Introduction: The Re-entry Permit and the Tax Bill Nobody Mentions
A re-entry permit is the travel document that lets a green card holder live outside America for up to two years without losing permanent resident status. Senior bankers, founders and executives use it when a London posting follows a career in New York or California. However, the document that protects your immigration status also keeps you inside the American tax net.
Every immigration guide explains how to apply. Almost none explains what the re-entry permit costs in tax. While it runs, the IRS taxes your worldwide income, HMRC taxes you as a UK resident, and your former state may still claim you. Moreover, each calendar year under the permit moves you closer to the US exit tax.
This guide covers the whole picture with 2026 figures and a worked case study. At TaxYork, we prepare US and UK returns for green card holders on both sides of the Atlantic, so we see the consequences of this choice every filing season.
What a Re-entry Permit Actually Does
A re-entry permit does one thing. It stops the US government from treating the length of your absence as proof that you have abandoned your green card. Under the federal regulation on validity and admissibility, a holder is not deemed to have abandoned status based solely on the duration of an absence while the permit is valid. Therefore, the permit is a shield against one argument, not a guarantee.
Why Re-entry Permit Tax Planning Matters for Wealthy Holders
A re-entry permit is a statement of intent. You tell the US government that your move abroad is temporary and that America remains your permanent home. Consequently, every tax position you take afterwards must agree with that statement. For a wealthy holder with a UK salary, a portfolio and a pension, three tax systems now read the same facts in three different ways.
How the Re-entry Permit Works
The mechanics of the re-entry permit shape the tax timetable, so they come first.
Applying on Form I-131
You apply on Form I-131, the application for travel documents. Under the regulation on applications, you must file while you are physically in America, and you must attend a biometrics appointment there. Accordingly, a London-based executive needs to plan a trip around the filing. The current fee appears on the USCIS fee schedule.
Importantly, the form asks about your tax history. It asks whether you have ever filed a federal return as a nonresident, or failed to file because you considered yourself a nonresident, since becoming a permanent resident. As a result, your tax returns become immigration evidence on the day you apply.
Two Years, Then One
A first re-entry permit normally lasts two years, and it cannot be extended. Instead, you return to America and apply again. However, the rules tighten with time. A holder who has spent more than four of the last five years outside America receives a permit limited to one year. In practice, a London posting that runs beyond four years means annual trips, annual applications and growing scrutiny.
What the Permit Does Not Protect
The permit does not protect against abandonment on other grounds. According to the USCIS guidance on international travel as a permanent resident, officers look at family and community ties, American employment, bank accounts, a driving licence, property and whether you filed US income taxes as a resident. Furthermore, the permit does not preserve your path to citizenship. An absence of six months or more can break the continuous residence that naturalisation requires, whatever travel document you hold.
Why the IRS Still Taxes Your Worldwide Income
Many holders assume that living in London on a re-entry permit ends their US tax residence. It does not. The re-entry permit exists precisely because you remain a permanent resident, and US tax residence follows that status.
The Green Card Test Has No Day Count
Under the IRS green card test, you are a US tax resident if you are a lawful permanent resident at any time in the calendar year. Days in America are irrelevant. Residence continues until you surrender the card in writing, or until the government or a court terminates it. Therefore, a holder who spends 350 days a year in London still files Form 1040 on worldwide income.
That means your UK salary, bonus, rental income, dividends and gains all appear on the American return. The filing date is 15 April, with an automatic extension to 15 June for those living abroad. In addition, UK pension contributions, ISAs and company shareholdings each bring their own American reporting.
Foreign Tax Credit Versus the Exclusion
Two reliefs prevent double tax on a UK salary. The first is the foreign tax credit, which sets UK income tax against the US tax on the same income. The second is the foreign earned income exclusion, which removes up to $132,900 of earnings for 2026.
For a re-entry permit holder earning a London salary, the credit usually wins on arithmetic alone. UK income tax reaches 45%, which exceeds the top US federal rate of 37%. Consequently, the credit removes the US tax on the salary and leaves excess credits to carry forward. The exclusion, in contrast, covers only the first slice of a large salary.
