Introduction: What Indefinite Leave to Remain Changes for Tax and What It Leaves Alone
Indefinite leave to remain is the point at which an American in London stops being a visa holder and becomes settled, yet it does not move a single line on a UK or US tax return. Most guides treat indefinite leave to remain as an immigration milestone and stop there. However, the five years that lead up to it are full of tax decisions. Moreover, the years after it carry a risk that few executives see coming.
The reason is simple. The Home Office and HMRC both count your days, but they count them differently. The Home Office looks at whole days outside Britain across any rolling twelve months. HMRC, by contrast, counts midnights inside Britain across a fixed tax year. Consequently, a banker who travels heavily can pass one test and fail the other in the same year.
This guide explains where the two systems meet. It covers the absence limit, the statutory residence test, the end of the four-year foreign income and gains regime, the US filings that never stop, and what a New York posting does to your status. TaxYork prepares the UK and US returns that sit behind these applications, so the focus throughout is the tax file and not the visa form.
Indefinite Leave to Remain and Tax Residence: Two Separate Tests
Indefinite leave to remain in plain terms
Indefinite leave to remain is permission to live and work in Britain with no time limit and no sponsor. The government's own guide to indefinite leave to remain calls it settlement. Most Americans reach it through work. The Skilled Worker route takes five years, while the Global Talent and Innovator Founder routes can take three. An American married to a British citizen usually qualifies after five years on the partner route.
For a Skilled Worker, the settlement rules on GOV.UK set three main conditions. You must have lived and worked in Britain for five years. Your employer must confirm that it still needs you. Finally, your salary must usually reach £41,700 a year or the going rate for the job, whichever is higher. The fee is £3,226 for each applicant, so a family of four pays £12,904.
Why HMRC does not care about your visa
UK tax follows residence, and residence follows the statutory residence test. That test asks how many days you spend in Britain and what ties you keep here. It never asks which visa you hold. Therefore, an American on a Skilled Worker visa pays UK tax on exactly the same basis the day before settlement and the day after it. The HMRC residence rules make no mention of immigration status at all.
Similarly, the United States ignores the grant. America taxes its citizens on worldwide income wherever they live, and the IRS confirms that US citizens abroad keep the same filing duties as those at home. Accordingly, indefinite leave to remain neither starts nor ends a US obligation. Your Form 1040, your foreign account reports and your treaty position all carry on unchanged.
What indefinite leave to remain really changes
Nevertheless, three things do change, and each has a tax consequence. First, the sponsor falls away. You can change employer, go self-employed or start a company without Home Office consent. Second, the annual immigration health surcharge ends. That charge is £1,035 a year for most adult visa applicants, and settled people do not pay it. Third, your status becomes something you can lose through absence.
The first change matters most for wealthy clients. A sponsored banker cannot easily leave to set up a fund or a consultancy. A settled one can. However, an American who owns a UK company takes on a new layer of US reporting, which we cover below. In practice, indefinite leave to remain is often the trigger for the most complicated US filing year a client will ever have.
The Absence Rule for Indefinite Leave to Remain Versus the Statutory Residence Test
How the Home Office counts absences for indefinite leave to remain
The absence rule for indefinite leave to remain sits in Appendix Continuous Residence of the Immigration Rules. An applicant must not have been outside the UK for more than 180 days in any twelve-month period during the qualifying years. The window rolls. Therefore, the Home Office can test any twelve months it likes, not just calendar years or visa years.
The continuous residence guidance for caseworkers, updated on 8 October 2026, adds the detail. Only whole days count, so an absence of less than 24 hours is ignored and the day you land is not a day abroad. Importantly, ordinary business travel receives no exemption. The permitted exceptions are narrow, such as humanitarian crises, travel disruption and compelling personal circumstances.
That last point surprises executives. A managing director who spends four months on a deal in New York was working for a British employer the whole time. Even so, every whole day counts as absence. One long project late in the qualifying period can therefore break five years of continuous residence.
How HMRC counts days under the statutory residence test
HMRC counts in the opposite direction. The statutory residence test guidance counts days spent in Britain, and a day generally means being here at midnight. The test also runs over the tax year from 6 April to 5 April. Anyone who spends 183 days or more in the UK in that year is resident. Below that figure, the answer depends on your ties.
The ties are family, accommodation, work, 90 days of past presence and, for leavers, the country where you spend most time. Someone who was UK resident in any of the previous three tax years needs only one tie once they pass 120 days. They need two ties between 91 and 120 days, and three between 46 and 90 days. Our guide to the statutory residence test for US citizens works through each band.
