Banking for US Citizens Living in the UK
The United States is one of only two countries in the world — the other being Eritrea — that taxes its citizens on worldwide income regardless of where they live. For the estimated 150,000 to 250,000 US citizens resident in the United Kingdom, this principle creates a web of compliance obligations that affects not just their tax filings but their day-to-day banking choices, their investment options, and their ability to open accounts with UK financial institutions.
This guide sets out the key issues that US citizens in the UK need to understand — and the practical steps they can take to manage their banking and financial lives effectively.
Why US Citizenship Creates Banking Complications in the UK
The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 and phased in from 2013, requires foreign financial institutions worldwide to identify accounts held by US persons and report them annually to the IRS. In the UK, this is implemented under the UK-US Intergovernmental Agreement (IGA), which means that UK banks report US person account data to HMRC, which then shares it with the IRS.
The consequence for UK banks is a significant compliance burden: they must identify US persons (primarily by the possession of a US passport, a US Social Security Number, or a US address on the account), collect additional certifications (the W-9 form for US persons, declaring their SSN and confirming their US tax status), and file annual reports with HMRC.
The cost of this compliance has led many institutions — particularly smaller banks, fintech firms, and investment platforms — to decide it is not worth accepting US person clients at all. This practice is known as "de-risking".
Which UK Banks Accept US Person Accounts?
The picture has shifted over the years as the compliance framework has matured and institutions have reassessed their policies. As a general guide as of 2026:
More likely to accept US persons: HSBC UK, Barclays, and Lloyds have generally maintained services for US citizens resident in the UK. The major banks have the compliance infrastructure to handle FATCA reporting cost-effectively at scale.
More variable or historically restrictive: NatWest and Santander UK have at times been more restrictive; policies can depend on the type of account (a basic current account may be available where an investment account is not) and on the branch or relationship.
Digital banks and fintechs: Many UK challenger banks (Monzo, Starling, Revolut) and investment platforms (Hargreaves Lansdown, Vanguard UK, AJ Bell) decline to open accounts for US persons, citing the FATCA compliance cost. This limits US citizens' access to the modern digital banking and low-cost investing infrastructure that UK residents generally take for granted.
The practical approach: Contact your preferred institution directly before applying. Applying and being declined creates a hard credit search on your file without the benefit of an account. Ask specifically whether the institution accepts US persons and what documentation you will need.
FBAR and FATCA Reporting Obligations
Beyond FATCA (which operates at the institutional level), US citizens have personal reporting obligations for their non-US financial accounts.
FBAR (FinCEN Report 114): Any US person who holds a financial account outside the United States with a value exceeding $10,000 at any point during the calendar year must file an FBAR. The FBAR is filed electronically with FinCEN (the Financial Crimes Enforcement Network) by 15 April each year (with an automatic extension to 15 October). The $10,000 threshold applies to the aggregate value of all foreign accounts — not each account individually. So if you have three UK accounts worth $4,000, $4,000, and $3,000, the aggregate ($11,000) triggers the filing requirement.
Form 8938 (FATCA reporting by individuals): Filed with the US tax return (Form 1040), this form reports specified foreign financial assets above certain thresholds. For a US person resident outside the US, the threshold is higher: $200,000 on the last day of the year, or $300,000 at any point during the year (single filers); double those figures for married couples filing jointly.
The penalties: Failure to file FBAR can result in civil penalties of up to $10,000 per violation (non-wilful) or the greater of $100,000 or 50% of the account balance (wilful). These are among the most severe penalties in the US tax code. The IRS Streamlined Procedures allow US persons who have not filed FBARs to come into compliance with reduced penalties — this is the typical route for US citizens who discover the obligation after the fact.
The PFIC Problem: Why UK Investment Funds Are Complicated
For US citizens in the UK, the Passive Foreign Investment Company (PFIC) rules represent one of the most significant — and least-known — financial obstacles.
Under US tax law, a PFIC is any non-US company (or fund) that meets either of two tests: 75% or more of its income is passive (such as dividends, interest, and capital gains), or 50% or more of its assets produce passive income. Most UK collective investment vehicles — unit trusts, OEICs (open-ended investment companies), investment trusts, and ETFs domiciled outside the US — meet these tests and are therefore PFICs.
The US tax treatment of PFIC investments is highly punitive:
- The default method (excess distribution regime): Any gain realised on disposal, or any "excess distribution" received, is taxed as if it had been earned evenly over the holding period. The portion allocated to prior years is taxed at the highest marginal rate applicable in each of those years, with interest charged. The result can be an effective tax rate significantly above the standard US long-term capital gains rate.
