Introduction: Pre Immigration Tax Planning Runs on a Single Date
Effective pre immigration tax planning turns on one date: the day you become a US tax resident. Before that date, America taxes almost nothing you own. After it, America taxes your worldwide income, your UK funds and your British company.
The window is therefore narrow and absolute. Furthermore, almost every worthwhile step must happen before that date rather than after it. No amount of skill recovers a step missed by a week.
At TaxYork we prepare returns on both sides of the Atlantic for wealthy Britons making this move. Our clients are founders, fund professionals, executives and investors. This guide covers the income and capital gains side of the move in detail. Consequently, it sets out what to do and when. It also shows which British arrangements stop working the moment you land.
What Pre Immigration Tax Planning Must Fix Before You Land
America uses two residency tests, and they run independently. Understanding which one catches you decides your entire timetable.
Pre Immigration Tax Planning Starts With the Residency Start Date
Take the substantial presence test first. Residency generally begins on the first day you are physically present in America, in the calendar year you meet that test. The IRS rules on residency starting dates confirm the point directly.
Green card holders face a different trigger. Residency begins on the first day in the calendar year on which you are present as a lawful permanent resident. Where both tests apply, the earlier date wins.
The Ten-Day Exception Worth Knowing
Section 7701(b) contains a small but useful relief. Up to ten days of presence may be disregarded in fixing your residency start date. You must have maintained a closer connection to Britain during those days. Publication 519 sets out the conditions.
House-hunting trips therefore need care rather than avoidance. Notably, those disregarded days still count toward the substantial presence day count itself, which surprises people.
The First-Year Choice, and When Not to Make It
Arriving late in the year can leave you short of the day count. The first-year choice allows an election into resident status from the first day of a qualifying 31-day period. You must also be present for at least 75% of the days from that point to year end.
Making the election is rarely automatic. It pulls forward worldwide taxation, so we model it against the alternative rather than assuming it helps.
Realising Gains Before the Clock Starts
Why the Basis Does Not Reset on Arrival
America grants no automatic step-up when you become resident. Your cost is what you originally paid, so decades of British growth become taxable on a later American sale.
That single rule drives most of the value in this exercise. Therefore, appreciated assets deserve a deliberate decision before your residency start date, not afterwards.
Selling and Repurchasing Appreciated Holdings
Gains realised while you remain a non-resident alien generally fall outside American tax. US real property is the notable exception. Selling and immediately repurchasing therefore resets your basis at market value at no American cost.
The British side still applies, of course. You remain UK resident until you leave, so capital gains tax still bites. Rates run at 18% or 24% for 2026/27, and the annual exempt amount is only £3,000. Consequently, the decision is a straightforward comparison between a known British charge now and an unknown American one later.
Losses Behave in the Opposite Direction
Do not accelerate losses. A loss realised before residency gives you nothing in America, whereas the same loss realised afterwards shelters American gains.
Hold losing positions and sell winning ones. That asymmetry is the cleanest rule in this entire area.
ISAs, Unit Trusts and the PFIC Problem
Your ISA Stops Working the Day You Arrive
An Individual Savings Account shelters income and gains from HMRC. America does not recognise the wrapper at all, and no treaty article protects it.
Worse, the contents usually make matters actively harmful rather than merely neutral. Most stocks and shares ISAs hold UK OEICs, unit trusts or UCITS exchange-traded funds.
Why a UK Fund Becomes a Punitive Asset
Those funds are passive foreign investment companies. Each holding then needs its own Form 8621, and without a qualified electing fund statement the excess distribution regime applies.
That regime is genuinely punitive. It taxes gains at the highest rate in force for each year of your holding period. Additionally, it adds an interest charge and denies any capital gains rate. Moreover, the calculation reaches back across your entire ownership, including the British years.
Clean Up Before Arrival, Not Afterwards
Selling UK funds while still a non-resident alien removes the problem entirely. The gain escapes American tax and the holding period ends. You then rebuild the portfolio in US-domiciled funds or direct equities.
Attempting the same cleanup after arrival costs real money. A purging election or a mark-to-market election helps. Neither, however, is as clean as simply not owning the funds on day one.
Your UK Company Becomes a Controlled Foreign Corporation
The Moment You Become a US Shareholder
A British founder who owns 10% or more of a UK limited company becomes a US shareholder on arrival. If Americans then own more than half the company, it is a controlled foreign corporation. Form 5471 then follows every year.
The consequences reach beyond paperwork. Undistributed profits can be taxed to you personally under the net CFC tested income rules. The company need not have distributed anything.
The 2026 Arithmetic After the One Big Beautiful Bill
What used to be the GILTI regime is now net CFC tested income. The deduction fell to 40%, producing an effective federal rate of roughly 12.6% on tested income. Meanwhile, the deemed-paid foreign tax credit rose to 90%.
British corporation tax at 25% therefore usually shelters the charge. However, research and development relief or the UK Patent Box can drag a company below the threshold. The charge then bites, and our guide to Form 8992 and NCTI sets out that arithmetic.
Checking the Box, and the Section 962 Election
A UK limited company is not a per se corporation for American purposes. It can therefore elect to be disregarded or treated as a partnership on Form 8832. Making that election before arrival avoids a taxable deemed liquidation later.
Alternatively, section 962 lets an individual be taxed at corporate rates on the inclusion and claim the deemed-paid credit, as our note on the section 962 election explains. Both routes work. The right one depends on whether you intend to extract cash or leave profits inside the company.
UK Pensions, the Lump Sum and the Treaty
The 25% Tax-Free Lump Sum Is Not Tax-Free in America
British pension rules permit a tax-free lump sum of 25%, subject to the lump sum allowance. The US-UK treaty appears to protect it. However, the savings clause carve-outs do not extend that protection to a US resident.