Resident for tax, yet short of indefinite leave to remain
Consider the two tests side by side. An American executive spends 160 midnights in Britain and 205 whole days abroad in one year. She has a London home, a husband and children here, and a UK job. HMRC treats her as resident, because she passes 120 days and has at least one tie. Consequently, Britain taxes her fully for that year.
The Home Office reaches a harsher result. She was outside the UK for more than 180 days in a twelve-month period, so her continuous residence is broken. Her qualifying period for indefinite leave to remain starts again. In other words, she has paid UK tax as a resident for the whole year and has lost her progress to settlement in the same year.
The lesson is uncomfortable. Travel that is too light to end UK tax residence can still be heavy enough to break continuous residence. Furthermore, the two limits are not mirror images. A count of 180 days abroad does not equal 185 days in Britain for HMRC, because each trip includes a departure day that neither counts as absence nor ends with a UK midnight.
On track for indefinite leave to remain, but not resident
The reverse case is rarer, but it exists. Split-year treatment divides a tax year into a UK part and an overseas part when you arrive or leave. An American who lands in September is usually non-resident for tax from April to September. Meanwhile, the settlement clock starts only when the visa is granted and she enters. Therefore, the first tax year and the first immigration year never line up.
The same mismatch appears at the other end. Suppose a settled American leaves for a full-time job in New York. If she then keeps her UK days under 91 and her UK workdays under 31, she is non-resident for tax. However, her indefinite leave to remain survives for the time being. Tax residence and immigration status can therefore point in different directions for years.
One travel log, two calculations
Accordingly, we ask every client on a settlement route to keep one travel log and run two calculations from it. The first counts whole days abroad across every rolling twelve months. The second counts UK midnights and UK workdays in each tax year. The same log also supports the day counts on a US return, where the physical presence test for the earned income exclusion uses its own 330-day rule.
Evidence matters as much as arithmetic. The caseworker guidance lists passports, travel tickets, employer letters, payslips, bank statements and tenancy or mortgage records as proof of residence. Those are the same papers HMRC asks for in a residence enquiry. Consequently, a file built for one authority should be tested against the other before either sees it.
HMRC and PAYE Records in an Indefinite Leave to Remain Application
Salary evidence behind indefinite leave to remain
An indefinite leave to remain application under the Skilled Worker route rests on pay. Your sponsor must certify that it pays you at least the required salary and will keep doing so. The Home Office does not simply accept the letter. Its sponsor guidance states that it verifies with HMRC that the sponsor is paying the appropriate salary, using the PAYE scheme reference given when the certificate of sponsorship was assigned.
The scale of that matching is public. A Home Office study of sponsored work visa earnings linked visa records to HMRC's real-time PAYE data and matched about 93% of them. Notably, US nationals had the highest median earnings of the top five nationalities on the Skilled Worker route, at £112,100. In short, the Home Office already holds your payroll history before you apply.
Where the tax record and the visa record disagree
For most City employees, PAYE and the sponsor letter agree. Problems arise at the edges. Part of a package may run through a US payroll. Deferred awards may vest in a year when you worked in both countries. Alternatively, a salary sacrifice arrangement may reduce the figure that reaches PAYE. In each case the pay the employer certifies and the pay HMRC records can differ.
Self Assessment adds a second record. Anyone with untaxed foreign income or taxable gains must normally file a Self Assessment tax return. An American with a US brokerage account almost always falls into that group once the special regime ends. Therefore, a missed UK tax return can sit quietly behind an otherwise perfect PAYE record. We recommend clearing any gap well before the application date.
Proposed tax-based tests for settlement
The link between tax and settlement is set to tighten. The government's earned settlement consultation proposes mandatory conditions that include no outstanding tax or other government debt and annual earnings above £12,570 for a minimum number of years. It also proposes shorter routes for applicants with taxable income above set levels. These are proposals and not law. Nevertheless, they show the direction of travel, and we return to them below.
The Four-Year FIG Regime Ends Before Indefinite Leave to Remain
Four tax years against five visa years
Since 6 April 2025, new arrivals can claim the four-year foreign income and gains regime. It relieves foreign income and gains from UK tax for up to four consecutive tax years. To qualify, you must have been non-UK resident for at least ten years before arriving. Importantly, the four years run from the tax year in which UK residence began, and an unused year cannot be carried forward.
Now compare the calendars. The regime lasts four tax years. A Skilled Worker qualifies for indefinite leave to remain after five years of residence. Because the first tax year is usually a part year, the regime normally ends one to two years before settlement. Consequently, most Americans reach the settlement date already paying UK tax on their worldwide income.
