Introduction: L-1 Visa Tax and the British Executive
L-1 visa tax is the combined US and UK tax position of an employee whom a British company transfers to its American office on an L-1 intracompany visa. The visa itself carries no special tax status. However, the way the transfer is structured decides almost everything: when US residency starts, whether you pay US Social Security, whether your UK pension keeps its tax shelter, and how much HMRC can still claim.
Most guides to L-1 visa tax are written for a global audience. They explain the substantial presence test and stop. As a result, they miss the points that matter most to a senior British transferee: the US-UK totalisation agreement, the pension article of the tax treaty, the UK split-year rules and the trailing UK tax on bonuses and share awards. Those points routinely move six-figure sums.
This guide covers all of them with 2026 figures and a worked example. At TaxYork, we prepare US and UK returns for executives, bankers and company owners moving in both directions, so we see each transfer from both sides of the Atlantic.
What L-1 Visa Tax Actually Covers
The L-1 has two categories. The L-1A is for executives and managers, and the L-1B is for employees with specialised knowledge. Under the USCIS rules for L-1A transferees, you must have worked for the group abroad for one continuous year in the previous three. The initial stay is up to three years, or one year for a new office, and extensions run to a maximum of seven years. For L-1B specialised knowledge workers, the limit is five years.
Those limits matter for L-1 visa tax. Specifically, the five-year ceiling on the social security certificate, the five-year UK temporary non-residence rule and the L-1 clock all interact. Therefore, the length of your assignment is a tax decision as well as an immigration one.
Secondment or Local Hire: The First Decision
Every transfer takes one of two forms. In a secondment, you remain employed by the UK company and are assigned to the US affiliate, often staying on UK payroll and in the UK pension scheme. In a local hire, your UK employment ends and the US company employs you directly. Both work for immigration purposes. However, the L-1 visa tax result differs sharply, as the sections below explain.
When You Become a US Tax Resident on an L-1
Your visa does not decide your US tax residency. Your days do, and they set the starting point for every L-1 visa tax calculation.
The Substantial Presence Test
Under the IRS substantial presence test, you are a US resident for tax if you are present for at least 31 days in the current year and 183 days under a weighted formula. That formula counts every day in the current year, one third of the days in the previous year and one sixth of the days in the year before. Unlike students and some exchange visitors, an L-1 holder is not an exempt individual. Consequently, every day counts from your first arrival.
Your Residency Starting Date
In the year you arrive, residency usually begins on your first day of presence, not on 1 January. The IRS guidance on residency starting and ending dates also lets you disregard up to ten days of earlier presence, such as a house-hunting trip, if you kept a closer connection to the UK during those days. Therefore, a short visit in the spring need not drag your starting date forward.
Before that date you are a nonresident alien, taxed only on US-source income. After it, the IRS taxes your worldwide income. This creates a dual-status year, which we explain in detail in our guide to the dual-status tax year for US-UK movers. The IRS summary of dual-status taxation sets out the restrictions, including the loss of the standard deduction.
Arriving Late in the Year
Timing produces an L-1 visa tax planning opportunity. If you arrive after early July, you cannot reach 183 days in that calendar year. As a result, you remain a nonresident alien for the whole year unless you elect otherwise, and the IRS taxes only your US-source salary. Worldwide taxation then starts on 1 January.
Alternatively, you can make the first-year choice to be treated as resident from your arrival. That election mainly helps married transferees who want to file jointly. Our guide to the first-year choice election explains when it pays. For most single executives with UK investments, however, staying nonresident for the arrival year is the better L-1 visa tax outcome.
The Pre-Arrival Window
The period before your residency starting date is the most valuable part of L-1 visa tax planning. The United States gives no step-up in basis when you become resident. Therefore, a gain that built up over ten years in London becomes fully taxable in America if you sell after your starting date. Selling beforehand, receiving a bonus early, or exercising share options before you move can each remove income from the US net. Our guide to pre-immigration tax planning for Britons moving to the US covers the full checklist.
Social Security: The Certificate of Coverage Decision
Social security is where the secondment and the local hire part company. It is also the area in which generic L-1 visa tax guides are most often wrong for British readers.
The Default: FICA From Day One
Without relief, the default L-1 visa tax rule is that an L-1 employee pays US FICA on all wages for US work. For 2026, that means 6.2% Social Security tax on wages up to $184,500, plus 1.45% Medicare tax on all wages and a further 0.9% above $200,000. The employer pays 7.65% on the same base, without the additional 0.9%.
