Introduction: What Residence-Based Taxation Would Actually Change
Residence-based taxation remains the most consequential unfinished reform in American expatriate tax, and wealthy filers in Britain keep asking whether to wait for it. The short answer is no. Nevertheless, the question deserves a precise answer rather than a dismissive one, because the stakes for a Britain-based family with substantial assets run into seven figures.
The United States taxes its citizens on worldwide income regardless of where they live. Only one other country does the same. Consequently, an American in London pays British tax as a resident and files an American return on the identical income, relying on credits and exclusions to avoid paying twice.
How Residence-Based Taxation Differs From Today's Rules
Residence-based taxation would tax people where they actually live rather than by the passport they hold. Under the proposed model, a qualifying American abroad could elect to be treated as a non-resident and pay American tax only on genuinely American-source income. Furthermore, foreign salary, foreign dividends and foreign gains would fall outside the American net entirely.
That is a structural change rather than a relief measure. Today's system offers the foreign earned income exclusion and foreign tax credits, which reduce double taxation without removing the filing obligation. By contrast, residence-based taxation would remove the obligation itself for those who elect.
Why Britain-Based Filers Have the Most at Stake
Britain hosts one of the largest populations of high-net-worth Americans anywhere. Additionally, British headline rates frequently exceed American ones, so many London-based filers already owe little or no American tax after credits. Their burden is compliance cost, not tax cost.
For those families, residence-based taxation would eliminate an annual expense running to five figures without changing what they actually pay. Therefore, the reform matters enormously even to people whose American liability is currently nil.
Where the Bill Actually Stands in July 2026
Precision matters here, because online commentary consistently overstates progress. No form of residence-based taxation is law today, and none will apply to your 2026 return.
From H.R. 10468 to a Stalled Reintroduction
Congressman Darin LaHood introduced H.R. 10468, the Residence-Based Taxation for Americans Abroad Act, on 18 December 2024. The accompanying announcement framed it as modernising the treatment of Americans overseas. It was referred to the House Committee on Ways and Means, where it expired with the 118th Congress.
The timing mattered enormously. Introducing a substantial reform in the final fortnight of a Congress guarantees it cannot complete the legislative process. Consequently, the December 2024 filing functioned as a marker rather than a serious attempt at passage, and attention has since shifted to the 119th Congress.
Reintroduction has not yet happened. Sponsors targeted the first quarter of 2026, and that target passed without action. Meanwhile, drafters continue revising the text in response to technical comments, particularly around trust structures and self-employment tax.
The Revenue Score Bottleneck
The genuine obstacle is arithmetic. Legislation of this kind requires a revenue estimate from the Joint Committee on Taxation before it can move, and that score does not yet exist. Independent modelling has suggested a cost in the region of $4.5 billion over ten years, but an outside estimate carries no procedural weight.
Advocacy continues in parallel. Notably, American Citizens Abroad submitted comments to the Senate Finance Committee in June 2026 tied to the Treasury budget hearing. However, comments are not votes.
The Sixty-Vote Problem
Residence-based taxation was not included in the One Big Beautiful Bill Act, and that omission is instructive. Reconciliation offered a path requiring a simple Senate majority, and the reform did not make it aboard. Consequently, the bill now faces the ordinary legislative route and its sixty-vote threshold.
Senate companion interest exists, and the concept attracts genuine bipartisan sympathy. Nevertheless, sympathy and sixty votes are different things. Realistically, no version could take effect before the 2027 tax year even if reintroduction happened tomorrow.
What the Proposed Election Would Do
The mechanics below describe the December 2024 text and the direction of subsequent revisions. Importantly, none of it is settled law, and the detail most relevant to wealthy filers is precisely the detail most likely to change.
Electing Out of Worldwide Taxation
Eligibility would turn on genuine foreign tax residency rather than mere physical absence. An electing individual would receive treatment analogous to a non-resident alien, paying American tax only on American-source income and gains. Moreover, the election would be voluntary, so nobody would be forced out of the current regime.
Duration matters as much as eligibility. Under the introduced text, an election would apply to the current tax year and every subsequent year until terminated, rather than requiring annual renewal. Therefore, the decision would function as a long-term commitment rather than a yearly toggle, which is precisely why the entry charge deserves careful modelling.
The Departure Charge on Unrealised Gains
Here is where residence-based taxation stops being straightforwardly good news for the wealthy. The introduced version contemplated a one-time charge on unrealised gains at the point of election, conceptually similar to the existing expatriation tax under section 877A. Furthermore, exceptions were designed to protect accidental Americans and long-term expatriates of modest means.
The practical implication is uncomfortable. A Britain-based family with a large unrealised gain might face a substantial immediate charge to escape a future filing obligation. Therefore, the reform could prove expensive for exactly the clients who most want it.