Earlier arrivals have less still. HMRC's own example is a person whose UK residence began on 6 May 2022. That person can claim the regime for the 2025 to 2026 tax year only. Therefore, an American who arrived in 2022 and expects indefinite leave to remain in 2027 has already used the final year of relief.
What the claim costs
The regime is not free. A claim removes your personal allowance and your capital gains tax annual exempt amount for that year. For a high earner the allowance has already tapered away above £100,000, so the cost is often small. However, the claim must be made on a Self Assessment return, and you choose which income and gains to cover. As a result, a year in which nobody files is a year of relief lost for good.
For employees, a related relief covers duties performed abroad. Overseas Workday Relief runs for the same four years and is capped each year at the lower of 30% of qualifying employment income or £300,000. Significantly, the days that earn this relief are days outside Britain. They therefore push you towards the 180-day absence limit while they reduce your UK tax.
Why the regime matters less to Americans
For an American, the regime removes only one of two taxes. The United States still taxes the same foreign income in full. Therefore, the saving in the first four years is the difference between the UK rate and the US rate, not the whole UK charge. On US dividends, that difference is roughly the gap between 39.35% in Britain and 20% in America for a top-rate taxpayer.
When the regime ends, the UK charge arrives. The current income tax rates for 2026 to 2027 tax income above £125,140 at 45% and dividends in that band at 39.35%, with a dividend allowance of only £500. From that point the treaty and the credit rules decide which country taxes first. Our treaty and foreign tax credit work deals with that ordering.
Shorter routes to indefinite leave to remain
Two routes reverse the usual order. Global Talent holders endorsed under the main criteria and Innovator Founders can obtain indefinite leave to remain after three years. For them, settlement can arrive while a year of the foreign income and gains regime remains. That overlap is valuable. A founder can become settled, sell a foreign holding in the fourth year and pay no UK tax on the gain, although the US charge remains.
US Filing Continues Unchanged After Indefinite Leave to Remain
Form 1040 every year
No immigration status in Britain alters the US rule. You file Form 1040 each year and report worldwide income, including your London salary, bonus, rents and gains. Indefinite leave to remain is not a reportable event, and no US form asks about it. Even so, many clients treat settlement as the moment to check whether their US record is complete. That instinct is sound.
Missed US tax returns are common among long-stay Americans. High UK tax leads people to assume that nothing is due in America, and often nothing is. Nevertheless, the return is still required, and the credits that produce the nil bill exist only if you claim them. Our US tax return preparation for expats brings those years up to date.
Exclusion or credit in the settlement years
Two methods prevent double tax on earnings. The foreign earned income exclusion removes up to $130,000 of earned income for 2025 and $132,900 for 2026. The foreign tax credit instead sets UK tax paid against the US tax on the same income. For a London executive taxed at 45%, the credit usually wins, because UK tax exceeds US tax on every pound.
The choice matters more as settlement approaches. The exclusion covers earned income only, so it does nothing for dividends, interest or gains. Once the foreign income and gains regime ends, those items carry UK tax that only the credit can use. Furthermore, excess credits carry forward for ten years. A client who expects a later US posting can therefore build a useful reserve during the high-tax UK years.
FBAR and Form 8938
Foreign account reporting also continues. The FBAR is due when the combined balance of your non-US accounts passes $10,000 at any time in the year. Form 8938 has higher limits. According to the IRS comparison of the two forms, a single filer living abroad reports above $200,000 on the last day of the year or $300,000 at any time. Joint filers report above $400,000 or $600,000.
After five years in London, almost every wealthy client exceeds both limits. A current account, a workplace pension and a savings account are usually enough. Therefore, a missed FBAR tends to arrive in a batch of several years. Our FBAR and FATCA reporting service corrects missed reporting on pensions, investment accounts and ISAs together, so the record is consistent.
PFIC risk in ISAs and UK funds
Settlement often prompts people to invest like locals. That is where the damage starts. A stocks and shares ISA is tax-free in Britain, but the United States taxes its income and gains in full. Moreover, most UK funds, unit trusts and investment trusts are passive foreign investment companies. Each one needs Form 8621, and the default rules tax gains at the highest rate with an interest charge.
Individual shares do not carry that problem. Consequently, an American who wants to use the £20,000 ISA allowance can hold direct shares and avoid the fund rules. The UK shelter then saves UK tax, although the US charge remains. In our experience, unwinding a fund portfolio in the year after settlement costs far more than choosing the right holdings at the start.