How the Totalisation Agreement Changes It
The US and the UK have a social security agreement. Under its detached worker rule, an employee whom a UK employer sends to work in America for five years or less stays in the UK National Insurance system only. The IRS explains the principle on its totalization agreements page, and the Social Security Administration's guide to the UK agreement sets out the detail.
The exemption is not automatic, and it is the most frequently missed L-1 visa tax relief. Your UK employer must apply to HMRC using form CA9107 for a certificate of continuing liability, and the US payroll must hold the certificate. Furthermore, it only works where you remain employed by the UK company. A local hire by the US affiliate is covered in America and pays FICA. HMRC's guidance on paying employees who work abroad, updated in July 2026, confirms the process for agreement countries.
What the Certificate Is Really Worth
Many guides present the certificate as an obvious saving. The arithmetic is more nuanced. Take an executive earning £400,000, or about $540,000 at $1.35. Under FICA, the employee pays roughly $22,300. Under UK National Insurance, at 8% between £12,570 and £50,270 and 2% above, the employee pays about £10,000, or $13,500. Therefore, the certificate saves the employee around $8,800 a year.
The employer's position is the reverse. US employer FICA on that salary is about $19,300. In contrast, UK employer National Insurance at 15% above £5,000 is about £59,250, or $80,000. Consequently, the certificate costs the group roughly $60,000 a year more than a local hire. In practice, this part of the L-1 visa tax decision turns on your UK State Pension record, the planned length of the assignment and who bears the cost.
Protecting Your UK State Pension Without a Certificate
If you become a local hire, your UK contributions stop. Since 6 April 2026, people abroad can no longer pay cheap voluntary Class 2 contributions. Instead, you need Class 3 contributions at £17.75 a week, and new applicants must show ten years of UK residence or contributions. HMRC's page on National Insurance if you go abroad explains the routes. US credits can also count towards UK entitlement under the agreement, so the gap is rarely fatal.
Your UK Pension and the Treaty
A British executive on an L-1 usually wants to stay in the UK workplace pension. The treaty allows it, and the relief is one of the most valuable in L-1 visa tax planning, but only if you claim it correctly.
Article 18(2): Contributions Stay Tax-Free
Under Article 18(2) of the US-UK income tax treaty, contributions paid by you or your employer to a UK pension scheme while you work in America are deductible or excludable in computing your US taxable income. Benefits building up in the scheme are also outside US tax during that period. Without this article, the IRS would treat employer contributions to a foreign plan as taxable compensation.
Two conditions apply under Article 18(3). First, contributions to the scheme must have started before you began working in the US. Second, the scheme must generally correspond to a US plan, which registered UK workplace pensions do. Moreover, the relief cannot exceed what a US resident would receive for a US plan. For 2026, the IRS has set the 401(k) employee deferral limit at $24,500, so personal contributions above that figure lose protection.
Claiming the Relief and the Green Card Trap
You claim the treaty position on your US return and disclose it on Form 8833. Your US payroll should also exclude the employer contribution from taxable wages.
There is an L-1 visa tax trap that very few guides mention. Article 18(2) sits in the group of treaty benefits that the United States withholds from its own citizens and green card holders. Therefore, the day you obtain a green card, the protection for ongoing UK pension contributions ends. Many L-1A executives move to permanent residence through the multinational manager category. If you do, review your pension arrangements first.
The UK Side of Pension Saving
On the UK side, your annual allowance is still £60,000, tapered to as little as £10,000 for the highest earners. However, once you are non-resident with no UK-taxable earnings, tax relief on personal contributions is limited to £3,600 gross a year. Consequently, employer contributions are usually the efficient route during an assignment.
State Tax Does Not Follow the Treaty
Federal treaty relief does not bind the states, so your L-1 visa tax bill depends on where you live. New York starts from federal adjusted gross income, so the exclusion generally flows through. California, however, does not follow the treaty, as we explain in our guide to California tax and UK pensions. A transferee in San Francisco therefore pays state tax on employer contributions and on growth inside the UK scheme.
What HMRC Still Taxes After You Leave
Leaving Britain does not end your UK tax exposure. Understanding the trailing liabilities is central to L-1 visa tax planning.
Becoming Non-Resident Under the Statutory Residence Test
Most L-1 transferees leave UK residence under the full-time work overseas test in HMRC's Statutory Residence Test guidance. Broadly, you must work an average of at least 35 hours a week overseas across the tax year, spend fewer than 91 days in the UK and work more than three hours on fewer than 31 UK days. Split-year treatment then divides the year of departure, so HMRC taxes your overseas earnings only up to the day you leave. Our guide to UK split-year treatment walks through the cases.
