Introduction: Monaco Residency Does Not Change What a US Citizen Owes the IRS
Monaco residency removes local income tax and, done properly, most UK tax, but it leaves a US citizen's worldwide tax bill fully intact. The Principality has charged no personal income tax since 1869, and it levies no capital gains tax or wealth tax either. For wealthy Britons, that is the whole story. For Americans, however, it is only half of it, because the United States taxes citizens wherever they live.
Monaco Residency Solves a UK Problem, Not a US One
Monaco residency is usually sold as a move to zero tax. In reality, an American who leaves London for Monte Carlo swaps two tax systems for one. The UK layer falls away once you break UK residence, yet the US layer continues unchanged. Moreover, the UK tax that used to generate foreign tax credits disappears, so the IRS bill that those credits once covered becomes payable in cash. Consequently, the saving is real, but it is the difference between UK and US rates, not the whole of your current bill.
Who Should Read This
This guide is for US citizens and green card holders who live in the UK and are considering Monaco residency. In particular, it suits retiring partners, investors and business owners whose income comes mainly from portfolios, pensions and company holdings. At TaxYork, we prepare US and UK returns for clients making this move, and the same three surprises recur. First, there is no UK-Monaco tax treaty. Second, there is no US-Monaco treaty of any kind. Third, most relocation guides never mention either point.
How Monaco Residency Works for a US Citizen
The Principality grants Monaco residency by permit, not by purchase. Therefore, you need to satisfy the authorities on accommodation, resources and character before any tax planning matters.
The Permit Process in Brief
As a non-EEA national, you first obtain a French long-stay visa, because France handles the Principality's visa formalities. If you live in London, you apply through the French consular service there. Next, you apply in Monaco for a carte de séjour and attend an interview. You must show a home in the Principality, either bought or rented for at least a year. You must also show sufficient resources, which in practice means a letter from a Monaco bank, and most banks expect a deposit of around €500,000 or more. Finally, you provide police certificates for the countries where you lived in the last five years.
Permit Types and the 183-Day Point
The first card is temporary and lasts one year. After three years, you move to an ordinary card valid for three years, and after ten years you may receive a privileged card valid for ten. However, holding a Monaco residency card is not the same as being tax resident. The Principality issues a tax residence certificate only if you spend more than 183 days a year there or keep your main centre of activity there. Notably, the card helps you very little with HMRC or the IRS on its own.
What Monaco Itself Taxes
Individuals pay no income tax, no capital gains tax and no annual property tax. French nationals are the single exception, under a 1963 convention with France. Businesses are different. A company that earns more than 25% of its turnover outside the Principality pays business profits tax at 25%. Additionally, VAT follows the French system at 20%, and residential leases carry a 1% registration duty. Therefore, an individual investor with Monaco residency pays almost nothing locally, while an active international business does not.
The US Side of Monaco Residency: Nothing Switches Off
The United States taxes by citizenship. As a result, Monaco residency changes your address on Form 1040 and nothing else. You still report worldwide income, you still file by 15 June with interest running from 15 April, and you still face the full set of international information returns.
No Treaty, No Totalisation, No FATCA Agreement
The Principality does not appear on the IRS list of United States income tax treaties. Furthermore, it is absent from the IRS list of totalization agreements, so no agreement coordinates social security. It is also missing from the Treasury's list of FATCA intergovernmental agreements. Consequently, Monaco banks deal with the IRS directly under the FATCA regulations, and many private banks restrict what they offer to US persons. The two countries do share a tax information exchange agreement, so the IRS can request data on specific taxpayers.
Why the Foreign Earned Income Exclusion Rarely Helps
The foreign earned income exclusion is $132,900 for 2026 under Revenue Procedure 2025-32. However, it only covers earned income, such as salary or self-employment profit. Most people who take up Monaco residency live on dividends, interest, gains and pensions, and section 911 excludes none of those. Therefore, for a typical investor, the exclusion is worth nothing at all.
