Missed US Tax Returns: 5 Mistakes Americans in London Make

Americans in London with missed US tax returns repeatedly make the same five errors: filing only the latest year, ignoring FBAR and Form 8938, using UK 6 April figures on a US calendar-year return, defaulting to the exclusion when the credit was worth more, and treating ISAs as tax-free. Each is avoidable.

None of these mistakes is exotic. They are the predictable consequence of approaching a cross-border catch-up as though it were a domestic one. A US citizen who has lived in Kensington, Chelsea or the City for six years and has never filed a Form 1040 is not usually in trouble with the IRS — they are usually in a strong position, provided the remediation is sequenced correctly. What converts a clean, penalty-free correction into an expensive, audit-flagged mess is almost always the taxpayer's own first move, made quickly and alone, before anyone modelled the numbers.

This guide sets out the five errors we see most often at Jungle Tax among high-net-worth clients in London, why each one costs money, and what the correct approach looks like on both the IRS and HMRC side of the file.

Why do so many Americans in London end up with missed US tax returns?

The United States taxes on citizenship, not residence. That single fact separates the American in Notting Hill from every other expatriate in the building. A British, French or Australian national who moves to London stops filing at home; an American does not. The obligation follows the passport. It attaches to accidental Americans who have not set foot in the United States since infancy, and it attaches to green card holders who moved to the UK years ago and quietly stopped renewing their attention to it.

Three triggers usually surface the problem. The first is a FATCA certification request from a UK bank, investment platform or wealth manager asking the client to confirm their US status. The second is a transaction: selling a Chelsea house, exiting a business, taking a pension lump sum, or being asked for a US tax return during a mortgage or fundraising process. The third is a renunciation plan, where a period of clean compliance is a precondition for exiting the US tax system without penalty.

By the time the client calls, they have often already searched the problem and done something. That something is usually mistake number one.

Mistake 1: Filing only the most recent year

The instinct is understandable. You discover you should have been filing, so you file this year, resolve to be good going forward, and hope the earlier years fade away. In the trade this is called a quiet disclosure, and it is the single most damaging move available to someone with missed US tax returns.

Why does filing only one year make things worse?

It does three things at once. It puts your name in front of the IRS with a return that is inconsistent with the absence of prior years, which is an audit selection signal rather than a cure. It does nothing to start the statute of limitations running on the earlier years, which remain open. And, critically, it complicates access to the very programme designed to solve the problem — the Streamlined Foreign Offshore Procedures — because that programme is built around a coherent multi-year package, not a patchwork of returns filed piecemeal at different times for different reasons.

The IRS is explicit that a taxpayer who previously made a quiet disclosure may still use the streamlined procedures, but any penalties already assessed will not be abated. You have not saved yourself a step; you have narrowed your options and paid for the privilege.

Which correction route actually applies?

There is no single amnesty. There are several distinct routes, and choosing the wrong one is expensive:

• Streamlined Foreign Offshore Procedures (SFOP) — for non-willful non-compliance where you meet the non-residency test. Three years of returns, six years of FBARs, and a Form 14653 non-willfulness certification. No failure-to-file, failure-to-pay, accuracy-related or FBAR penalties. This is the route for the overwhelming majority of Americans in London.
• Delinquent FBAR submission procedures — where the returns were filed and the income properly reported, but the FBARs were missed.
• Delinquent international information return procedures — where returns were filed but Forms 5471, 3520 or 8938 were omitted, and there is reasonable cause for the omission.
• Voluntary Disclosure Practice — where the conduct was willful. Materially different economics, and it requires counsel from the outset.

The eligibility test for SFOP is not about how many years you missed; it is about non-willfulness and non-residency. The non-residency condition for US citizens is generally met if, in at least one of the three most recent years, you were physically outside the United States for at least 330 full days and did not have a US abode. A London-resident American with a UK home and a UK employment almost always satisfies it. The IRS sets out the full framework in its streamlined filing compliance procedures guidance, and our IRS streamlined filing specialists prepare these packages every week.

The correct first move is therefore not to file anything. It is to model the three-year window, confirm eligibility, draft the certification narrative, and submit the package as one coherent submission — with the required streamlined annotation in red at the top of each return and on the certification, which the IRS treats as a processing requirement rather than a formality.