Notably, the UK workday limit is easy to breach, and breaching it rewrites your L-1 visa tax position. A London board meeting each month, plus a few days' work during visits home, can exceed 30 UK workdays. Therefore, keep a diary from the day you leave.
PAYE, Form P85 and the NT Code
If you stay on UK payroll, your employer must keep deducting PAYE until HMRC says otherwise. You should send form P85 to HMRC when you leave. HMRC can then issue an NT code, which tells the employer to stop deducting UK income tax. Without it, you suffer UK and US withholding on the same salary and wait months for a refund.
Meanwhile, the US side of your L-1 visa tax needs its own withholding. Salary for work performed in America is US-source wages, even when a UK company pays it into a UK bank account. Most groups handle this through a shadow payroll, which we explain in our guide to shadow payroll for US-UK executives.
Bonuses and Share Awards Earned in Britain
A bonus paid after you move, but earned for a period of UK work, remains taxable in the UK. Similarly, HMRC taxes the UK-workday share of restricted stock units and options that vest after departure, usually measured from grant to vest. Meanwhile, once you are a US resident, the IRS taxes the whole award at vesting.
For L-1 visa tax purposes, the foreign tax credit resolves most of the overlap, because the UK-workday portion is foreign-source income. However, the credit cannot exceed the US tax on that portion, and states such as New York give no credit for foreign country tax. Our guide to cross-border RSU tax covers the sourcing calculation. For transferees on a tax equalisation policy, the employer bears these costs, as our guide to tax equalisation and hypothetical tax explains.
Your UK Home and Rental Income
If you let your UK home, the rent remains taxable in Britain, and your agent or tenant must withhold basic rate tax unless HMRC approves gross payment under the non-resident landlord scheme. HMRC explains the rules on its page about tax on UK rental income if you live abroad. The same rent is taxable in the US once you are resident, with depreciation over 30 years for a foreign residential property and a credit for the UK tax.
The Five-Year Temporary Non-Residence Rule
Gains you realise while non-resident are usually outside UK capital gains tax, apart from UK property. However, if you return to the UK within five years, HMRC taxes gains on assets you owned before you left in the year you come back. We cover the detail in our guide to temporary non-residence. Because many L-1 assignments last three to five years, this rule catches a large share of transferees and belongs in every L-1 visa tax plan.
Reporting Your UK Accounts and Investments to the IRS
Once you are a US resident, your British financial life becomes a US reporting matter. This part of L-1 visa tax compliance generates the largest penalties.
FBAR and Form 8938
You must file an FBAR through FinCEN's BSA E-Filing system if your non-US accounts exceed $10,000 in total at any point in the year. That includes UK current accounts, savings, ISAs and pensions. In addition, Form 8938 applies at lower thresholds for US residents than for Americans abroad: $50,000 at year end or $75,000 at any time for a single filer. The IRS comparison of Form 8938 and FBAR requirements shows the overlap.
ISAs, UK Funds and the PFIC Rules
Your ISA loses its shelter the day you become a US resident, a point that general L-1 visa tax guides rarely cover. The IRS taxes the interest, dividends and gains inside it. Furthermore, UK funds, investment companies and exchange-traded funds held in an ISA or general account are usually passive foreign investment companies, which carry punitive US tax and an annual Form 8621. Therefore, review every UK fund holding before your residency starting date. Selling beforehand is often the simplest fix.
UK Companies You Own
If you hold 10% or more of a UK company, US residency can bring Form 5471 and the controlled foreign corporation rules. This often surprises executives with a family company or a personal service company left running in Britain. In our experience, it is the most commonly missed filing among L-1 arrivals.
The Green Card, the L-2 Spouse and the Way Home
The end of an L-1 assignment matters as much as the start. Three events change your L-1 visa tax position.
Moving From L-1A to a Green Card
A green card makes you a US tax resident regardless of your days. It also ends the Article 18(2) pension relief described above, and it starts the clock on the US expatriation rules. Specifically, a green card holder who has been a lawful permanent resident in eight of the last fifteen tax years is a long-term resident, and giving up the card can then trigger the US exit tax. Consequently, an executive who expects to return to London should weigh the green card carefully.
Your L-2 Spouse
A spouse on L-2 status is authorised to work in the US. For tax, your spouse is tested separately under the substantial presence test. If one of you is resident and the other is not at year end, you can elect to file jointly as full-year residents. That election brings worldwide income for both of you into the US net, so model the L-1 visa tax effect before you file.