Why Form 2555 Can Contradict Your Re-entry Permit
The exclusion carries a second problem. To claim it, most holders rely on the bona fide residence test, which requires you to be a bona fide resident of a foreign country. Form 2555 asks how long you intend to stay abroad and what you told the foreign authorities about your residence. Meanwhile, your re-entry permit application says the absence is temporary.
Those two statements sit badly together. A US citizen can make both without risk, because citizenship cannot be abandoned by living abroad. A green card holder cannot. Therefore, we generally prepare returns for permit holders using the credit alone. Where the exclusion is necessary, the physical presence test relies on days abroad rather than on a declaration of foreign residence.
The Tax That No Credit Covers
One charge survives every relief. The 3.8% net investment income tax applies to a single filer with income above $200,000, and the foreign tax credit does not reduce it. Moreover, in August 2026 a federal appeals court rejected the argument that a tax treaty supplies a credit instead. As a result, a permit holder with a substantial portfolio pays this tax on top of UK tax on the same dividends and gains.
The Treaty Tie-Breaker and Why It Destroys the Permit
Advisers who know only tax often suggest the treaty. For a re-entry permit holder, that suggestion can end the green card.
What the Tie-Breaker Offers
The US-UK treaty contains tie-breaker rules for people resident in both countries. The treaty text looks first at your permanent home, then at your centre of vital interests. A holder settled in London with a family home there will usually come out as UK resident. On paper, that allows a Form 1040-NR, with America taxing only US-source income.
The Immigration Price
For a re-entry permit holder, the price is severe. Under the naturalisation regulation on residence, a permanent resident who claims nonresident alien status for income tax raises a rebuttable presumption of having relinquished permanent resident status. Furthermore, Form I-131 asks the direct question at your next application. Thus a treaty claim saves tax for one year and may cost the status the re-entry permit was meant to protect.
The Tax Price for Long-Term Residents
The treaty claim also carries a tax cost. Under section 7701 of the Internal Revenue Code, a holder who claims treaty residence abroad and notifies the IRS ceases to be a permanent resident for tax purposes. For a long-term resident, that is an expatriation. Consequently, a form filed to trim one year's bill can trigger the exit tax on a lifetime of gains. Our guide to green card abandonment and the UK exit tax trap explains the charge itself.
The Exit Tax Clock Runs While the Re-entry Permit Is Valid
This is the point the immigration guides never reach. The re-entry permit preserves your status, and your status is what the exit tax counts.
The Eight-of-Fifteen-Years Count
You become a long-term resident once you have held a green card in at least eight of the last fifteen tax years. Any part of a year counts as a whole year. Therefore, a card issued in March 2020 produces year one in 2020 and year eight in 2027. Years spent in London under a permit count in full, because you remain a permanent resident throughout.
A holder who surrenders the card in year seven is simply a former resident. A holder who surrenders in year eight is an expatriate under section 877A. The difference between 31 December and 1 January can therefore be worth six or seven figures.
The 2026 Covered Expatriate Tests
An expatriate becomes a covered expatriate by meeting any one of three tests. First, there is a net worth of $2 million or more. Second, there is an average annual US income tax liability above $211,000 for 2026, measured over five years. Finally, there is a failure to certify five years of full tax compliance on Form 8854.
The third test catches careful people. A single missed FBAR or an unreported ISA during the London years can make the certification impossible. Hence clean filing under the permit is not only an immigration matter. It decides whether a later surrender is free or expensive.
What the Charge Looks Like
A covered expatriate is treated as selling worldwide assets the day before expatriation. For 2026, the first $910,000 of gain is excluded, and the rest is taxed. Additionally, UK pensions and other foreign deferred compensation are generally treated as paid out in full on that day. The IRS expatriation tax guidance sets out the framework. Britain gives no credit for the deemed sale, because no real disposal has occurred there.
The Year Seven Decision
For that reason, we tell every client that the real value of a re-entry permit is time. It gives you up to two years to decide whether London is temporary. However, if your seventh green card year falls inside the permit, the decision has a hard deadline. You either commit to keeping the card for the long term, or you surrender it before the eighth year begins.