Mistake 2: Filing the returns but forgetting FBAR and Form 8938

The second error is treating the Form 1040 as the whole job. It is not. For a London-based American with a current account, an investment platform, a SIPP, a workplace pension, a joint account with a British spouse and a stocks and shares ISA, the information reporting is frequently the larger part of the exposure — and it carries the larger penalties.

Two separate regimes apply, they are filed in different places, and they are not substitutes for each other.

Feature	FBAR (FinCEN Form 114)	Form 8938 (FATCA)
Filed with	FinCEN, via the BSA e-filing system — never attached to the 1040	The IRS, attached to your Form 1040
Threshold (US person living abroad)	Aggregate foreign accounts exceeding $10,000 at any point in the year	Broadly $200,000 at year end or $300,000 at any point (single); $400,000 / $600,000 (married filing jointly)
What it captures	Financial accounts — current, savings, ISA, SIPP, platform, and certain insurance and pension arrangements	Wider — accounts plus other foreign financial assets, interests in foreign entities and certain pension interests
Signature authority only	Reportable — catches company accounts and family trust accounts	Generally not reportable where there is no beneficial interest
Streamlined lookback	Six years	Three years, filed with the returns
Exposure if missed outside a programme	Substantial per-account, per-year non-willful penalties; willful penalties can reach a percentage of the account balance	Fixed per-form penalties, escalating on continued failure after IRS notice

The IRS publishes a side-by-side comparison of Form 8938 and FBAR requirements, and it is worth reading in full because the overlap is partial, not total. An account can be FBAR-reportable and not on Form 8938, or the reverse.

The point almost every generalist misses: the statute of limitations

Here is the technical consequence that changes the economics of a catch-up. Where a required international information return — Form 8938, 5471, 3520 or 8621 — is omitted, the assessment period for the entire return generally does not begin to run until that form is filed. Not just for the omitted item. For everything on the return.

So the client who filed 1040s for eight years but never filed Form 8938, or never filed Form 5471 for their UK limited company, does not have eight closed years. They have eight open years, and the IRS can assess tax on any item in any of them. Filing the missing forms is what closes the door. This is why we look at the information returns first and the tax computation second, and why a catch-up that only addresses the 1040s is not a catch-up at all.

If you want to size the downside before deciding how to proceed, our FBAR penalty calculator gives an indicative range for unreported accounts.

Mistake 3: Using UK 6 April figures on a US calendar-year return

This is the quietest of the five and the one that most often produces a wrong number on an otherwise well-intentioned return. The UK tax year runs 6 April to 5 April. The US tax year is 1 January to 31 December. They do not align, and no election exists to make them align for a US individual return.

The P60 in your drawer reports UK employment income and PAYE for the year to 5 April. Dropping that figure into a Form 1040 for the calendar year is wrong on both sides of the equation: wrong income and, more damagingly, wrong foreign tax. Add a bonus paid in March, a share vest in February, or a salary increase effective in April, and the distortion becomes material rather than a rounding difference.

How should a P60 actually be converted?

1. Take the two overlapping UK tax years that straddle the US calendar year in question.
2. Rebuild income month by month from payslips rather than from the P60 summary — you need January to December, and payslips are the only source that gives it to you.
3. Isolate the PAYE actually withheld in each of those months. Employee National Insurance is not a creditable income tax for US foreign tax credit purposes; the totalisation agreement governs which country's social security system you contribute to, and this is a frequent source of over-claimed credits.
4. Layer in equity: RSU vests, option exercises, carried interest and deferred bonuses are sourced and timed differently under each system, and a UK-taxed vest can carry a US timing mismatch that strands the credit in the wrong year.
5. Convert to US dollars. The IRS accepts a consistent, reasonable approach — typically an annual average rate for a stream of income and a spot rate for a discrete event such as a property sale or a pension lump sum.

The accrued-versus-paid election that decides whether your credits survive

Foreign tax credits can be claimed on a cash (paid) basis or on an accrued basis. For a UK taxpayer this is not an administrative preference — it is the mechanism that addresses the tax-year mismatch. Electing to claim credits on the accrued basis lets you match UK tax to the year the underlying income arose, rather than the year HMRC happened to collect it, which is precisely the problem the 6 April boundary creates. It matters even more where a Self Assessment balancing payment for one UK year is settled deep into the following calendar year.

The election is effectively one-way: once made, it binds you for subsequent years. Making it correctly at the start of a three-year streamlined package is straightforward. Discovering three years later that the package was filed on the paid basis, and that credits are stranded in the wrong years, is not. This is one reason a catch-up should be modelled across the whole window before the first return is drafted — the approach we take in cross-border tax planning engagements.

