Introduction: Why Expat Tax Texas Planning Starts With Your Marriage
The expat tax Texas question most British families ask is simple: how much will we save now there is no state income tax? The honest answer is that the saving is real, but it is not the whole story. Texas is also one of nine community property states. Consequently, the moment you arrive, state marital property law starts deciding whose income is whose on your federal return.
At TaxYork, we prepare returns for British executives, founders and investors who relocate to Houston, Dallas and Austin. In our experience, very few of them have heard the phrase "community property" before their first filing season. However, the Internal Revenue Service applies it every time a married couple files separately. Therefore your expat tax Texas position depends as much on your marriage as on your salary.
Expat Tax Texas Basics: No State Income Tax, Plenty of Federal Tax
Texas levies no personal income tax, and its constitution forbids one. Nevertheless, federal tax still reaches your worldwide income at rates up to 37%. Moreover, the IRS expects full reporting of your UK bank accounts, ISAs, pensions and portfolios. The expat tax Texas advantage, therefore, is the absence of a second layer, not the absence of tax.
Who This Guide Is Written For
This guide addresses high-net-worth British nationals, dual national US UK families and accidental Americans who have moved to Texas. Specifically, it suits investment bankers on L-1 visas, energy executives with green cards and company owners expanding into the state. If your household income runs into six or seven figures, every expat tax Texas rule below carries a real price tag.
What Texas Does and Does Not Tax
Texas funds itself through property tax, sales tax and a business franchise tax. As a result, the state collects nothing from wages, dividends or capital gains. Understanding each of these charges gives you the full expat tax Texas picture before you model the federal position.
The Constitutional Ban on Personal Income and Capital Gains Tax
Voters approved a constitutional prohibition on a personal income tax in 2019, now found in Article 8 of the Texas Constitution. Furthermore, in November 2025 voters approved Proposition 2, which bars the state from taxing realised or unrealised capital gains of individuals. Consequently, under expat tax Texas rules a resident who sells a £5 million UK portfolio pays no state tax on the gain at all. By contrast, a California resident could lose up to 13.3% of the same gain to Sacramento.
Property Tax, Sales Tax and the Homestead Exemption
Texas recovers much of that revenue through property tax, which ranks among the highest in the United States. However, the homestead exemption softens the blow for your main home. Following Proposition 13 in November 2025, the school district exemption rose from $100,000 to $140,000, and homeowners aged 65 or over now receive $200,000 in total. Additionally, increases in the appraised value of a homestead are capped at 10% a year. The Texas Comptroller's property tax exemption guidance explains how to apply.
Meanwhile, sales tax runs at 6.25% at state level, and local additions can take the combined rate to 8.25%. Importantly, property tax counts towards the federal state and local tax deduction, but that cap phases back down towards $10,000 for high earners. Therefore few wealthy families gain much federal relief from their Texas property bills, and your expat tax Texas budget should treat property tax as a real cost.
The Franchise Tax for Business Owners
Company owners face the Texas franchise tax, often called the margin tax. It applies to corporations, LLCs and most partnerships at 0.75% of taxable margin, or 0.375% for qualifying retailers and wholesalers. For 2026 reports, entities with annualised revenue at or below $2.65 million owe nothing, according to the Texas Comptroller's franchise tax guidance. Nevertheless, those entities must still file a Public Information Report or Ownership Information Report. Sole traders and general partnerships owned directly by individuals sit outside the tax entirely, which matters for expat tax Texas structuring decisions.
How You Become a US Tax Resident in Texas
Your expat tax Texas obligations begin on your US residency starting date, not the day you sign a lease. Therefore, before anything else, you need to know exactly when federal residence began and when UK residence ended.
Green Card and Substantial Presence Tests
A green card makes you a US tax resident from the first day you are present in the country holding it. Alternatively, visa holders become residents under the substantial presence test. That test counts all days in the current year, one-third of days in the prior year and one-sixth of days in the year before, with 183 days as the trigger. Additionally, you need at least 31 days in the current year. Consequently, an executive who arrives in Houston on 1 July can still become resident for that year, and the expat tax Texas clock starts then.