What HMRC Taxes While You Live in London
The American position is only half of the picture. HMRC applies its own rules, and a re-entry permit does not influence them.
UK Residence Under the Statutory Test
HMRC decides residence under the statutory residence test. A holder with a London home and a full-time UK job is UK resident from arrival. The statement on your permit application that the move is temporary has no effect on that test. Consequently, Britain taxes your employment income from the first day, and usually your worldwide income as well.
The Four-Year Foreign Income and Gains Regime
A returning Briton may qualify for valuable relief. Under the four-year foreign income and gains regime, an individual who was non-UK resident for the ten preceding tax years can claim exemption from UK tax on foreign income and gains for four years. A British executive who spent a decade or more in America often meets that condition.
The interaction matters. During those four years, American dividends and gains suffer US tax only. Therefore, the regime is the best window in which to rebalance an American portfolio. After it ends, the same sale faces UK capital gains tax at up to 24% as well, and the two countries' credit rules must then be reconciled.
Credit Relief and Certificates of Residence
Where both countries tax the same income, the treaty decides which gives credit. Britain has the first claim on UK employment income, and America credits the UK tax. For American-source dividends, the position reverses, and HMRC credits the US tax within treaty limits, as the HMRC Double Taxation Relief Manual explains.
Proof of residence needs care. The treaty treats a green card holder as a US resident only where the individual has a substantial presence, a permanent home or a habitual abode in America. A holder settled in London may fail that test. In that case, the right document for foreign claims is an HMRC certificate of residence, and our guide to Form 8802 and US residency certification explains why the American certificate often is not available.
State Tax: The Ties That Save the Card Can Cost You
To defend a green card under a re-entry permit, you keep American ties. Unfortunately, those are the same ties that states use to claim you as a resident.
California and the Temporary Absence Problem
California treats an individual as a resident while absent for a temporary or transitory purpose. A re-entry permit is, by definition, a declaration of temporary absence. The California residency guidance offers a safe harbour for an absence under an employment contract of at least 546 consecutive days. However, the safe harbour fails where intangible income exceeds $200,000 in a year, which is common for wealthy holders.
The cost is high. California taxes residents on worldwide income at up to 13.3%, and it gives no credit for foreign income tax. Therefore, a holder who remains a California resident pays UK tax and California tax on the same London salary.
New York Domicile and the 548-Day Rule
New York applies domicile. A holder who keeps a Manhattan apartment and intends to return usually remains domiciled there. Nevertheless, New York offers a statutory escape. A domiciliary who spends at least 450 days abroad in any 548-day period, and no more than 90 days in New York, is taxed as a nonresident for that period. The New York residency definitions set out the conditions.
The rule demands a day log, not an estimate. In our experience, executives who travel back for board meetings breach the 90-day limit without noticing. Our guide to New York statutory residence for Americans in London covers the detail.
Moving Domicile Before You Leave
Some holders change state before the London move. That can work, but it must be real. A new home, a new driving licence and a clean break from the old state all matter. Importantly, the new state then becomes the anchor for your green card ties as well.
Reporting Your UK Accounts Under a Re-entry Permit
A US tax resident reports foreign assets wherever they live. For a re-entry permit holder in London, that means every UK account.
FBAR and Form 8938
You must file an FBAR where your non-US accounts exceed $10,000 in aggregate at any point in the year. Additionally, Form 8938 applies to a single filer living abroad whose foreign financial assets exceed $200,000 at year end or $300,000 at any time. UK current accounts, savings, ISAs, pensions and brokerage accounts all count. Our FBAR and FATCA reporting service handles both current and late filings.
ISAs, UK Funds and Pensions
An ISA has no American status, so its income and gains are taxable in the US each year. Furthermore, most UK funds are passive foreign investment companies, which face punitive rates and a separate form for each holding. A UK workplace pension usually benefits from treaty relief, but the position needs checking for each scheme. IRS Publication 54 gives the general framework for residents abroad.
