Missed UK Tax Returns: US Treasury Bills for UK Residents

Missed UK tax returns are common among UK-resident Americans who held US Treasury bills. HMRC taxes the discount as foreign savings income under the deeply discounted securities rules, in the tax year each bill matures or is sold, measured in sterling. A US Form 1099-INT does not satisfy that duty, and every roll-over counts.

From late 2022, short-dated US government paper paid more than it had for fifteen years. Many Americans living in London moved large cash balances, often seven figures, into rolling 4-, 13- and 26-week Treasury bills at their US brokerage accounts. The US reporting was easy. The broker issued a Form 1099-INT, the discount showed in box 3, and the income went onto Form 1040. The UK side was often missed. There was no coupon and no UK paperwork, and the bills rolled over automatically, so the income never reached the Self Assessment return. At Jungle Tax we prepare both the US and UK returns for clients in this position. This guide explains how HMRC actually taxes a Treasury bill, why the two returns rarely match, and how to correct past years in an orderly way.

Are US Treasury bills taxable in the UK?

Yes. If you are UK resident and taxed on the arising basis, the return on a US Treasury bill is taxable income in the UK. The UK and US take different routes to that result, and the UK route explains most of the errors we see.

A Treasury bill pays no interest. You buy it for less than its face value and the US Treasury pays the full face value at maturity. The IRS treats the difference, the acquisition discount, as interest. UK law does not. For a UK individual, a Treasury bill normally falls within the deeply discounted securities regime in Part 4, Chapter 8 of the Income Tax (Trading and Other Income) Act 2005. Under that regime, the profit on disposing of the security is charged to income tax as savings income. Older commentary calls these instruments "relevant discounted securities", the name used by the Finance Act 1996 rules that ITTOIA 2005 rewrote. The substance has not changed.

Does a Treasury bill meet the deeply discounted security test?

Under section 430 of ITTOIA 2005, a security is deeply discounted if the amount payable on redemption is, or may be, more than the issue price by more than the lower of 15% of the redemption amount and 0.5% for each year of the redemption period. HMRC's Savings and Investment Manual at SAIM3020 confirms that for securities with a term under a year, the 0.5% figure is reduced pro rata. A 26-week bill therefore needs a discount of more than about 0.25% of face value to qualify. At the yields of 2023 to 2025, a 26-week bill was typically issued at a discount of 2% or more, so it cleared that bar easily. Bills bought in the near-zero-rate years of 2020 and 2021 may not have qualified. Those years need separate analysis, but little income arose in them anyway.

The exclusions in section 432 cover shares, gilt-edged securities, and life and capital redemption policies. The gilt exclusion applies only to UK government stock. It does not reach US Treasuries, so the capital gains tax exemption that makes UK gilts attractive to UK taxpayers gives a US Treasury bill no protection.

When is the profit taxed: maturity, sale or accrual?

The UK taxes the profit only when you dispose of the bill. Redemption at maturity is a disposal. So is a sale before maturity on the secondary market. The UK has no accrual: the whole discount is taxed in the UK tax year (6 April to 5 April) in which the bill matures or is sold, however long you held it. A 26-week bill bought on 10 January 2025 and redeemed on 10 July 2025 is taxed entirely in 2025-26.

This is why automatic roll-over matters so much. Each time a bill matures and the proceeds buy a new bill, the old bill has been disposed of and a new security acquired. Someone who rolled 4-week bills all year had roughly thirteen separate disposals in a single tax year. Each one needs its own sterling computation. Your broker's monthly statements show these events. The annual Form 1099-INT combines them into one figure and hides them.

How is the profit calculated in sterling?

According to HMRC's guidance at SAIM3070, a security denominated in a foreign currency is computed by converting both the acquisition cost and the disposal proceeds into sterling at the spot rate on the relevant dates. The difference is the taxable profit, so exchange movements between purchase and maturity are built into the income figure. The UK profit is therefore not your 1099-INT figure converted at an annual average rate. When the dollar strengthened during the holding period, the sterling profit is larger than the dollar discount suggests. When it weakened, the profit is smaller and can even be negative.