Even for those who work, the housing exclusion disappoints. IRS Notice 2026-25 lists higher housing limits for expensive cities, including $68,600 for London. The Principality is not on that list. Consequently, the default limit of $39,870 applies, and after the $21,264 base amount, the most you can exclude is $18,606. In a market where a family apartment commonly rents for well over €10,000 a month, that figure is trivial.
Investment Income With No Credits
In London, UK tax at up to 39.35% on dividends and 45% on interest usually exceeded your US tax, and the foreign tax credit absorbed most of the IRS bill. After you take Monaco residency, there is no local tax to credit. As a result, you pay US tax of up to 20% on qualified dividends and long-term gains, up to 37% on interest, plus the 3.8% net investment income tax. Importantly, old UK credit carryforwards rarely rescue you. Carryforwards only offset foreign-source income in the same basket, and US-source portfolio income does not qualify.
Monaco Banks, Funds and PFIC Exposure
A local bank account is effectively compulsory for Monaco residency. However, private banks in the Principality typically build portfolios from European funds, and almost every non-US fund is a passive foreign investment company for US purposes. Each holding then needs its own Form 8621 and can attract punitive tax. Therefore, tell the bank at the outset that you are a US person, and keep the deposit in cash or US-compliant securities. For background, Investopedia explains passive foreign investment companies clearly.
Leaving the UK Without a Treaty Safety Net
The UK and Monaco have only a tax information exchange agreement, which entered into force in 2015, as the government's page on Monaco tax treaties confirms. There is no double taxation convention. Consequently, there is no tie-breaker article, and UK domestic law alone decides your position.
The Statutory Residence Test Is the Only Test
With a treaty country, a dual resident can rely on a tie-breaker. Monaco residency offers no such fallback. Here, by contrast, failing the UK test means you are simply UK resident on worldwide income. HMRC's RDR3 guidance on the statutory residence test sets the rules. If you were UK resident in any of the previous three tax years, you are automatically non-resident only with fewer than 16 UK days, or by working full-time abroad. Otherwise, your day limit depends on your UK ties. A retiring partner with a UK home, a spouse in London and a 90-day history has very few days to spend. Therefore, most clients securing Monaco residency must also give up or let their UK home.
Split-Year Treatment in the Year You Go
Without split-year treatment, you remain UK resident for the whole tax year in which your Monaco residency begins. Retirees and investors usually rely on Case 3, which requires you to stop having any UK home and then spend fewer than 16 days in the UK for the rest of that year. Additionally, you must establish a sufficient link with the new country within six months, which the permit and lease help to prove. We explain each case in our guide to split-year treatment for Americans.
The Five-Year Rule on Returning
If you were UK resident in four of the seven years before leaving and you return within five years, the UK taxes certain gains and income in the year you come back. In particular, gains on assets held at departure and flexible pension withdrawals are caught. Consequently, Monaco residency only delivers UK-free disposals if you stay away for more than five full years. Our article on temporary non-residence for Americans sets out what is caught.
UK Income You Still Receive After Taking Monaco Residency
Because no treaty applies, each type of UK income follows UK domestic rules for non-residents. Some of those rules are generous to people with Monaco residency, and one is not.
UK Dividends and Interest: The Disregarded Income Rule
Under section 811 of the Income Tax Act 2007, a non-resident's UK tax on dividends and interest is limited to tax deducted at source. Because UK dividends and most bank interest are paid gross, that limit is usually nil. The price is losing the personal allowance. However, US-only nationals living outside the UK and the EEA do not qualify for the personal allowance for non-residents anyway, so they give up nothing. Our guide to filing a UK tax return from abroad walks through the calculation.
UK Pensions: The Treaty Gap That Costs Money
Here the lack of a treaty makes Monaco residency more expensive than most people expect. A pension from a UK registered scheme remains UK-source income, and HMRC explains on its page about tax on your pension when you live abroad that it may still be taxed in Britain. A UAE or US resident can usually claim treaty exemption. A Monaco resident cannot. Moreover, the US-UK treaty does not help either. Under Article 4(2) of the US-UK income tax treaty, a US citizen is a US treaty resident only with a substantial presence, permanent home or habitual abode in the United States. An American settled in Monte Carlo normally has none of those.