Relief From FBAR and FATCA Reporting
Reporting relief formed a central part of the proposal. Electing individuals would cease to have FBAR obligations while the election applied, and a certificate of non-residency would ease their treatment under FATCA. Consequently, the banking difficulties many Americans face in Britain would ease considerably.
For everyone who does not elect, nothing changes. The existing reporting architecture would remain fully intact.
Case Study: A Holland Park Family Weighing the Wait
Consider a representative situation from our practice, with details altered for confidentiality. An American couple in Holland Park hold £8.6 million between them: a £3.4 million principal residence, £2.9 million in a discretionary portfolio, £1.5 million across two SIPPs, and £800,000 in a UK trading company.
They had deferred three years of American filings, reasoning that reform would arrive and forgive the gap. That reasoning was expensive. Their unfiled years carried no statute of limitations, their company holding raised controlled foreign corporation questions, and their portfolio contained funds treated as passive foreign investment companies.
We brought them current through the Streamlined Filing Compliance Procedures, restructured the portfolio away from the problem holdings, and modelled their position under both regimes. Their actual American tax across three years came to $19,400, because British credits absorbed nearly everything. Their penalty exposure had they been examined first exceeded $310,000.
Critically, we also modelled the proposed departure charge. On their unrealised gains, electing into residence-based taxation would likely cost more than a decade of continued compliance. Waiting had gained them nothing, and the reform they awaited would not have helped them anyway.
Why Wealthy Filers Should Not Plan Around It Yet
The strategic conclusion is consistent across our client base. Treat residence-based taxation as a possibility worth monitoring, never as a plan.
The Cost of Deferred Compliance
Unfiled years do not age out. The assessment period never begins where a required international information return was never filed, so a gap left open in 2023 remains open indefinitely. Additionally, IRS data matching has become considerably more effective at surfacing exactly these gaps.
Waiting therefore converts a manageable problem into an expensive one. Above all, remediation costs rise sharply once correspondence arrives.
Renunciation Decisions Deserve Care
Some clients ask whether to renounce now or wait for residence-based taxation. Renunciation is irreversible, carries a $2,350 State Department fee, and triggers section 877A consequences for covered expatriates. Consequently, it warrants careful modelling rather than frustration-driven haste.
The proposed election would offer something renunciation cannot: relief from worldwide taxation while retaining citizenship. Nevertheless, betting an irreversible decision on unenacted legislation is rarely sound.
Positions That Pay Off Either Way
Sensible planning works under both regimes. Cleaning up passive foreign investment company holdings, documenting the basis in British assets, structuring pensions correctly under the treaty, and staying currently filed all improve your position regardless of what Congress does. Therefore, none of that effort is wasted if reform stalls again.
How TaxYork Can Help
TaxYork advises high-net-worth Americans and business owners across Britain on precisely these decisions. We model your position under the current regime and under the proposed election, quantify any departure charge exposure, and identify the planning that pays off either way. Furthermore, we monitor the legislation so that you do not have to.
Our work spans US tax returns for Americans abroad, IRS Streamlined Filing for those who have fallen behind, treaty and foreign tax credit optimisation, and cross-border planning for complex estates. Additionally, we coordinate directly with your British advisers.
Members of our team hold American and British qualifications and follow the technical standards published by the AICPA, the ICAEW and the Chartered Institute of Taxation. Therefore, both sides of your position receive equal rigour.
Conclusion
Residence-based taxation represents the most serious attempt in a generation to end the double taxation of Americans abroad, and it genuinely might happen. However, it is not law, it has not been reintroduced, it lacks a revenue score, and it faces a sixty-vote threshold. No responsible adviser would tell you to plan around it today.
The reform would also not be uniformly generous. Specifically, the contemplated departure charge on unrealised gains could make electing unattractive for precisely the wealthy families who resent the current system most. Therefore, model it properly before assuming it helps you.
Stay current, stay clean, and build positions that work under either regime. Ultimately, those who remain compliant retain every option, while those who wait lose them one year at a time.
Contact Us
Speak to our cross-border specialists about how residence-based taxation would affect your position, and what to do in the meantime. You can book a consultation directly, email hello@taxyork.com, or call 020 3488 8606. Furthermore, initial discussions are confidential and without obligation. General financial guidance is also available from MoneyHelper, and consular information from the US Department of State.
Disclaimer
This article provides general information about United States and United Kingdom tax matters and does not constitute tax, legal or financial advice. It describes proposed legislation that has not been enacted, and any such proposal may change substantially or fail entirely. Tax law changes frequently, and outcomes depend on individual circumstances. Consequently, you should obtain professional advice tailored to your position before acting. TaxYork accepts no liability for decisions taken solely on the basis of this article. Official guidance is available from the IRS international taxpayers portal and HM Revenue and Customs.