Mistake 4: Defaulting to the exclusion when the credit was worth more

Almost every piece of consumer software, and a good deal of consumer content, steers an American abroad towards the Foreign Earned Income Exclusion on Form 2555. For an American in Dubai or Singapore that is usually right. For an American in London it is very often wrong — and in a streamlined package the error is baked into three years at once.

The UK is a high-tax jurisdiction. With income tax at 40% above the higher-rate threshold and 45% at the additional rate, plus the personal allowance taper that produces a punitive effective marginal band above £100,000, a London professional typically pays materially more UK tax than the US would ever charge on the same income. The Foreign Tax Credit on Form 1116 turns that excess into a carryforward asset. The exclusion simply removes the income from the US base — and with it, the credit.

Consideration	Foreign Earned Income Exclusion (Form 2555)	Foreign Tax Credit (Form 1116)
Mechanism	Excludes qualifying earned income up to an annual cap	Credits UK tax paid or accrued against US tax on the same income
Income covered	Earned income only — salary, bonus, self-employment	Earned and unearned — dividends, interest, gains, rental, pension
Best suited to	Low-tax jurisdictions; income comfortably below the cap	High-tax jurisdictions such as the UK; income above the cap
Excess relief	None — excluded income generates nothing	Excess credits carry back one year and forward ten
Effect on Child Tax Credit refundability	Can eliminate the refundable element for US-citizen children	Generally preserves it
Effect on IRA and US pension contribution room	Excluded income does not count as compensation	Income remains in the base
Reversibility	Revoking generally locks you out for five years absent IRS consent	Flexible year to year

Two consequences deserve emphasis for wealthy households. First, the revocation rule: if you claim the exclusion and later revoke it, you generally cannot claim it again for five tax years without IRS consent obtained through a private letter ruling. A streamlined package filed on autopilot with Form 2555 across three years can therefore constrain your position for the better part of a decade. Second, the carryforward: for a City client whose UK tax comfortably exceeds the US liability, correctly claimed credits build a bank of excess credits capable of absorbing a future US-taxable event — a US-source gain, a pension distribution, or a business exit. Excluded income builds nothing.

The exclusion is not always wrong. It can be right where UK tax is low relative to US tax, where income sits below the annual cap, or in a split arrival year. But it should be the conclusion of a model, not the default of a software wizard. Reference details for each are on the IRS pages for Form 2555 and Form 1116.

Mistake 5: Treating ISAs and UK funds as tax-free on the US side

The fifth error is the most expensive per pound invested, because it compounds silently for years before anyone notices.

An ISA is a creature of UK law. HMRC exempts the income and gains inside it. The US–UK double tax treaty does not extend that exemption to the IRS, and no provision converts an ISA into a US-recognised tax-sheltered account. To the IRS an ISA is simply a wrapper around ordinary taxable assets. Interest in a cash ISA is US-taxable interest. Dividends in a stocks and shares ISA are US-taxable dividends. Gains are US-taxable gains. And the account is reportable on FBAR and, above the thresholds, on Form 8938.

The PFIC problem inside the wrapper

Worse than the loss of the exemption is what is usually held inside it. UK-domiciled collective investments — OEICs, unit trusts, investment trusts and UCITS ETFs — are Passive Foreign Investment Companies for US purposes. That is true whether they sit in an ISA, a General Investment Account, or a discretionary portfolio at a private bank.

Default PFIC treatment under the excess distribution regime is punitive by design: gains and certain distributions are allocated back across the holding period, taxed at the highest ordinary rate applicable in each of those years, and carry an interest charge on the deferred amounts. The practical effect on a long-held UK fund can be an effective rate that consumes most of the economic gain. Each fund holding generally requires its own Form 8621, per year — which is how a client with a diversified platform portfolio discovers they owe the IRS twenty-odd forms a year rather than one.

There are mitigations, and choosing between them is where genuine cross-border expertise earns its fee:

• Mark-to-market election — available for marketable stock, taxing annual appreciation as ordinary income and removing the interest charge going forward. Usually the most practical route for a UK platform portfolio, and often best made in the first year of the streamlined window rather than retrospectively.
• Qualified Electing Fund election — theoretically superior, but it depends on the fund providing a US-standard PFIC annual information statement. Most UK managers do not produce one. A small number do, and knowing which is a matter of current market knowledge rather than principle.
• Restructuring the holdings — US-domiciled funds accessible to a UK investor, individual equities, or a solution that qualifies as a UK reporting fund and a non-PFIC at the same time. Shares in individual operating companies are not PFICs and retain qualified dividend and long-term capital gain treatment.