Missed Reporting and Your Next Application
Missed reporting is common in the first London year. The UK employer enrols you in a pension, the bank opens a savings account, and nobody mentions the IRS. However, a missed FBAR or missed US tax returns do more damage to a permit holder than to a citizen. They weaken the next permit application, and they threaten the compliance certification on any later surrender. Accordingly, late filings should be corrected before the next trip to America.
A Re-entry Permit Case Study With Real Numbers
The following illustrative case brings the re-entry permit rules together. The client is a composite, and the figures are rounded.
The Position
Charlotte M is a British citizen who moved to New York in 2014 and received her green card in March 2020. In June 2025, her bank moved her to London as a managing director on a three-year posting, with pay of £650,000, or about $820,000. She obtained a two-year re-entry permit in May 2025 and kept her Manhattan apartment for visits. Her net worth was $6.4 million, including an American portfolio with $1.8 million of unrealised gains.
What We Found
Charlotte came to us in early 2026. Her previous preparer planned to extend the 2025 return and claim the foreign earned income exclusion under the bona fide residence test, with a Form 2555 stating that she intended to remain abroad indefinitely. That statement contradicted her permit application. Moreover, it saved nothing, because her UK tax at 45% already exceeded the US tax on her salary. We removed the form and claimed the foreign tax credit instead, which reduced the US tax on her salary to nil.
New York was the larger risk. As a domiciliary with an apartment, she faced state and city tax of roughly 14.8% on worldwide income, or about $121,000 a year, with no credit for UK tax. However, her day log showed 41 days in New York and well over 450 days abroad. Therefore, she met the 548-day rule and filed as a nonresident.
The Decision
The exit tax clock decided the rest. Her green card years ran from 2020, so 2026 was year seven and 2027 would be year eight. With a net worth above $2 million, a surrender in 2027 or later would make her a covered expatriate. The deemed sale of her portfolio alone would cost about $212,000, being $890,000 of gain after the exclusion at 23.8%. Her UK pension would add to that.
In autumn 2026, her posting became permanent. As a result, she surrendered the card on Form I-407 in November 2026, in year seven, with no exit tax. Before doing so, she used the UK four-year regime to sell appreciated American shares free of UK tax. Ultimately, the permit gave her eighteen months to make an informed choice, and the tax calendar told her when to make it.
How TaxYork Can Help
TaxYork prepares US and UK returns for green card holders living in Britain under a re-entry permit. We file Form 1040 with the foreign tax credit, FBAR and Form 8938, alongside the UK self assessment return. Furthermore, we check every position against your immigration file, so your tax returns support the next permit application rather than undermine it.
For wealthy holders, we also track the exit tax clock. We count your green card years, test the covered expatriate thresholds and model the cost of surrender in each year. Where filings were missed, we prepare late returns and reports before your next trip to America. Our US tax returns for expats and US-UK treaty relief services bring both countries into one engagement. You may also find our guide to the sailing permit and leaving the US useful if a departure is close.
Conclusion
A re-entry permit is an immigration document with a tax bill attached. It keeps your green card alive during a London posting. However, it also keeps you a US tax resident on worldwide income, exposes you to state residence claims and lets the exit tax clock run. Meanwhile, HMRC taxes you as a UK resident regardless of what you told the American authorities.
Therefore, treat the permit as a planning period with a deadline. File as a US resident every year, prefer the credit to the exclusion and keep a day log for your former state. Above all, count your green card years before you renew, because the eighth year changes the cost of every later decision.
Contact Us
If you hold a re-entry permit, or plan to apply for one before a move to Britain, our team can review your US, UK and state position together. Please contact us to book a consultation. Alternatively, email hello@taxyork.com or call 020 3488 8606.
Disclaimer
This article provides general information about US and UK tax for green card holders living abroad and does not constitute tax, legal or immigration advice. Tax rules, thresholds, court decisions and treaty interpretations change, and the right answer depends on your individual circumstances. The case study is illustrative and uses rounded figures. You should take professional advice from a qualified tax adviser and an immigration lawyer before acting on any of the matters discussed. TaxYork accepts no liability for actions taken in reliance on this article without a personal consultation.