A sterling loss does not help much. Relief for losses on deeply discounted securities was abolished for disposals from 27 March 2003, apart from a narrow exception for listed securities already held at that date. In practice, a bill that shows a sterling loss produces no taxable income and no loss to set against the profits on other bills. Each maturity stands alone.

A worked illustration

Suppose a London-based US citizen buys $2,000,000 face value of 26-week bills on 15 January 2024 for $1,948,000. They mature on 15 July 2024 and pay $2,000,000. The dollar discount is $52,000, and that figure appears in box 3 of the 2024 Form 1099-INT. Now assume, for illustration only, an exchange rate of $1.27 to the pound on the purchase date and $1.28 at maturity:

• Sterling cost: $1,948,000 ÷ 1.27 = £1,533,858
• Sterling proceeds: $2,000,000 ÷ 1.28 = £1,562,500
• UK taxable profit for 2024-25: £28,642

Converting the $52,000 discount at the maturity rate alone would give £40,625. The two methods differ by almost £12,000 of income on one bill. If the proceeds are rolled into another 26-week bill maturing in January 2025, that second maturity is also a 2024-25 disposal with its own computation. For an additional-rate taxpayer, UK tax at 45% on the first bill alone would be about £12,900.

How do the US and UK treat the same Treasury bill?

Issue	United States (IRS)	United Kingdom (HMRC)
Character of the return	Acquisition discount is interest income	Profit on disposal of a deeply discounted security, charged as savings income
When taxed	At maturity or sale for most cash-basis individuals, unless an election is made to include the discount as it accrues	In the UK tax year of redemption or sale only. No accrual
Tax year	Calendar year	6 April to 5 April
Currency	US dollars. No exchange element	Sterling at spot rates on purchase and disposal. Exchange gains and losses included
Reporting document	Form 1099-INT, box 3	No UK document. You compute the figure yourself from broker statements
State or sub-national tax	Exempt from US state and local income tax	Not applicable
Where reported	Form 1040 and Schedule B. Foreign tax credit on Form 1116	SA106 foreign pages, overseas savings section
Losses	A sale below the adjusted basis can give a capital loss	Loss relief generally unavailable since 27 March 2003
Primary taxing right for a US citizen resident in the UK	Secondary: taxes as the citizenship country and gives a credit	Primary: taxes as the residence country

The US side: what the 1099-INT does and does not tell you

For US federal purposes, a Treasury bill's acquisition discount is ordinary interest. Most individuals report it on a cash basis in the year the bill matures or is sold. An election is available to include the discount as it accrues. It is rarely made and, once made, applies more broadly. If you sell a bill before maturity, the part of the gain equal to the discount accrued so far is ordinary interest. Any balance is capital gain or loss. IRS Publication 550 sets out these rules. Treasury interest is exempt from state and local income tax, which is one reason the broker reports it separately in box 3 of Form 1099-INT rather than box 1.

Two US points are often misread. First, bills held in a US brokerage account are not foreign financial assets. They do not belong on an FBAR or on Form 8938, so a clean US compliance record on those forms says nothing about the UK. Second, net investment income tax at 3.8% can apply to US citizens abroad whose income exceeds the thresholds. The IRS position is that foreign tax credits cannot offset it, and the courts have largely agreed. Even with full credit for UK tax, NIIT can remain a real US cost on a large Treasury bill portfolio.

Who has the primary taxing right, and how does the foreign tax credit work?

Under the interest article (Article 11) of the US-UK income tax treaty, interest arising in one country and beneficially owned by a resident of the other is generally taxable only in the country of residence. For a UK resident who is not a US citizen, US Treasury interest would be taxable only in the UK. The treaty's saving clause lets the United States keep taxing its own citizens as though the treaty did not exist. Article 24, on relief from double taxation, resolves the overlap. The UK, as residence country, has the primary right. It gives credit only for US tax the treaty would allow on a non-citizen resident, which for this interest is nil. The United States then allows a credit for the UK tax.

Without help, that credit would fail. US-source interest does not count towards the foreign-source income that sets the limit on your US foreign tax credit. The treaty deals with this by re-sourcing the income: for credit purposes, it is treated as arising in the UK to the extent needed to avoid double taxation. On the US return this generally means a separate Form 1116 for income re-sourced by treaty, apart from the ordinary passive basket. IRS guidance on Form 1116 covers the mechanics. The same logic as the cross-border tax planning principles we apply to other US-source income decides the outcome. If the UK tax is paid and properly re-sourced, US tax on the discount is usually reduced substantially or eliminated, NIIT aside.