Consequently, SIPP drawdown continues to suffer UK tax at 20%, 40% and 45%, with no personal allowance for a US-only national. The IRS taxes the same withdrawal. However, the UK tax is generally creditable against the US tax on that income, so the pension is one of the few items that stays double-taxed but relieved. Our guide to flexi-access drawdown for Americans covers the US treatment.
UK Property and Rent
UK rental income stays taxable in Britain, and your agent withholds basic-rate tax under the non-resident landlord scheme unless HMRC approves gross payment. From 6 April 2027, property income rates rise to 22%, 42% and 47%. Furthermore, any disposal of UK land must be reported within 60 days under the rules for non-residents selling UK property. On the US side, the rent goes on Schedule E, and the UK tax is creditable.
UK Shares and Other Gains
Non-residents generally pay no UK capital gains tax on shares and funds. Therefore, once you have Monaco residency and have left the UK net, a portfolio sale carries only US tax, subject to the five-year rule above. The IRS, however, taxes the gain at up to 23.8%, and no credit reduces it.
Working or Running a Business From Monaco
Not everyone with Monaco residency retires. Some Americans keep consulting, sit on boards or run companies from the Principality, and each route has a US consequence.
Self-Employment Without a Totalisation Agreement
Because no totalisation agreement exists, a self-employed American with Monaco residency owes US self-employment tax of 12.4% up to the Social Security wage base and 2.9% Medicare on all net earnings. Additionally, the Principality charges its own social contributions on local activity. Consequently, you can pay into two systems on the same profit, which never happened in Britain under the US-UK agreement.
A Monaco Company and the CFC Rules
If you own more than 50% of a Monaco company, it is a controlled foreign corporation, and its profits fall into net CFC tested income each year. The outcome depends on where its customers are. A company earning over 25% of turnover abroad pays 25% business profits tax, which exceeds the 18.9% threshold for the high-tax exclusion. By contrast, a company trading only locally pays nothing, so its profits are taxed to you in the US as they arise. A section 962 election, reported with Form 8993, reduces the rate to an effective 12.6%. Therefore, check the turnover mix before you incorporate.
UK Directorships and Workdays
Fees for UK board meetings remain UK-source employment income and stay taxable in Britain. Moreover, each UK workday counts towards the 31-day limit in the full-time work abroad test, and extra UK days erode your allowance under the ties test. Consequently, a non-executive role in London can undo the UK side of Monaco residency unless you count days carefully.
Monaco Residency Compared With Dubai and Timing the Move
Americans leaving London usually weigh the Principality against the Gulf. The local tax result is the same, but the treaty position is not, and timing matters in both.
Where the Two Destinations Differ
The UAE has a full double taxation convention with the UK, so a UK pension can be paid free of UK tax and a tie-breaker resolves dual residence. Monaco residency offers neither. On the other hand, the Principality is a short flight from London, which makes the UK day count harder to control, not easier. Furthermore, the UAE has a FATCA agreement with Washington, whereas Monaco banks contract with the IRS individually. Consequently, account opening for a US person tends to be slower and narrower in the Principality.
What to Do Before You Leave London
The best time to plan is six to twelve months before Monaco residency begins. First, decide which disposals belong before departure and which after, bearing in mind the five-year rule. Second, review share awards and deferred pay, because amounts earned for UK workdays stay UK-taxable when paid later. Third, regularise any missed US filings while your UK records are to hand. Finally, fix your departure date around the UK tax year, since a clean break before 6 April often simplifies both returns.
FBAR, Form 8938 and Missed Reporting From Monaco
Your reporting burden grows in the first year of Monaco residency, because you add Monaco accounts while keeping UK ones.
What You Must File
You file an FBAR if your foreign accounts together exceed $10,000 at any time, as the FinCEN FBAR guidance explains. Separately, Form 8938 applies to Americans living abroad above $200,000 at year-end or $300,000 at any time for single filers, and double those figures for joint filers. The IRS sets out the differences in its comparison of Form 8938 and FBAR requirements. The €500,000 permit deposit alone breaches both thresholds.