The Dual-Status First Year
In the arrival year you are usually a nonresident for part of the year and a resident for the rest. The IRS calls this a dual-status year. Crucially, a dual-status taxpayer cannot file a joint return unless both spouses elect to be treated as residents for the whole year. That election brings your full-year worldwide income, including the months you spent in London, into US tax. Therefore it only makes sense when the joint rates outweigh the extra income captured.
Leaving the UK Cleanly Under the Statutory Residence Test
On the British side, HMRC applies the statutory residence test set out in HMRC guidance note RDR3. Where you leave to live or work abroad, split-year treatment can end your UK residence part-way through the tax year. However, the temporary non-residence rules bite if you return within five years. In that case, certain gains and income realised while you were away become taxable in the UK in the year you come back. As a result, a short Texas posting can carry a delayed British bill, so your expat tax Texas plan must include a UK exit plan.
Community Property: The Rule Most British Couples Miss
English law has no community property regime. Instead, each spouse owns what stands in their own name, and HMRC taxes each individual independently. Texas works on the opposite principle. Consequently, the same marriage produces a very different expat tax Texas result once you cross the Atlantic.
What Texas Treats as Community and Separate Property
Under Chapter 3 of the Texas Family Code, property acquired by either spouse during marriage is presumed to be community property. Separate property, by contrast, covers what you owned before marriage and what you receive by gift or inheritance. Therefore a salary earned by one spouse in Dallas belongs equally to both. Moreover, the burden falls on the spouse claiming separate status to prove it with clear and convincing evidence.
Why Income From Your Separate Portfolio Is Still Community Income
This is the rule that catches wealthy British families. According to IRS Publication 555 on community property, in Idaho, Louisiana, Texas and Wisconsin income from most separate property is community income. In other words, a portfolio you built before marriage remains yours, yet the dividends and interest it throws off belong to both of you. By contrast, California and Arizona treat that income as separate. Thus the same UK share portfolio produces a different federal allocation depending on which state you choose, and this is the heart of expat tax Texas planning for married couples.
Filing Separately and Form 8958
Married couples who file jointly rarely notice any of this, because all income lands on one return. However, if you file separately, each spouse must generally report half of all community income. Additionally, each of you must attach Form 8958 showing how you allocated income, deductions and withholding. Each spouse also claims credit for half the tax withheld from community wages. Consequently, a Form W-2 issued in one name no longer matches either separate return, and IRS matching notices often follow. We see this expat tax Texas mismatch every filing season.
Some families file separately deliberately, perhaps to avoid joint and several liability or to ring-fence one spouse's historic compliance problems. Nevertheless, in Texas separate filing rarely lowers the combined bill. Because the married filing separately brackets are exactly half the joint brackets, splitting community income evenly usually reproduces the joint result. Where relief is needed, Form 8857 supports claims that the tax on community income should fall on the other spouse.
Marital Property Agreements Under Chapter 4
Texas lets you rewrite these defaults. Under Chapter 4 of the Texas Family Code, spouses may partition community property into separate property. Similarly, section 4.103 allows you to agree that income from separate property stays separate. Both agreements must be in writing and signed by both spouses. Importantly, these agreements change federal allocations too, so you should model the expat tax Texas consequences before signing rather than after.
When One Spouse Is a Nonresident Alien
Many transatlantic households include a spouse who stays in London, keeps a UK career or simply does not meet either residency test. In that case, a separate federal regime overrides the ordinary community rules. Accordingly, the expat tax Texas analysis changes shape.
Section 879 Reallocates Community Income
Section 879 of the Internal Revenue Code applies when one or both spouses are nonresident aliens. Under it, earned income belongs to the spouse who performed the work, regardless of Texas law. Likewise, trade or business income and a partner's distributive share follow the spouse who earns them. Furthermore, income from one spouse's separate property is treated as that spouse's income alone. Only the remaining community income, such as dividends on investments bought with community earnings, is split under state law.
The practical effect is significant. For example, a Texas-resident husband cannot shift half his bonus to a nonresident wife who has no US tax liability on foreign income. Conversely, half of certain community investment income can fall outside US tax if it belongs to a nonresident spouse and arises outside the United States.