New freedoms, new forms
Because indefinite leave to remain removes the sponsor, it opens self-employment and company ownership. Both change the US return. A self-employed American in Britain needs a certificate of coverage to stay out of US self-employment tax under the totalisation agreement. An American who owns more than half of a UK company holds a controlled foreign corporation and must file Form 5471 every year. Each step deserves a tax review before it happens.
Illustrative Case Study: A Managing Director Eleven Months From Settlement
The position
Rachel is a US citizen and a managing director at an investment bank in Canary Wharf. She arrived on a Skilled Worker visa on 1 September 2022 with her husband and two children. Her UK pay is £620,000. She also holds a US brokerage account worth $4 million, which pays about $90,000 a year in dividends. She becomes eligible for indefinite leave to remain on 1 September 2027 and can apply 28 days earlier, on 4 August 2027.
Rachel covers transatlantic clients and travels constantly. In the ten months to 31 January 2027 she expects 142 whole days outside Britain. Her bank then asks her to spend February and March 2027 in New York, a further 59 days. She assumes the posting will also reduce her UK tax.
What we found
We ran both calculations from one travel log. For the twelve months to 31 March 2027, the absences reached 201 days. That figure breaks continuous residence, so the five-year clock for indefinite leave to remain would restart. Meanwhile, the tax result did not improve. Rachel would still spend about 150 midnights in Britain in the 2026 to 2027 tax year. With a home, a family and a job here, she remains UK resident with a single tie.
The investment income told a similar story. Rachel's first UK tax year was 2022 to 2023, so her four years ended on 5 April 2026. She could claim the foreign income and gains regime for 2025 to 2026 only. From 6 April 2026, her US dividends of about £68,000 fall into UK tax at 39.35%. That is roughly £26,600 a year before credit for US tax, and she had not registered for Self Assessment.
We also reviewed her US file. Rachel had filed Form 1040 each year with the foreign tax credit, which was correct. However, she had opened a stocks and shares ISA in 2023 and placed £20,000 a year into UK index funds. Those funds were passive foreign investment companies, and no Form 8621 had been filed. Her FBARs had also left out the ISA.
What changed
The bank agreed to shorten the New York stay to 36 days. The rolling total fell to 178 days, inside the limit by two. Rachel registered for Self Assessment and reported the US dividends for 2026 to 2027. The treaty then set the order of credits, so the same income was not taxed twice in full. We amended the US returns for the funds, moved the ISA into direct shares and filed the missing account reports.
The numbers explain the stakes. A restart would have meant five more years of visas for four people, with health surcharges of £1,035 a year for each adult, and settlement fees of £12,904 at the end. More importantly, the family would have faced whatever longer route applies by then. Instead, Rachel applies for indefinite leave to remain in August 2027 with a tax record that matches her payroll record.
Losing Indefinite Leave to Remain: What a US Posting Does
The two-year rule on indefinite leave to remain
Indefinite leave to remain is indefinite only while you live here. Under article 13 of the Immigration (Leave to Enter and Remain) Order 2000, leave lapses when the holder stays outside the UK and Islands for a continuous period of more than two years. The government's guidance on indefinite leave puts it plainly: after two or more years away at a time, the status ends automatically.
This is the risk a US posting creates. A three-year assignment to New York, with no return to Britain, ends the status by operation of law. Nobody writes to tell you. The first you hear of it may be at the border. For an American family whose children have grown up in London, that outcome can be worse than any tax bill.
The Returning Resident visa
If the status has lapsed, the route back is a Returning Resident visa. You must show strong ties to the UK and explain why you lived abroad. The fee is £726, and partners and children apply separately. The evidence includes proof of income and of property owned or rented in Britain. In other words, the file looks very like the one HMRC would use to argue that you never left.
That overlap needs care. A family that keeps a London home, UK bank accounts and regular visits has good evidence of ties for the Home Office. However, the same facts are accommodation and family ties under the statutory residence test. Therefore, the stronger the case for returning, the weaker the case for non-residence may be.
The tax side of a US posting
On departure, a full-time job abroad normally brings split-year treatment, so UK tax on foreign income stops when you leave. To stay non-resident afterwards, an employee working full-time overseas must spend fewer than 91 days in Britain in the tax year and work here on fewer than 31 days. Our guide to split-year treatment for Americans covers the conditions in detail.
Visits create the tension. Each return trip interrupts the continuous absence that would end indefinite leave to remain. However, each return trip also adds UK days and possibly UK workdays. A settled American on a US posting must therefore plan visits against both limits at once. Additionally, a return to UK residence within five years of leaving can bring certain gains made abroad back into UK tax.
