Introduction: What Bermuda Residence Changes for a US Citizen
Bermuda residence removes British income tax from your salary, but it leaves an American on a full Form 1040 with almost nothing to credit against it. That is the trade nobody prices properly. Hamilton has no income tax, no capital gains tax and no tax on dividends. However, the United States taxes its citizens wherever they live, so every pound of UK tax you stop paying was also a pound of foreign tax credit you stop receiving.
Bermuda Residence Works Differently From Monaco or Dubai
Most low-tax destinations are sold to Americans on their headline rates. In contrast, Bermuda residence comes with two features those places lack. First, the island charges a real payroll tax on wages, which can exceed 10% at the margin. Second, the IRS sets an unusually high foreign housing limit for Bermuda, which lets a well-paid employee exclude far more rent than in almost any other location. Consequently, the US result in Hamilton depends heavily on how you are paid and where you live.
Who Should Read This Guide
We wrote this for US citizens and green card holders in Britain who have an offer in Bermuda, usually in reinsurance, asset management or a family holding company. At TaxYork, we prepare US and UK returns for clients leaving London. Specifically, we see the same gap every year: the Bermuda employer explains payroll tax, a UK adviser handles the exit, and nobody models the American return until it is due.
How Bermuda Residence Works for a Non-Bermudian
Bermuda does not sell residence the way Portugal or Malta once did. Instead, the right to live there almost always comes through work. Furthermore, the island has no tax-residence test in the British sense, because there is no personal income tax to assign. As a result, your Bermuda residence is permission to live on the island, it carries no tax label, and it does nothing on its own to end your UK or US obligations.
Work Permits Are the Usual Route
Most Americans obtain Bermuda residence through a work permit sponsored by a Bermuda employer. The permit ties you to that employer and that role. Therefore, losing the job normally means losing the right to stay, which matters when you plan around the US bona fide residence test. In addition, a spouse usually needs separate permission to work. British citizenship does not help here, because a British passport gives no automatic right to live or work in Bermuda.
The Investor Route for Wealthy Families
For those who do not want a job, Bermuda runs an Economic Investment Residential Certificate. According to the Bermuda Government's update on the programme, holders must invest at least BMD 2.5 million in the island's economy, and most invest more. Qualifying investments include Bermuda real estate, government bonds and local businesses. Notably, this route to Bermuda residence suits a retired American with a large portfolio far better than an executive who still earns a salary.
What Bermuda Itself Charges
Bermuda raises money through payroll tax, customs duty, land tax and stamp duty. Furthermore, residents pay a 1.25% tax when they buy foreign currency from a local bank, as the Government of Bermuda's foreign currency purchase tax page confirms. Non-Bermudians also need a licence to buy property, and the one-off licence fee runs to a significant percentage of the price. Importantly, none of these is an income tax, which shapes everything that follows on the US return.
Payroll Tax Under Bermuda Residence
Payroll tax is the cost of Bermuda residence that most London executives underestimate. The tax has an employer portion and an employee portion, and the Government of Bermuda's payroll tax guidance caps the remuneration it charges at BMD 1 million per person per year. Bermuda dollars trade one-for-one with US dollars, so we quote both as dollars below. For a wider primer on how the island raises revenue, Investopedia's overview of tax havens gives useful background.
The 2026/27 Employee Bands
The 2026/27 Budget changed the employee bands from 1 April 2026. The first $48,000 now bears 0.25%, and the band from $48,001 to $96,000 bears 7.75%. Pay from $96,001 to $200,000 bears 10.75%, while the bands above $200,000 stayed at 11.5% and then 12.5% up to the $1 million cap. On a salary of $648,000, that schedule produces about $68,020 of employee payroll tax. Accordingly, a senior hire on Bermuda residence still loses roughly 10.5% of salary before rent.
Why the IRS Probably Gives No Credit for It
Under US rules, only the person on whom foreign law imposes a tax can claim a credit for it. Bermuda's Payroll Tax Act charges the employer and then permits the employer to recover the employee portion from wages. In our view, that structure makes an employee's credit claim weak, even though the deduction appears on your payslip. Moreover, the tax falls on gross wages with no allowance for costs. Therefore, we plan every Bermuda case on the assumption that payroll tax buys you nothing on Form 1116, and we treat any credit as an upside to be argued, not banked.