- The QEF election: If the fund agrees to provide the necessary annual information (a "PFIC Annual Information Statement"), a US person can elect Qualified Electing Fund (QEF) status, which results in current-year taxation of the fund's income and gains as they arise — a much more manageable treatment. Very few UK funds provide the necessary statements, as they have no commercial incentive to do so.
- The mark-to-market election: An alternative election that taxes unrealised gains annually at ordinary income rates. Avoids the interest charge, but results in ordinary income treatment rather than capital gains rates.
In practice, the PFIC rules mean that US citizens in the UK should avoid investing in UK unit trusts, OEICs, investment trusts, and most UK-domiciled ETFs unless they are certain the fund is not a PFIC (essentially impossible for most collective funds) or have specific tax advice permitting a QEF election.
The accessible alternative for US persons is to invest through US-based platforms (Schwab International, Fidelity International) in US-domiciled mutual funds and ETFs, which are not PFICs by definition.
The UK ISA: A Tax Shelter That the US Does Not Recognise
The UK Individual Savings Account (ISA) is one of the most valuable savings vehicles in the UK — up to £20,000 per year can be invested, and all income and gains within the ISA are permanently exempt from UK income tax and CGT.
For US citizens, however, the ISA is effectively useless as a tax shelter, because the US does not recognise it. Under US tax principles, the ISA is simply a foreign bank or investment account; there is no US tax benefit associated with ISA status. All interest, dividends, and capital gains within an ISA must be reported on the US tax return and are taxable in the US as normal.
In addition, many ISA providers will not accept US persons due to FATCA complications.
The UK-US Double Taxation Agreement (DTA) includes specific provisions for pensions (Article 17 provides that UK private pension funds can be treated as tax-deferred in the US during the accumulation phase), but there is no equivalent provision for ISAs. US citizens should not prioritise ISA contributions without first considering the US tax implications.
The UK State Pension and US Social Security
US citizens who have worked in both the UK and the US may be entitled to both a UK State Pension and US Social Security benefits. A Totalization Agreement between the UK and the US prevents double contributions — if you are working in the UK on secondment, you generally pay National Insurance (UK) or Social Security (US), but not both simultaneously.
When you eventually receive both a UK State Pension and US Social Security, the benefits are taxable under different rules. The UK-US DTA provides that the UK State Pension is taxable only in the US (for a US resident); for a UK resident, the State Pension is taxable only in the UK. US Social Security benefits for a US citizen resident in the UK are subject to the specific DTA rule — up to 85% of Social Security benefits may be taxable in the US regardless of residence.
Finding a Cross-Border Qualified Adviser
Given the complexity of the US-UK tax interface, US citizens in the UK need an adviser who is qualified and regulated in both jurisdictions: someone who holds either CPA (Certified Public Accountant) or EA (Enrolled Agent) status for US tax purposes, and who understands UK tax law thoroughly. This is a niche profession.
Organisations such as AARO (the Association of Americans Resident Overseas) and the American Citizens Abroad (ACA) organisation maintain resources for finding cross-border advisers. The Society of Trust and Estate Practitioners (STEP) has members who specialise in US-UK cross-border planning.
Do not rely on a UK-only tax adviser for your US tax obligations, nor on a US-only tax adviser for your UK planning. The interaction between the two systems requires someone who understands both simultaneously.
This guide is for informational purposes only and does not constitute US or UK tax, legal, or financial advice. The FATCA, FBAR, and PFIC rules are complex and subject to change; IRS publications, the UK-US DTA, and qualified cross-border advisers are the appropriate sources for guidance specific to your circumstances. Penalties for non-compliance can be severe. Past performance of any investment does not guarantee future results.
How Global Investments Can Help
Global Investments works with a number of US-UK cross-border specialists — including tax advisers, investment managers familiar with the PFIC restrictions, and wealth planners who understand the unique constraints facing American citizens in the UK. If you are a US citizen living in or moving to the UK and need to bring your banking, investment, and tax compliance into order, we can connect you with the appropriate professionals and help structure your overall financial picture in a compliant, tax-efficient manner. Contact us to arrange an initial consultation.
This guide is for general information only and does not constitute financial advice or a personal recommendation. Banking regulations, tax rules, and product availability change — always verify current rules and seek advice from a qualified independent financial adviser or regulated banking specialist before making any decisions. The value of investments can fall as well as rise and you may get back less than you invest.