US Insights
2025 Year-End Planning
Foreign Tax Credit Planning – Why timing matters in 2025
For many, this may be the first time they will be subject to full UK taxation on worldwide income
As we approach the end of 2025, US taxpayers living in the UK face a familiar, yet increasingly urgent challenge: how to align UK and US tax years to avoid double taxation. This year brings additional complexity because of key UK tax-rule changes that will impact a greater number of individuals. Find out what’s changed, why you should act now and how to get ahead.
What’s Changed?
From 6 April 2025, the UK abolished the remittance basis for non-domiciled individuals. This means that many taxpayers who once relied on the remittance basis to defer UK tax on foreign income and gains will now be taxed on an arising basis – in other words, tax is triggered when the foreign income or gain arises, not when it is brought into the UK.
For many, this may be the first time they will be subject to full UK taxation on worldwide income.
Why Take Action?
For US tax purposes, most (but not all) US taxpayers claim foreign tax credits (FTCs) on a paid basis – i.e., the foreign tax must be paid in the same calendar year as the income or gain to which it relates.
By contrast, the UK tax year runs from 6 April to 5 April, and tax filing/payment is due by 31 January of the following year. This mismatch in years creates a potential trap: UK tax paid after 31 December may not be creditable on the US return for that calendar year.
With the abolition of the remittance basis, more individuals will fall under UK tax on foreign income and gains for the first time from 6 April 2025. Planning becomes critical to ensure UK tax on 2025 calendar-year amounts is paid before 31 December 2025 so that you can secure FTCs on your 2025 US return.
How to Take Action
Estimate 2025 income and gains
Work with your advisors to forecast taxable foreign income and gains (and UK taxable items) that arise in the 2025 calendar year.
Calculate tax liabilities
Determine the anticipated US and UK tax due to ensure you can make timely payments.
Pre-pay UK tax before 31 December 2025
Where possible, make UK tax payments this calendar year — especially on capital gains or foreign income realised between April and December that might otherwise fall into the UK 2025/26 tax year. By doing so you improve your chances of securing the FTC on your 2025 US filing.
Coordinate with advisors
Ensure both US and UK tax advisers are aligned on timing and categorisation of income, gains, deductions and tax payments. Differing characterisations between the jurisdictions can undermine FTCs.
Next Steps
If you are newly subject to UK tax on foreign income (because of the remittance-basis change) or you have historically used the remittance basis, now is the time to speak to your tax adviser. Planning before year-end is the best way to avoid costly surprises and make the most of available reliefs.
For further detail or to discuss how this may apply specifically to your situation, please contact your usual adviser at our US/UK Private Client team.