Returning to the UK
When you leave America, your residency normally ends on your last day of presence, provided you establish a closer connection to the UK for the rest of the year. You then file another dual-status return. In addition, check the UK temporary non-residence rule against your return date, and time any large disposals with both countries in mind. Our guide to the UK Statutory Residence Test explains how UK residence resumes.
Case Study: A London COO Transferred to New York
The following illustration uses realistic figures to show how L-1 visa tax planning works in practice.
The Facts
Olivia is the chief operating officer of a London fintech group. She is a British citizen, single, with a salary of £400,000, or about $540,000. Her employer transfers her to its New York subsidiary on an L-1A visa for three years, starting on 1 September 2026. She stays on her UK contract with a certificate of coverage, and her employer continues to pay £10,000 a year into her UK pension.
Olivia also has restricted stock units granted in March 2024 that vest in March 2027, worth $300,000. In addition, she owns a share portfolio with a built-in gain of £200,000, or $270,000, and a £250,000 ISA invested in UK funds.
The Arrival Year
Olivia is present for 122 days in 2026, so she fails the substantial presence test and remains a nonresident alien. The IRS taxes only her US-source salary of about $180,000 for those four months, reported on Form 1040-NR. Her UK employer obtains an NT code after she files form P85, and a shadow payroll handles US withholding.
Before 31 December 2026, she sells the share portfolio and the UK funds in her ISA. As a nonresident alien, she pays no US tax on those gains. Had she sold in 2027, the federal tax at 23.8%, including the net investment income tax, would have been about $64,300 on the portfolio alone, plus New York state and city tax of roughly 10.7%. In the UK, the gain falls in the overseas part of a split year. It becomes chargeable at 24% only if she returns within five years, and then it would be the only tax on the gain.
The First Resident Year
In 2027, Olivia is a US resident. Her certificate of coverage keeps her out of FICA, saving her about $8,800. Her employer's £10,000 pension contribution is excluded from her US income under Article 18(2), disclosed on Form 8833.
When her share award vests, 30 of the 36 months since grant were worked in Britain. HMRC therefore taxes about $250,000 at 45%, or $112,500. The IRS taxes the full $300,000 at 37%, or $111,000, but allows a credit of up to $92,500 against the tax on the UK-workday portion. She pays US federal tax of $18,500 on the award, and carries forward $20,000 of unused credit. However, New York taxes the whole $300,000 with no credit for UK tax, costing about $32,000.
What the Planning Achieved
Without planning, Olivia would have sold her portfolio as a US resident and paid about $93,000 of US federal, state and city tax, with the risk of UK tax on top after her return. She would also have held PFICs in her ISA, paid FICA and been taxed on her employer's pension contributions. Instead, her L-1 visa tax position was settled before she boarded the flight.
How TaxYork Can Help
We prepare US and UK tax returns for British executives throughout a US assignment, and L-1 visa tax work is a core part of that. Our work joins the two systems rather than treating them separately.
Before You Transfer
Before you move, we model the secondment and local hire options, fix your residency starting date, and identify gains, bonuses and share awards to accelerate. We also review your ISA, funds and company interests, and set up the treaty pension claim. This sits within our wider tax treaty optimisation work.
During and After the Assignment
Each year, we handle your L-1 visa tax compliance: your US federal and state returns, your FBAR and Form 8938, and your UK Self Assessment return where one is needed. We also reconcile shadow payroll, claim foreign tax credits on share awards and plan your return to Britain. For Britons on other visas, see our guides to H-1B visa tax and E-2 visa tax.
Conclusion
L-1 visa tax is not a single rule. It is the result of several decisions that British transferees usually make without specialist input: secondment or local hire, arrival date, certificate of coverage, pension participation and the timing of disposals. Each one moves real money, and several cannot be reversed once you are resident.
Therefore, plan before you travel. Fix your residency starting date, decide who bears the social security cost, claim Article 18(2) for your UK pension, and deal with ISAs and UK funds while you are still a nonresident. Handled that way, your L-1 visa tax position becomes predictable in both countries.
Contact Us
If your employer is transferring you to the United States, speak to us before your start date. Book a consultation with our US-UK specialists to review your L-1 visa tax position. You can also email hello@taxyork.com or call 020 3488 8606.
Disclaimer
This article provides general information about L-1 visa tax for British executives and other employees transferring from the UK to the United States. It does not constitute tax, legal or immigration advice for your specific circumstances. UK and US tax rules change frequently, and the case study is illustrative only. You should obtain professional advice based on your own facts before acting. TaxYork accepts no liability for decisions taken on the basis of this article alone.