Financial Planning for US Citizens Living Outside the United States

Most countries tax their residents. A few tax their residents plus some non-resident nationals on domestically sourced income. The United States is in a category almost entirely its own: it taxes its citizens on worldwide income regardless of where in the world those citizens live, what they earn, or how long they have been absent from American soil.

The only other country with a fully citizenship-based tax system is Eritrea. For a US citizen living in London, Dubai, Singapore, or Limassol, the consequences are significant, complex, and carry serious penalties for non-compliance.

This guide is aimed at US citizens living abroad — whether by choice or because their career has taken them internationally — and at wealth managers and advisers who work with them.

The Fundamental Obligation: File Every Year

Every US citizen must file a US federal income tax return every year, regardless of where they live, where their income is earned, or whether they have any income from US sources. This obligation does not disappear because you have lived outside the US for 20 years, because you have another nationality, or because all your income is earned and taxed in another country.

Failure to file is a criminal offence. The IRS has significantly expanded its enforcement against non-compliant US persons abroad in recent years, partly through the FATCA reporting system described below.

FBAR: Reporting Foreign Bank Accounts

The Foreign Bank Account Report (FBAR) requires any US person with a financial interest in, or signatory authority over, foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year to file FinCEN Form 114 by 15 April (with automatic extension to 15 October).

"US person" includes citizens, green card holders, and certain US-resident non-citizens.

The penalties for failure to file an FBAR are severe:

• Non-wilful failure: up to $10,000 per violation (per account, per year)
• Wilful failure: up to the greater of $100,000 or 50% of the account balance per violation

In practice, the IRS has used wilful failure penalties to effectively seize accounts. The courts have upheld penalties that exceed the account balance itself.

Common FBAR traps for US citizens abroad: Bank current accounts, savings accounts, ISAs held in a UK bank, investment accounts, offshore bonds, life insurance policies with cash value, and employer pension funds (with exceptions) all potentially require FBAR disclosure. A US citizen living in the UK with a current account, ISA, and employer pension is almost certainly required to file an FBAR.

FATCA: The Global Reporting Network

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires foreign financial institutions (FFIs) — banks, investment platforms, insurance companies — to report information about accounts held by US persons to the IRS (usually via the local tax authority under an Intergovernmental Agreement).

Every major bank in the UK, UAE, Singapore, and most other financial centres now reports US persons' accounts to the IRS under FATCA. There is no practical mechanism for a US person to hold a foreign financial account without the IRS eventually learning about it.

The practical consequence for US citizens abroad is that many foreign banks have refused to open accounts for US citizens, or have closed existing accounts. The compliance cost of FATCA is significant for banks, and the US person market is too small in most countries to justify that cost. US citizens in countries without major US financial institution presence may struggle to find local banking services.

Tax Reliefs That Reduce the Burden

The US tax system does provide some mechanisms to prevent straightforward double taxation:

Foreign Earned Income Exclusion (FEIE)

US citizens who meet the "bona fide residence" test or the "physical presence" test (330 days outside the US in a 12-month period) can exclude up to $132,900 (2026 figure, adjusted annually for inflation) of foreign earned income from US federal income tax.

"Earned income" means wages, salary, and self-employment income from work performed abroad. It does not include investment income, dividends, capital gains, rental income, or pension income.

For US citizens working as employees or self-employed abroad and earning below the FEIE threshold, this exclusion can eliminate most or all of their US income tax liability.

Foreign Tax Credit (FTC)

As an alternative to the FEIE, US citizens can claim a credit against their US tax liability for income taxes paid to a foreign government on foreign-source income. The FTC generally prevents double taxation by reducing the US tax bill by the amount of foreign tax paid.

For US citizens in high-tax countries (UK, Germany, France), the FTC is often more valuable than the FEIE, because the foreign tax rate exceeds the US rate and the credit eliminates the US liability entirely. The excess foreign tax credits can be carried forward or back.

US/UK Double Taxation Treaty

The US and UK have a comprehensive double taxation treaty. It allocates taxing rights between the two countries for different types of income and provides mechanisms for relief. However, the treaty has notable limitations:

UK ISAs are not tax-exempt in the US. The US does not recognise the UK ISA as a tax-sheltered vehicle. Income and gains within a UK ISA are fully taxable in the US for a US citizen.

UK pensions: The treaty provides relief for UK pension income for US citizens residing in the UK or receiving income from UK pensions. The interaction is complex, particularly for pension contributions made while a US citizen was in the UK.

PFIC rules: Passive Foreign Investment Companies — a category that captures most non-US mutual funds, ETFs, ISAs invested in funds, and offshore investment bonds — are subject to punishing US tax treatment. A US citizen investing in a Vanguard UK UCITS ETF or a Hargreaves Lansdown fund is technically investing in a PFIC, which can result in taxation of gains at ordinary income rates plus an interest charge. Many US citizens abroad inadvertently create significant US tax liabilities through ordinary non-US investment products.

The Renunciation Option

A growing number of US citizens abroad renounce their US citizenship. The number of renunciants has increased significantly over the last decade, largely driven by FATCA's impact on banking access and the ongoing compliance burden.

Renunciation is not a simple escape. The process involves:

• Filing Form I-407 or attending a US consular appointment
• Paying a fee of $2,350 (one of the highest citizenship renunciation fees in the world)
• Completing the "Expatriation Tax" process: a deemed disposal of all worldwide assets at fair market value on the day before expatriation, subject to US capital gains tax on gains above an exemption threshold (approximately $890,000 in 2026, indexed annually)

For US citizens with significant wealth — defined as net worth above approximately $2 million, or average annual net US tax liability above approximately $211,000 (2026 figure, indexed annually) in the five preceding years — the exit tax can be substantial. Careful planning before renunciation is essential.

Finding the Right Advice

US cross-border tax is a highly specialised field. Most UK or UAE-based accountants and financial advisers are not equipped to handle the interaction of US and foreign tax obligations. A US Enrolled Agent or US-qualified CPA who specialises in "cross-border" or "expat" tax is the appropriate professional.

The combination of FBAR, FATCA, FEIE, FTC, PFIC rules, and state tax obligations (some US states continue to assert tax jurisdiction over former residents who have not properly "cut" the state tax nexus) creates a system of genuine complexity. Getting it wrong is expensive.

How Global Investments Can Help

Global Investments works with internationally mobile clients including US citizens based across our key markets. We understand the constraints that US citizenship imposes on investment choices — particularly the PFIC rules that limit access to standard non-US investment vehicles — and can structure investment approaches that are both effective and compliant.

We can introduce clients to appropriately qualified cross-border tax specialists in the UK, UAE, and other key jurisdictions, and help ensure that investment decisions are coordinated with the tax planning advice.

This article is for general information purposes only and does not constitute tax, legal, or financial advice. US tax law is complex and changes regularly. US citizens abroad should seek advice from a qualified US-licensed tax professional and a financial adviser familiar with cross-border planning.