Consequently, the same payment can be free in Britain and fully taxable in America. Taking it while you remain a non-resident alien removes the American charge completely, which makes the timing genuinely valuable.
What the Treaty Does Protect
Growth inside a qualifying UK pension remains tax-deferred for American purposes under the treaty. A properly framed position on Form 8833 supports it. Furthermore, funds inside a SIPP generally escape the PFIC rules that catch the same holdings outside a pension.
Do not transfer a UK pension offshore in anticipation of the move without modelling it first. The American treatment of a transferred scheme is frequently worse than leaving it where it sits.
Property, Deferred Pay and the British Side of the Move
Selling the UK Home
Private residence relief under section 222 TCGA 1992 can exempt the gain on your main home, as GOV.UK explains. Selling before you leave therefore combines a British exemption with no American charge.
Keeping the property changes the picture entirely. Rental profit then appears on your American return. A later sale carries an American gain measured from original cost, plus a separate currency element on the mortgage.
Deferred Compensation and Share Options
Exercising options while non-resident keeps the spread outside American tax where the work was performed in Britain. Vesting that straddles the move requires apportionment, and the paperwork must exist before you need it.
Gather grant letters, vesting schedules and any section 431 election now. Those documents fix your American cost basis, and reconstructing them later rarely succeeds.
Split-Year Treatment on the British Side
Leaving Britain part-way through a tax year can qualify for split-year treatment. HMRC guidance sets out the eight cases under the statutory residence test. Meanwhile, income arising after departure may still be UK-taxable where it has a British source. The guide to UK income while living abroad explains which sources.
The two countries do not align their years, so a single transaction can sit in two different tax years. Accordingly, we map both calendars before fixing any dates.
Reporting, State Taxes and the First American Return
FBAR and Form 8938 Start Immediately
Your first American year brings the FBAR where foreign accounts exceed $10,000 in aggregate at any point. Form 8938 follows above the specified asset thresholds. Both catch British current accounts, ISAs and pensions.
Gather twelve months of statements for every account, including peak balances. Reconstructing them a year later is far harder than downloading them now.
The State Layer Nobody Budgets For
Federal work is only half of pre immigration tax planning. States tax independently, and several ignore the treaty entirely. Consequently, relief that works federally can fail at state level. California is the clearest example.
Choose your state of arrival deliberately where the job allows it. Consequently, a move to Texas or Florida can be worth more than every other step in this article combined.
Credits, Elections and the First Filing
Your first return usually needs Form 1116 for British tax paid on income taxed in both countries. Our team handles that alongside your final Self Assessment through our US tax return preparation service.
Where the arrival year is a dual-status year, the return follows special rules. Our note on the first-year choice election explains the mechanics. The related guide to the substantial presence test covers the day counting in full.
A Worked Case Study: A London Founder Moving to New York
A British software founder came to us in October 2025. His relocation to New York was planned for March 2026.
What He Owned
He held 62% of a UK limited company and a stocks and shares ISA worth £430,000, built over eleven years. He also held a general investment account of £280,000 containing four UK OEICs. Finally, he had a SIPP of £610,000 and a London flat carrying a £340,000 gain covered by private residence relief.
The unrealised gain across the ISA and the investment account came to £312,000. His original cost across those holdings was £398,000.
What We Did Before March
We sold every UK fund in January 2026 while he remained a non-resident alien. The £312,000 gain fell outside American tax entirely. British capital gains tax at 24% cost him £71,900 after his annual exempt amount. He repurchased into US-domiciled funds a fortnight later.
Had he kept those funds, the excess distribution regime would have reached the whole eleven-year holding period. Our modelling put the American cost at roughly £137,000 including the interest charge, against £71,900 paid deliberately in Britain.
The Company and the Pension
We filed a check-the-box election effective before his residency start date. That avoided a deemed liquidation and simplified every later year. Additionally, he drew his 25% pension lump sum of £152,500 in February 2026. It was entirely free of American tax, because he was still a non-resident alien.
Taken after arrival, that lump sum would have been taxable in America at 37% federal, costing approximately £56,400. The flat sold in February under private residence relief, producing no charge in either country.
The Result
Total British tax deliberately triggered came to £71,900. American tax avoided across the three steps came to roughly £193,400, before any state charge. Consequently, the exercise paid for itself many times over. Every step depended on happening before a single date in March.
How TaxYork Can Help
We prepare the returns on both sides and we sequence the steps that must precede your arrival. Our team handles the final Self Assessment and the arrival-year American return. We also file the elections that only work on time.
Furthermore, clients with British companies, funds and pensions use our cross-border planning team. We map the calendar before you book a flight. Our FBAR and FATCA service covers reporting in the first American year. Treaty positions and credits sit with our treaty and foreign tax credit specialists.
Conclusion
Pre immigration tax planning is unusually rewarding because the rules are clear and the deadline is fixed. Sell appreciated holdings, keep the losses and clear out UK funds. Then decide the company structure and take the pension lump sum, all before your residency start date.
Miss that date and every one of those steps becomes either impossible or expensive. Ultimately, six months of preparation routinely saves a multiple of the fees, and three weeks rarely does.
Contact Us
Planning a move to America? Email hello@taxyork.com or call 020 3488 8606. Alternatively, book a consultation and we will map your residency start date and the steps that must precede it.
Disclaimer
This article provides general information only and does not constitute tax advice. Tax rules change frequently, and their application depends on individual circumstances. You should obtain professional advice tailored to your position before acting. TaxYork accepts no liability for any action taken in reliance on this article. Further guidance is available from ICAEW, the Chartered Institute of Taxation, the AICPA and MoneyHelper. See also the definitions in section 7701 and the IRS summary of 2026 inflation adjustments.