Why the timing mismatch matters

The countries measure the same income in different periods. A bill maturing between 1 January and 5 April falls in one US calendar year and in the UK tax year that started the previous April. The amounts differ too, because the UK figure includes exchange movements. For foreign tax credit purposes, UK tax for a UK tax year is generally treated as accruing when that UK year ends, on 5 April. UK tax for 2024-25 therefore relates to the 2025 US return for a taxpayer on the accrual method. The result is excess credit in some years and unused limitation in others, which the one-year carryback and ten-year carryforward only partly smooth.

The catch-up adds another layer. Once late UK tax for, say, 2023-24 is assessed and paid, the credit previously claimed on the US side, often nil, has changed. US rules on foreign tax redeterminations generally require the affected US returns to be amended. A special extended refund period for foreign tax credit claims, generally ten years, usually keeps those US years open. A well-run correction therefore pays HMRC first and then recovers part of the cost from the IRS. This is where a firm preparing both returns earns its fee.

Reporting Treasury bills on the SA106

The profit is foreign savings income, so it belongs on the SA106 Foreign supplementary pages, in the section for interest and other income from overseas savings, with the United States as the country of source. Enter the sterling profit for all bills disposed of in the tax year. No US tax should have been withheld, so there is normally no UK foreign tax credit to claim. If you file online, the equivalent foreign income section applies. Keep a disposal-by-disposal schedule showing dates, dollar amounts, exchange rates and sterling results. HMRC may ask for it, and the US reconciliation depends on it.

How the income interacts with your savings allowance and tax bands

Savings income is taxed after earnings, at 20%, 40% or 45% for 2025-26 and 2026-27. The personal savings allowance is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nil for additional-rate taxpayers. For most readers of this guide it is nil or trivial. The discount also counts towards adjusted net income. That can taper away the personal allowance between £100,000 and £125,140, which gives an effective marginal rate of 60% on income in that band. A large maturity in one year can move a taxpayer across several of these thresholds at once. From 6 April 2027, savings income tax rates are scheduled to rise by two percentage points to 22%, 42% and 47%, so bills maturing after that date will cost more to hold.

New arrivals, the FIG regime and the old remittance basis

Up to 2024-25, a non-UK-domiciled individual who claimed the remittance basis was taxed on foreign income only when it was brought to the UK. Bills rolled inside a US account were often never remitted. The remittance basis ended on 5 April 2025. From 2025-26, a qualifying new resident, meaning someone in their first four tax years of UK residence after at least ten consecutive years of non-residence, can claim 100% relief on foreign income and gains under the FIG regime. The claim is made on the SA109, and the income must still be reported. A claim costs the personal allowance and the capital gains annual exempt amount. For a US citizen it also removes the UK tax that would have been credited against US tax, so the discount is then taxed in full by the IRS. Whether a FIG claim helps is a calculation, not a default.

Treasury bill funds and ETFs are taxed differently. They fall under the offshore fund rules rather than the deeply discounted securities regime, and US-domiciled funds are commonly non-reporting. That is a separate analysis. Our guide to US municipal bond interest on the UK return covers the related, and even harsher, position on tax-exempt US bonds.

What if Treasury bill income is missing from past UK returns?

The steps are the same whether you filed returns that omitted the bills or never filed at all. What changes is the legal route and the penalty position.

Step 1: rebuild every disposal

Download monthly or trade-level statements from each US brokerage account for every year you held bills. Do not work from the 1099-INT. List every purchase and every maturity or sale with dates, face value, cost and proceeds. Apply the spot rate for each date and compute the sterling profit, or nil where there is a sterling loss, for each disposal. Assign each one to its UK tax year. For heavy roll-over users this can run to dozens of lines a year.