The Section 6013(g) Election and Its Price
Alternatively, a US resident married to a nonresident spouse can elect to treat that spouse as resident and file jointly. The election unlocks the joint brackets and a $32,200 standard deduction for 2026, as set by Revenue Procedure 2025-32. However, it also brings the nonresident spouse's worldwide income into US tax. Moreover, that spouse's UK accounts then fall within Form 8938 reporting. Therefore, as part of our expat tax Texas work, we run both calculations before recommending either route.
Your UK Assets Under US Rules
Once you become resident, the United States taxes your British assets as if they sat in Texas. Consequently, several arrangements that work efficiently in the UK become awkward on a Form 1040.
ISAs, Premium Bonds and UK Investment Accounts
An Individual Savings Account shelters income and gains from HMRC only. The IRS gives it no recognition at all, so interest, dividends and gains inside it are fully taxable in the United States. Similarly, Premium Bond prizes count as taxable income. Furthermore, UK collective funds held inside or outside an ISA can create punitive US fund reporting obligations. As a result, many families restructure their UK portfolios before or shortly after arrival, making ISAs an early expat tax Texas priority.
UK Pensions and the Treaty
The US-UK income tax treaty protects UK pension growth from current US tax, and those protections survive the treaty's savings clause. Additionally, Article 17(1)(b) exempts a lump sum from US tax to the extent it would be exempt in the UK. Therefore a Texas resident drawing the UK tax-free lump sum can receive it free of federal tax too. Meanwhile, periodic UK pension income, other than UK government service pensions, becomes taxable only in the United States while you live there. To apply these provisions correctly, you often need treaty disclosures, so specialist tax treaty optimisation is worthwhile.
Pre-Arrival Gains and the Missing Basis Step-Up
The United States does not reset the cost of your assets when you become resident. Consequently, a gain that built up over twenty years in London becomes fully taxable federally if you sell after arriving. For 2026, long-term gains face 20% above $613,700 of joint taxable income, plus the 3.8% net investment income tax. Texas adds nothing, which is the clearest expat tax Texas benefit for investors. Nevertheless, you should compare selling before arrival, while UK residence and allowances still apply, with selling after. That comparison forms a core part of our cross-border tax planning work.
UK Rental Property and the Non-Resident Landlord Scheme
Keeping your London home as a rental remains common. HMRC continues to tax that rent, and letting agents withhold basic rate tax unless HMRC approves gross payment under the non-resident landlord scheme. Meanwhile, the IRS taxes the same rent, and you claim a foreign tax credit for the UK tax. Furthermore, a sale later triggers UK tax under the capital gains tax rules for non-residents, with a 60-day reporting deadline. Therefore your rental needs coordinated returns in both countries every year, alongside your expat tax Texas filings.
Missed FBAR and Form 8938 Reporting After the Move
British families who become US residents often assume foreign account reporting applies only to American citizens. In fact, it applies to every US tax resident. As a result, missed FBAR filings are one of the most common problems we see in the second or third year after a move.
Thresholds for Texas Residents
You must file an FBAR with FinCEN when your foreign accounts together exceed $10,000 at any point in the year, as the FinCEN foreign account reporting page confirms. Separately, Form 8938 applies to US residents once specified foreign assets exceed $50,000 at year end or $75,000 at any time, doubling to $100,000 and $150,000 for joint filers. ISAs, UK brokerage accounts and pension schemes can all count. Consequently, most high-net-worth arrivals must file both forms from their first resident year, and missed forms are the costliest expat tax Texas error we correct.
Putting Missed Reporting Right in 2026
The penalties are substantial. Non-wilful FBAR failures can cost up to $16,536 per report, and wilful failures reach the greater of $165,353 or 50% of the balance. Furthermore, the IRS withdrew its Delinquent FBAR Submission Procedures on 1 July 2026, so late filings now need a carefully drafted reasonable cause position. Additionally, a missing Form 8938 keeps the assessment period for the whole return open. Therefore you should correct missed reporting promptly, with an accurate FBAR and FATCA filing supported by evidence.
