently 39.35% compared to the additional rate of income tax of 45%).

Ordinary income tax rates 

The top Federal tax rate for 2026 remains unchanged at 37%. This rate applies to individuals with Adjusted Gross Income (AGI) in excess of: 

The standard deduction for the 2025 tax year rises to $32,200 for MFJ (from $31,500), rises to $16,100 for Single and MFS (from $15,750), and rises to $24,150 for HoH (from $23,625).  

Opportunities before year end 

For an American living in the UK, any tax planning opportunities must consider both US and UK tax implications, and decisions around buying, selling or gifting assets should reflect both the investment impact and the tax consequences. 

So, what opportunities could you consider in the run-up to the end of 2025? We’ve summarised some key areas below.  

Deferring or accelerating income and gains 

Spreading income over two tax years 

Depending on your tax bracket, the tax rate on long term capital gains and qualified dividends ranges from 0% - 20%. The tax rates on ordinary income range from 0%-37%. You can deduct losses up to $3,000, with any excess carried forward. Should you wish to reinvest in the same stock, it’s important to do so either 30 days before or 30 days after the sale to avoid wash sale rules, which would otherwise disallow the loss. 

What should you do? 

By spreading capital gains/income between tax years, you can abstain from incurring spikes in income, which may push gains/income into the higher tax brackets. This may help minimise the total tax paid for those tax years. You may also want to consider realising capital losses to reduce tax on other investment income and gains.  

With potential UK tax rises arises after 26 November, some taxpayers may choose to accelerate dividends, bonuses, or other income/gains before the Budget to lock in current UK tax rates. However, any acceleration must also consider US tax consequences, and the UK tax on accelerated income/gains should be paid before 31 December 2025 to ensure a foreign tax credit can be claimed on the US tax return (assuming the paid basis for foreign tax credit purposes). 

An investment decision will also be required – including whether to dispose of and reacquire an asset – so we strongly recommend seeking tailored advice.

Net Investment Income Tax (NIIT) 

You may continue to incur the additional tax of 3.8% on unearned investment income, where your Modified Adjusted Gross Income (MAGI) exceeds the following thresholds: 

What should you do? 

If you spread investment income over several years, or offset it using the above the line deductions, you may be able to keep your total income below the thresholds and avoid triggering the 3.8% NIIT. You could also consider realising capital losses in years where you have higher investment income. 

Estate and gift tax 

For the estate of a US citizen or domicile who makes taxable gifts or passes away in the 2025 calendar year, the lifetime exclusion available against estate or gift tax is $13,990,000, increasing to $15,000,000 in 2026. 

Be aware that substantial gifts to US charities – particularly to US charitable trusts – could be deemed a settlement for UK tax purposes, potentially creating UK tax issues. Under the new UK rules, anyone with ten years of UK residence may be affected. As a result, US/UK taxpayers should carefully consider using dual qualified charities and donor advised funds going forward. 

What should you do? 

There’s potential for you to make tax-efficient gifts before the end of 2025. For example, you could make a gift of up to $19,000, per donee, without using any of your current $13,990,000 Estate Tax threshold.  

Get in touch for guidance on securing both US and UK tax relief on charitable contributions and for advice on minimising UK Inheritance Tax when settling assets into a trust. 

US pensions 

If you hold a traditional Individual Retirement Account (IRA) or 401(k) plan, you can continue to to convert it to a Roth IRA. Converting your traditional IRA to a Roth IRA can, for some taxpayers, provide long-term tax advantages, as subsequent withdrawals are generally not taxable and no minimum distribution is required each year after age 72 (unlike for traditional IRAs). Conversions are taxed in the US at ordinary income tax rate, so the 2025 tax charge must be funded from other sources of cash. However, given the flexibility that a Roth IRA can offer, if it aligns better with your long-term investment strategy, you may wish to consider converting before year end.  