The Peg Removes One US Headache
The Bermuda dollar is pegged at par to the US dollar. Consequently, moving money between BMD and USD accounts creates no section 988 currency gain or loss in practice. Sterling is different. Specifically, when you convert a large UK balance to dollars after the move, the gain since you deposited it can be taxable in America. Our guide to foreign currency gains on GBP accounts explains how to time those transfers.
The US Return Under Bermuda Residence
Nothing about your US filing switches off when you land at L.F. Wade. You still file Form 1040, Schedule B and, where thresholds are met, the full set of information returns. However, the tools you use change completely. In London, the foreign tax credit did the work, because British rates exceed American ones. With Bermuda residence, there is no income tax to credit, so the exclusions take over.
The Foreign Earned Income Exclusion
For 2026, the exclusion is $132,900 of foreign earned income, claimed on IRS Form 2555. You qualify through the bona fide residence test or the physical presence test, as the IRS foreign earned income exclusion guidance sets out. A work permit holder with a lease and a family in Hamilton usually turns Bermuda residence into bona fide residence after a full calendar year. Alternatively, 330 full days outside the United States in any 12 months will do, which suits a first part-year.
The $90,000 Bermuda Housing Limit
Here Bermuda stands out. IRS Notice 2026-25 lists Bermuda with a housing expense limit of $90,000 for 2026, against a general limit of $39,870. You exclude housing costs above a base amount of $21,264, up to that limit. Therefore, a qualifying employee who spends $90,000 or more on rent and utilities can exclude a further $68,736. Combined with the earned income exclusion, that shelters $201,636 of salary, which is the main reason Bermuda residence works for employees at all.
The Stacking Rule Keeps Rates High
The excluded income does not reset your tax rates. Under section 911(f), the IRS taxes your remaining income at the rates that would apply if the excluded amount were still included. Thus, for a senior executive on Bermuda residence earning a $648,000 salary, the income left after exclusions starts in the 24% bracket and climbs to 35%. For that reason, the exclusion saves about $41,000 for a top earner, not the $70,000 many expect. Our team prepares these calculations as part of our US tax returns for expats service.
Investment Income With No Credit at All
Dividends, interest and gains are not earned income, so neither exclusion touches them. With Bermuda residence, there is no local tax on them either. Accordingly, US tax applies in full: 20% on qualified dividends and long-term gains at high incomes, plus the 3.8% net investment income tax that the IRS NIIT guidance explains. Interest faces ordinary rates of up to 37%, plus 3.8%. In London, those rates sat below UK rates and cost you nothing extra; in Hamilton, they become your entire bill.
Leaving Britain Properly Before Bermuda Residence Helps
The UK will not let you go simply because you have Bermuda residence and a work permit. Instead, the statutory residence test decides whether Britain still taxes your worldwide income. Furthermore, there is no UK-Bermuda double tax treaty. As a result, there is no tie-breaker if HMRC treats you as resident, and Bermuda salary would then be fully taxable in Britain.
The Full-Time Work Abroad Test
Most employees leave under the third automatic overseas test. You must work full time overseas, averaging at least 35 hours a week, with fewer than 91 days in the UK and fewer than 31 UK workdays of more than three hours. HMRC's RDR3 guidance on the statutory residence test sets out how to count. Consequently, board meetings in London and long summer visits need a diary from day one. The ICAEW's tax technical resources and the Chartered Institute of Taxation both publish commentary on the test for practitioners. Our article on the statutory residence test for US citizens walks through the edge cases.
Split-Year Treatment in the Year You Move
In the tax year you leave, split-year treatment can make Britain tax only the UK part of the year. The case for starting full-time work overseas has its own conditions, including the day limits pro-rated for the overseas part. Importantly, split-year treatment is automatic when you qualify, but you still report it on the residence pages of your Self Assessment return. We cover the mechanics in split-year treatment for Americans.
Temporary Non-Residence and the Five-Year Window
If you return to the UK within five years, gains on assets you owned before leaving come back into UK tax in your year of return. Many close-company dividends do too. Accordingly, three years of Bermuda residence followed by a London return can turn a planned share sale into a UK charge after all. Our guide to temporary non-residence for Americans explains which disposals are caught.