Step 2: identify which years can still be corrected, and how

• Within the amendment window: a filed return can be amended until 12 months after the 31 January filing deadline. The 2024-25 return, due 31 January 2026, can be amended until 31 January 2027. The 2023-24 window closed on 31 January 2026.
• Outside the window: the omission is corrected by disclosure, and HMRC then raises assessments. Overpayment relief does not apply. It is a claim for tax overpaid, and here tax has been underpaid.
• Returns never filed: if you were not in Self Assessment at all, you should have notified chargeability by 5 October after the end of the tax year. A late notification now brings in the failure-to-notify rules.

Step 3: understand how far back HMRC can go

HMRC's ordinary time limits for assessments are four years after the end of the tax year where reasonable care was taken, six years for careless errors, and twenty years for deliberate behaviour. Income from a US Treasury bill is an offshore matter, so the extended offshore time limit of twelve years can also apply to non-deliberate cases. HMRC's Compliance Handbook at CH56100 tabulates the limits. The extended offshore limit applies to 2015-16 onwards, and to 2013-14 and 2014-15 where the loss of tax was careless. There is a carve-out where HMRC received information from overseas that would have allowed it to assess within the normal time limits. Our guide to the twelve-year offshore window and its carve-out explains when it bites. Because the high-rate Treasury bill years are 2022-23 onwards, most exposures fall inside even the ordinary limits.

The Requirement to Correct regime, with failure-to-correct penalties of up to 200%, applied only to offshore non-compliance up to 2016-17 that was not corrected by 30 September 2018. For Treasury bill income from the recent high-rate years it is normally not relevant. It would matter only if the same account held other unreported income from before 2017.

Step 4: the penalty position

An omission from a filed return falls under the inaccuracy penalty rules. A failure to register falls under the failure-to-notify rules. The United States is a category 1 territory for offshore penalty purposes, so the ordinary domestic penalty ranges apply rather than the uplifted offshore rates. For careless inaccuracies, the range is 0% to 30% of the tax lost. For an unprompted disclosure it can be reduced to nil. Deliberate behaviour carries much higher ranges. Penalties are cut substantially for a disclosure made before HMRC makes contact, and for the quality of your cooperation. Late payment interest runs on the tax from the original due date whatever the penalty outcome. Since April 2025 it has been charged at Bank Rate plus four percentage points.

Step 5: choose the disclosure route

For years still within the amendment window, an online amendment is usually cleanest. For earlier years, or where several years are affected, HMRC's Worldwide Disclosure Facility is the designed route for offshore income. You register, and you then generally have 90 days to submit a full disclosure with calculations, the tax, interest and a proposed penalty with reasons. If you have received an HMRC "nudge" letter about overseas income, respond deliberately and on advice. Such letters are often driven by automatic information exchange. The United States does not take part in the Common Reporting Standard, and its reciprocal reporting under the UK-US FATCA agreement is narrower, but neither point is a reason to wait.

Step 6: re-align the US returns

Once the UK tax is settled, amend the affected US returns to claim the foreign tax credit with the income re-sourced by treaty, and track the carryovers. If US returns are also missing, the Treasury bill work fits naturally into a wider IRS streamlined filing catch-up. The FBAR and Form 8938 analysis then focuses on UK accounts, not the US brokerage.

Which mistakes do we see most often?

• Relying on the 1099-INT total instead of computing each maturity in sterling.
• Assuming no coupon means no UK income, or that Treasuries share the gilt exemption.
• Treating the discount as a capital gain and setting it against the annual exempt amount.
• Spreading the discount across tax years by accrual, which the UK regime does not allow.
• Netting sterling losses on some maturities against profits on others.
• Correcting the UK returns but never amending the US returns to capture the foreign tax credit.
• Making a FIG claim that cuts UK tax to nil and leaves the full discount exposed to US tax.

Correcting your Treasury bill years

High-net-worth Americans in the UK can usually resolve missed Treasury bill income efficiently. The exposure is recent, the records exist, and an unprompted disclosure of careless omissions often attracts low or nil penalties. The risk comes from delay and from correcting one side of the Atlantic without the other. Our US-UK tax accountants rebuild every maturity in sterling, prepare the SA106 entries or Worldwide Disclosure, and amend the matching US returns so the UK tax is credited in full. For a confidential review of your brokerage history and a clear view of what is owed, contact our cross-border team and arrange a private consultation.