Where contributions into a 401(k) plan or traditional IRA also involve a period of foreign service, available foreign tax credits may be used to reduce the liability. Furthermore, no Net Investment Income Tax (NIIT) is due on any distribution, conversion or rollover to/from a Roth IRA account. 

With HMRC’s clarification of lump-sums from US pensions now being taxable, we have been concerned that this could apply to Roth IRA conversions. We would therefore recommend that you seek tax advice before making the conversion to determine whether treaty relief would be available to reduce any UK tax exposure. 

What should you do? 

Consider whether transferring your traditional IRA or 401(k) into a Roth IRA before the end of 2025 is appropriate for your investment objectives and overall tax position. 

Mortgage redemptions 

If you have a non-US (e.g. UK) mortgage and you are about to sell your property and redeem the mortgage, it’s important to be aware of a potential tax trap. This also affects US taxpayers with UK mortgages who have a mortgage contract about to expire (e.g. a two-year fixed rate deal) and are considering transferring to a different mortgage. 

In times where the British pound is weaker against the US dollar, it can cost less in dollar terms to  repay a mortgage then it did when the pound was stronger. Unfortunately, the IRS treats this foreign exchange gain as taxable income, even if the underlying property has fallen in dollar value due to currency movements. While it may be possible to harvest excess foreign tax credits in such a situation, we encourage you to seek advice and plan ahead to avoid unexpected liabilities. 

What you should you do? 

Consider the foreign exchange position carefully before redeeming or refinancing a mortgage and seek advice to avoid unforeseen US tax charges. 

UK tax payments timed before or after 31 December 2025

If you pay UK tax on your worldwide income and are on the ‘paid’ basis of accounting for foreign tax credits, it’s important that to consider paying your UK tax liability by 31 December 2025, even if the tax is not due until 31 January 2026 – or, in some cases, 31 January 2027. Doing so ensures that a corresponding foreign tax credit may be taken against any Federal tax due on non-US income realised in 2025 and reported on your 2025 US tax return. This is particularly relevant for self-employed individuals, partners with rising profits or anyone who has realised a capital gain in 2025.

Experience also shows that paying before the festive season helps avoid last-minute issues and ensures you have the available tax credit.

Conversely, if you have a substantial excess foreign tax credits carried forward from the past ten years, you may want to consider utilising these by deferring a UK tax payment while still making sure to remain compliant with the 31 January 2026 UK tax deadline. This is because after ten years, unused foreign tax credits are wasted. Rolled over foreign tax credits are utilised in a year with a shortfall of foreign tax credits on a first in first out basis, so intentionally creating a shortfall in 2025 may allow you to utilise credits going back to 2015. 

What should you do? 

If you’ve realised any capital gains in 2025, or your income that is not taxed at source has increased, consider making a prepayment of UK tax before 31 December 2025. 

If you have large carried forward unused credits, consider paying the tax in January 2026 if the unused credits are in the relevant basket. 

Alternatively, if you are an accruals basis taxpayer, realising gains in quarter one of 2026 aligns the US tax with the UK foreign tax credit accrued in the same year. 

Residency 

When moving to a new country, it’s important that tax advice is taken well in advance to allow for the most efficient structuring and planning. If you’re a green card holder, the beginning of the 2026 tax year adds another year to the count for the “eight out of 15 years” expatriation regime, which may trigger an exit tax if you later give up your green card.   

What should you do? 

If you’re considering a move, speak to our team before making any decisions so there is sufficient time for planning. 

If you are approaching the eight-year green card holding period, you may also want to consider whether there is any advantage in surrendering your green card before the end of the 2025 calendar year. 

Key deadlines 

There are several upcoming deadlines that you may need to be aware of. Below are some of the key US and UK tax deadlines to consider over the next few months. 

Speak to an expert 

As your circumstances are unique, we recommend seeking professional advice before taking any action. For more information on any of the points above, or to discuss your US/UK tax position in more detail, please complete the form below and a member of our team will be in touch.  

Please note that our advisory services are charged at our hourly rates and a formal engagement will need to be in place before any advice is provided.