UK Income You Keep After Taking Bermuda Residence
Most clients keep a London flat, a UK pension and a UK portfolio. Without a treaty, Britain applies its domestic rules to each, and the US then taxes the same income with a credit for any UK tax. Therefore, Bermuda residence turns UK-source income into the one place where a foreign tax credit still works.
UK Dividends and Interest
Non-residents generally pay no UK tax on UK dividends and savings interest beyond what is deducted at source, under the disregarded income rules. For example, UK company dividends carry no withholding. Thus, a UK portfolio held during Bermuda residence bears only US tax, at 23.8% for qualified dividends at high incomes. That contrast drives much of the saving in our case study below.
Rent From a London Property
Letting your London home brings you into the non-resident landlord scheme, which the GOV.UK guidance on tax on rent for landlords abroad describes. Your agent or tenant withholds basic-rate tax unless HMRC approves gross payment, and you still file a UK return. In addition, the US taxes the same rent with depreciation, and the UK tax becomes a creditable passive-basket foreign tax.
UK Pensions Without Treaty Protection
The US-UK treaty normally decides where pensions are taxed. However, once you live in Bermuda, Britain taxes a UK pension under its own law and keeps the PAYE deduction. Moreover, a US-only citizen in Bermuda generally gets no UK personal allowance, whereas a dual US-UK national does. The IRS then taxes the pension too, with a credit for the UK tax. You can read more about drawing UK pensions from abroad on MoneyHelper's pensions guidance.
Running a Business From Bermuda Residence
Founders and fund principals often ask whether a Bermuda company improves the picture once they have Bermuda residence. For a US citizen, it rarely does. Bermuda introduced a 15% corporate income tax from 2025, but only for groups with annual revenue of at least EUR 750 million. Consequently, a private holding company or consultancy pays nothing locally, and that is exactly what makes it expensive in America.
A Bermuda Company Is a CFC With No Foreign Tax
If you own more than 50% of the company, it is a controlled foreign corporation. Its income falls into net CFC tested income each year, and with no foreign tax paid, the high-tax exclusion cannot apply. You can elect under section 962 to be taxed at corporate rates, but the later distribution comes from a company in a non-treaty jurisdiction. Therefore, those dividends are generally not qualified and face ordinary rates of up to 37%, plus 3.8%. Our section 962 election guide shows the arithmetic.
Self-Employment Without a Totalisation Agreement
The United States has no social security agreement with Bermuda, as the SSA's list of international agreements shows. Accordingly, a self-employed American with Bermuda residence pays US self-employment tax on net earnings and can also owe Bermuda social insurance. The earned income exclusion does not reduce self-employment tax. Employees of a Bermuda company generally avoid FICA, unless the employer is an American employer or a US affiliate has elected coverage.
Where the Company Is Run
A Bermuda company that you manage from a London desk can become UK resident through central management and control. Thus, your diary protects both your personal UK status and the company's. We recommend board meetings, signing and strategic decisions in Hamilton, with the minutes to prove it.
FBAR, FATCA and Missed Reporting From Bermuda
Taking up Bermuda residence is the moment old reporting gaps surface. Bermuda banks ask for your US tax identification number and report US account holders under FATCA. Furthermore, Bermuda exchanges data with HMRC under the common reporting standard. As a result, both tax authorities can see the accounts you open after the move and the UK accounts you keep.
What You Must File Each Year
You file an FBAR through FinCEN's BSA E-Filing system if your combined foreign accounts exceed $10,000 at any time in the year. In addition, Form 8938 applies once foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any time, for a single filer living abroad. The IRS comparison of Form 8938 and FBAR requirements shows which assets go on which form. Bermuda occupational pension plans and local insurance products usually belong on both.
When the Move Exposes Old Gaps
Clients often discover during the move that an ISA, a UK pension or a small sterling account never reached their FBAR. A new Bermuda bank asking for your filing history makes that gap visible. Accordingly, we fix missed reporting before the first Bermuda year closes, while you still hold the records. Our FBAR and FATCA compliance service handles both the current year and any catch-up.