Meanwhile, the US position simplifies in one respect and hardens in another. A US salary is no longer foreign earned income, so the exclusion falls away. State tax returns begin on arrival. On the other hand, credits carried forward from the high-tax UK years may offset US tax on any income that remains foreign. The year of the move needs accurate US UK tax returns preparation on both sides.
Why some clients naturalise first
British citizenship removes the problem, because citizenship does not lapse through absence. A settled person can usually apply for citizenship twelve months after the grant, or at once if married to a British citizen. However, the travel limits are tighter. An applicant must not have spent more than 450 days outside the UK in the previous five years, or more than 90 days in the final twelve months.
Those limits catch frequent travellers who cleared the 180-day test comfortably. Consequently, an executive who wants a passport before a US posting may need a quieter travel year first. We explain the tax consequences of that later step in our guide to British citizenship and US tax.
Proposed Changes to Indefinite Leave to Remain in 2026 and 2027
What is law today
The rules described above are the rules in force in October 2026. The standard work route to indefinite leave to remain is still five years, and the 180-day absence limit is unchanged. One reform is confirmed. The government has announced a higher English standard for settlement, rising from GCSE level to A-level equivalent from March 2027. Most Americans will not find that test difficult.
What is only proposed
The larger reform is not yet law. In November 2025 the government published "A Fairer Pathway to Settlement" and consulted until 12 February 2026. It proposes a standard qualifying period of ten years, with reductions for contribution. The consultation page still says the feedback is being analysed. A House of Commons Library briefing reports that the Home Secretary told MPs on 15 September 2026 that final decisions would come very soon, with the policy published later in the year.
The proposed reductions read like a tax table. An applicant with taxable income of £125,140 for the three years before applying could settle after three years. An applicant with taxable income of £50,270 for the same period could settle after five. Those figures match the additional and higher rate thresholds. Partners of British citizens would keep a five-year route. The government also proposed applying the model to everyone who does not yet hold indefinite leave to remain.
How to plan while the rules are unsettled
Nobody should treat those proposals as settled. Nevertheless, three sensible steps follow. First, if you qualify under the current rules, apply at the earliest date and do not let absences push that date back. Second, keep your UK taxable income clearly evidenced each year through PAYE and Self Assessment, since the proposed tests rely on it. Third, clear any UK tax debt, because the proposals list it as a bar.
Timing matters for a further reason. A broken qualifying period today restarts under whatever rules apply tomorrow. Therefore, an avoidable breach of the 180-day limit in 2026 could mean a much longer wait than five more years. That risk alone justifies a careful day count.
How TaxYork Can Help
TaxYork provides comprehensive tax preparation and compliance for Americans in Britain. For a client approaching indefinite leave to remain, we build one day-count record and test it against the Home Office absence limit, the statutory residence test and the US presence rules. We then prepare the UK Self Assessment returns that report worldwide income once the four-year regime ends, so your HMRC record supports the application.
Furthermore, we prepare the US side in the same engagement. That work covers Form 1040, foreign tax credit calculations, FBARs, Form 8938 and Form 8621 for any UK funds. Where returns or reports have been missed in either country, we bring them up to date before the application date. Our cross-border planning service also models a US posting in advance, so you know what it does to your tax residence and your status. Our clients are investors, investment bankers and company owners.
Conclusion
Indefinite leave to remain is an immigration status, and neither HMRC nor the IRS taxes you differently because of it. However, the road to it runs straight through your tax file. The Home Office counts whole days abroad over rolling twelve months, while HMRC counts UK midnights in a tax year. Heavy travel can therefore leave you fully taxed in Britain and still short of settlement. Meanwhile, the four-year foreign income and gains regime normally expires first.
Afterwards, the risks change shape. US filing continues every year, UK funds and ISAs create passive foreign investment company exposure, and a long US posting can end the status altogether. Additionally, the settlement rules themselves may change within months. Ultimately, the Americans who settle smoothly are the ones who keep one accurate travel log, file in both countries every year, and check each large decision against both systems first.
Contact Us
If you expect to apply for indefinite leave to remain in the next two years, or you hold it and face a move abroad, speak to us before you commit to travel or a posting. You can book a consultation with our US-UK team, email hello@taxyork.com, or call 020 3488 8606. We will review your day counts, your UK and US filing history, and the tax cost of each option.
Written by the TaxYork Expert Team — US-UK tax specialists.
Disclaimer
This article provides general information only and reflects UK and US rules as understood in October 2026. It is not legal, immigration or tax advice for your circumstances. Immigration decisions rest with the Home Office, proposed changes to settlement may be amended or withdrawn, and tax outcomes depend on your full facts. Always obtain professional guidance from a qualified specialist before you file a return or apply for indefinite leave to remain.