Why Old Gaps Surface Now
Monaco banks ask for a Form W-9 and your US taxpayer number at account opening. Similarly, a UK departure return often prompts a review of earlier years. In our experience, this is when missed FBARs, unreported ISAs and overlooked UK pensions come to light. Therefore, it is far cheaper to correct past filings before you move than to explain them afterwards. Our FBAR and FATCA reporting service covers both current and catch-up filings.
Case Study: A Retiring Partner Takes Monaco Residency
The following illustrative case shows Monaco residency in realistic figures. Names and details are fictional, and we assume $1.317 to the pound.
The Facts
Caroline, 54, holds US citizenship only. She spent 14 years as a partner at a London private equity firm and retired in early 2026. She gave up her rented Kensington flat on 1 March 2026, moved to Monte Carlo and obtained her carte de séjour. Her US brokerage account produces $270,000 a year of dividends and interest. Additionally, she owns UK shares worth £1.2 million paying £48,000 of dividends, with an unrealised gain of £400,000. Her SIPP is worth £1.6 million, and she plans to draw £80,000 a year from 2027.
The UK Position
Caroline claimed split-year Case 3 for 2025/26 and kept her UK days under 16 for the rest of that year. From 2026/27, her UK dividends are disregarded income, so UK tax on them is nil. Her pension is different. On £80,000 of drawdown with no personal allowance, UK tax is £24,460, being 20% on £37,700 and 40% on £42,300. No treaty removes that charge.
The US Position
Caroline has no earned income, so the foreign earned income exclusion gives her nothing. Her investment income totals about $333,000, including the UK dividends. In London, the combined UK and US burden on that income was roughly 43%. In Monaco, it is 23.8%, which saves about $64,000 a year. On the pension, the UK tax of about $32,200 is creditable, so little extra US tax arises on the drawdown.
The Disposal and the Result
Caroline wants to sell her UK shares. Selling in London would have cost £96,000 of UK tax plus about $20,000 of US net investment income tax, roughly $146,000 in total. Selling as a Monaco resident costs US tax of about $125,000, a saving of around $21,000. However, that saving survives only if she stays non-resident for more than five full tax years. Meanwhile, her €1 million bank deposit stays in cash and US-listed securities, and she files FBAR, Form 8938 and a UK non-resident return each year. Overall, Monaco residency cuts her annual tax by roughly $64,000, not to zero.
How TaxYork Can Help
We prepare US and UK returns together for clients taking up Monaco residency, so the departure year agrees in both countries. Specifically, our team prepares the split-year claim, the non-resident UK return and the disregarded income computation. Furthermore, we prepare Form 1116 for UK tax on pensions and rent, Form 8621 for any foreign funds, and FBAR and Form 8938 for every account. For annual filings, our US tax returns for expats service covers the full Form 1040 package. For pension and residence positions, our tax treaty optimisation team reviews what the US-UK treaty still protects. If you are comparing destinations, our guide to moving to Dubai as a US citizen shows how a treaty country differs. Above all, we provide comprehensive tax preparation and compliance, with every form filed accurately and on time.
Conclusion
Monaco residency removes UK tax on most investment income and all local tax, but it removes nothing from your US return. Therefore, the real saving for an American is the gap between UK and US rates, less the cost of pensions that stay UK-taxed and housing that no exclusion covers. Because no UK-Monaco treaty exists, the statutory residence test must be passed on its own terms, and the five-year rule must be respected. Because no US-Monaco agreement exists either, banking, social security and company structures all need a US review first. Handled carefully, the move still produces a substantial and lawful reduction. Handled casually, however, it produces unexpected UK residence, PFIC charges and reporting failures.
Contact Us
If you are weighing Monaco residency, speak to us before you give notice on your UK home. Email hello@taxyork.com, call 020 3488 8606, or book a consultation with our US-UK team today.
Disclaimer
This article provides general information about US, UK and Monaco tax rules as they stand at the date of publication and does not constitute tax, legal or financial advice. Tax outcomes depend on individual circumstances, and the rules change frequently. Figures in the case study are illustrative only. You should obtain professional advice tailored to your situation before acting on any information in this article. TaxYork accepts no liability for any loss arising from reliance on this content.