A Five-Point Bermuda Residence Decision Process
Before you commit to Bermuda residence, we work through five questions in order. The US State Department's guidance for Americans abroad covers the practical entry rules. First, we ask whether your pay is salary or business profit, because only salary gets the full benefit of the exclusions. Second, we check whether your Bermuda housing will reach $90,000 a year, since housing below that figure wastes part of the limit.
Points Three and Four: Portfolio and Pension
Third, we measure how much of your income comes from investments. With Bermuda residence, dividends drop from a UK rate of 39.35% to the US rate of 23.8%, so a large portfolio adds real value. Fourth, we review UK pensions and rent, because those remain taxed in Britain without treaty relief and can leave excess credits.
Point Five: The Return Date
Finally, we fix the earliest date you might come back. A return within five years reopens gains and some dividends under temporary non-residence. Therefore, any planned disposal of shares bought before the move should either happen after five full years or be modelled as if UK tax still applies.
Illustrative Case Study: A London Underwriter Moves to Hamilton
The following example is illustrative and uses simplified rates. An American underwriter, a US citizen only, earns £480,000 in London. She also holds a £3.2 million portfolio of shares that pays £96,000 of dividends a year. Her firm offers a role in Hamilton at the dollar equivalent, $648,000, using an exchange rate of $1.35. She would rent a house for $132,000 a year.
The London Baseline
For 2026/27, her UK income tax on salary is about £202,203, and employee national insurance adds £11,611. Her dividends, after the £500 allowance, bear 39.35%, or £37,579. In total, she pays about £251,393, which is $339,380 at $1.35. Because UK tax exceeds US tax on every slice, her US return shows a liability of nil after credits. Her overall rate is 43.6%.
The Bermuda Position
In Hamilton, her employee payroll tax is $68,020, assuming her employer recovers the full employee portion. On her US return, she excludes $132,900 of salary plus $68,736 of housing, the maximum under the $90,000 Bermuda limit. After the stacking rule, her US tax on the remaining salary is about $148,944. Her dividends of $129,600 cost $25,920 at 20%, plus $4,925 of net investment income tax. Her total is about $247,808, an overall rate of 31.9%.
What the Numbers Say
Bermuda residence saves her about $91,572 a year. However, the source of the saving matters. About $71,685 comes from salary, and almost $20,000 from dividends. On a pure capital gain, by contrast, the saving is close to nil, because UK capital gains tax at 24% gives way to US tax at 23.8%. Furthermore, the rent in Hamilton is higher than her London housing cost, and the 1.25% currency tax applies whenever she buys sterling.
What She Did First
She confirmed the job met the full-time work abroad test, booked fewer than 30 UK workdays, and claimed split-year treatment. In addition, she brought two years of missed FBAR entries for a UK pension up to date before she moved. Finally, she held her pre-move shares throughout her Bermuda residence, because she expects to return to London within four years.
How TaxYork Can Help
We prepare the US and UK returns that Bermuda residence creates, including Form 2555 with the Bermuda housing limit, Form 1116 for UK-source income, FBARs and Form 8938. Furthermore, we model the year of departure before you resign, so the split year and the US exclusions line up. Where a company is involved, our cross-border tax treaty work covers the CFC filings and the UK residence question. Notably, we compare Bermuda against other destinations, such as Monaco residency for Americans and Cyprus tax residency, on the same ledger.
Conclusion
Bermuda residence is one of the few low-tax moves that still pays for a high-earning American employee, but only because of the $90,000 IRS housing limit and the absence of UK tax on investment income. Payroll tax claws back over 10% of salary, the IRS likely gives no credit for it, and gains save almost nothing. Therefore, the right answer depends on your mix of salary, portfolio and return plans. We recommend modelling all three before you accept the offer.
Contact Us
If you have a Bermuda offer or are already on the island, contact us for a full US and UK model of the move. You can email hello@taxyork.com or call 020 3488 8606. Alternatively, book a consultation and we will review your departure year, your exclusions and any missed reporting.
Disclaimer
This article gives general information for educational purposes and is not tax, legal or immigration advice. Bermuda, UK and US rules change, and Bermuda amended its payroll tax rates during 2026. The case study is illustrative, uses simplified rates and an assumed exchange rate, and ignores state tax and other personal factors. Take advice on your own circumstances, including from a Bermuda-qualified adviser, before you act.