UK pensions are a different question — and usually a better one

Clients often assume their SIPP or workplace scheme is as bad as their ISA. Generally it is not. The US–UK treaty contains pension provisions that, correctly claimed, allow growth inside a UK pension to be deferred for US purposes rather than taxed annually, and address the treatment of employer and employee contributions. But the relief is not automatic. It depends on the type of scheme, the treaty article being properly claimed and disclosed, and consistent treatment across every year in your package. A SIPP holding UK funds also raises the question of whether the PFIC rules are switched off by the pension wrapper, which turns on how the arrangement is classified.

Lump sums are the sharpest edge. A pension commencement lump sum is tax-free under UK law within the applicable allowance. Its US treatment is contested and fact-specific, and taking one during or shortly before a catch-up without modelling the US consequence is a common and costly sequencing error for clients approaching retirement age. Our high-net-worth cross-border team models these before the money moves, not after.

What about the HMRC side of the file?

A US catch-up rarely exists in isolation. If years of US returns were missed, UK Self Assessment is often incomplete too — particularly for clients with US-source income, US rental property, US brokerage accounts, LLC interests or partnership K-1s that were never reported to HMRC. The LLC point deserves its own warning: HMRC and the IRS can classify the same LLC differently, producing mismatched timing and a foreign tax credit that neither authority will fully allow unless the position is argued carefully.

HMRC operates its own disclosure route for exactly this: the Worldwide Disclosure Facility, accessed through the Digital Disclosure Service, for UK tax liabilities relating wholly or partly to an offshore issue. Registration triggers a defined window in which to complete the disclosure, and the penalty position depends heavily on whether the disclosure is prompted or unprompted — which is to say, on whether you get there before HMRC does. Offshore penalty rates are also territorially banded and can be considerably higher than domestic equivalents.

Two further UK points matter for internationally mobile clients. First, the abolition of the remittance basis and its replacement by the four-year foreign income and gains regime from April 2025 changed the arithmetic for recent arrivals, and any historic UK position must be tested against the rules in force for each year rather than today's. Second, HMRC and the IRS exchange information automatically — FATCA reporting flows one way and the Common Reporting Standard flows the other. Neither authority is working from a blank page. Coordinating both disclosures, and ensuring the account of events given to each is factually consistent, is a core part of any UK tax compliance engagement we run alongside a US catch-up.

The correct sequence for a London catch-up

1. Do not file anything yet. Establish the facts first: citizenship or green card status, years at risk, account inventory, entity interests, pension arrangements.
2. Test eligibility. Non-willfulness and the non-residency test for SFOP; identify whether the delinquent FBAR or delinquent information return routes fit the facts better.
3. Build the account and asset schedule. Every account, including closed ones, dormant ones, joint ones, and those over which you hold only signature authority.
4. Model the three-year window as a whole. Exclusion versus credit, paid versus accrued, PFIC elections, treaty positions — decided once, applied consistently.
5. Draft the Form 14653 narrative. This is the document the IRS actually reads. It must be specific, chronological, personal and consistent with every figure in the package.
6. Submit as one package. Returns and certification by post; the FBAR years separately through the FinCEN system with the correct reason for late filing selected.
7. Run the HMRC position in parallel where UK years are also incomplete, so the two disclosures do not contradict each other.
8. Fix the going-forward structure so the same problem cannot recur — which usually means addressing the ISA and UK fund holdings that created the PFIC exposure in the first place.

Clients frequently ask how long this takes. A well-organised file is typically prepared in weeks rather than months; IRS processing runs considerably longer, and the absence of an acknowledgement letter is normal rather than ominous. Further reading across related topics is collected in our cross-border tax guides.

Speak to us before you file anything

If you are an American in London with missed US tax returns, the worst outcome is rarely the IRS. It is the well-intentioned, unadvised first filing that forecloses the better route. Every one of the five mistakes above is inexpensive to avoid in prospect and expensive to unwind in retrospect. We handle these files daily for founders, executives, partners and private clients across London — discreetly, without judgement, and with both tax authorities in view from the first meeting. To review your position in confidence, contact our cross-border team for a private, no-obligation consultation.