A Worked Case Study: The Dallas Couple Who Overpaid $20,775
The following illustrative case study uses 2026 federal figures and shows how the expat tax Texas rules interact in a real household. Names and details are fictional, but the arithmetic reflects the position we regularly see.
The Facts
James and Priya, both British nationals, moved from London to Dallas when James accepted a senior role with an energy trading house. James holds a green card and earns a salary of $780,000. Priya does not work in the United States. Before their marriage, she built a UK share portfolio worth about £2.4 million, which pays qualified dividends of $126,000 a year. Additionally, she holds cash ISAs earning $14,000 of interest.
Used to independent taxation in Britain, the couple planned to file separately. James would report his salary alone, and Priya would report her dividends and interest. Neither had filed an FBAR or Form 8938, because they believed those forms applied only to Americans.
What Texas Law Required
Under Texas community property law, James's salary belongs equally to both spouses. Moreover, Priya's dividends and interest are community income, even though the portfolio itself is her separate property. Therefore, on separate returns, each spouse had to report $390,000 of wages, $63,000 of dividends and $7,000 of interest, with Form 8958 attached.
The numbers told the story. Filed as they intended, James's separate return would carry federal tax of about $243,725, while Priya's would carry about $11,738, a total of $255,463. Correctly allocated under Texas law, each return carries about $117,344, a combined $234,688. A joint return produces exactly the same $234,688. Consequently, their planned approach would have overpaid $20,775 while simultaneously filing two incorrect returns that the IRS matching system would flag.
What We Fixed
We prepared a joint return for the year, which removed the Form 8958 allocation entirely and secured the lower figure. Furthermore, we filed FBARs for Priya's brokerage account, her ISAs and the couple's joint current account, together with Form 8938 for both spouses. We also documented reasonable cause for the late FBAR year, given their good-faith misunderstanding and full reporting of the income itself. Finally, we reviewed Priya's UK funds and flagged two holdings for restructuring. Thus the family ended with lower tax, compliant reporting and a clear expat tax Texas plan for future years.
How TaxYork Can Help With Expat Tax Texas Compliance
TaxYork provides comprehensive US tax return preparation for British families and dual national US UK households living in Texas. We prepare joint, separate and dual-status Forms 1040, complete Form 8958 allocations and handle every FBAR and Form 8938 filing. Additionally, we coordinate your UK Self Assessment, split-year claims and non-resident landlord filings so the two systems agree.
Furthermore, where earlier years contain missed returns or missed reporting on pensions, ISAs or investment accounts, we prepare the corrective filings and offshore disclosure in full. For company owners, we also cover franchise tax reporting interactions and the federal treatment of UK companies. Therefore you deal with one team for every expat tax Texas obligation on both sides of the Atlantic.
Conclusion
Texas offers British families a genuine advantage: no state income tax and a constitutional ban on taxing capital gains. However, community property law changes who reports what, especially on separate returns and where income flows from pre-marriage wealth. Moreover, federal tax, UK residence rules and foreign account reporting all continue to apply, so expat tax Texas compliance is never a single-form exercise. Ultimately, the families who benefit most from an expat tax Texas move are those who plan the marriage, the assets and the filing strategy together, before the first return is due.
Contact Us
If you are moving to Texas or already living there, the right expat tax Texas preparation now avoids costly corrections later. Please book a consultation with our US-UK tax specialists to review your position. You can also email hello@taxyork.com or call 020 3488 8606. Alternatively, visit TaxYork to explore our full range of cross-border services.
Disclaimer
This article provides general information about expat tax Texas rules and does not constitute tax or legal advice. Tax law changes frequently, and individual circumstances vary considerably. Furthermore, the figures cited reflect published guidance at the date of writing, and the case study is illustrative. Readers should also review the IRS guidance on dual-status aliens, IRS Publication 519 and the gov.uk guidance on tax on UK income while living abroad. Professional bodies including the Chartered Institute of Taxation and the ICAEW publish further material. Therefore always obtain professional guidance tailored to your own position before acting.