US Tax Services for American Expats: London to Milan Returns

An American moving from London to Milan files three sets of returns for the move: a final UK Self Assessment that ends UK residence, usually with split-year treatment; a US Form 1040 for a calendar year spent in two foreign countries; and, from the first Italian tax year, an Italian return with the quadro RW foreign-asset schedule alongside FBAR and Form 8938.

At Jungle Tax we prepare these departure-year returns for founders, executives and investors who left London after the UK abolished the remittance basis in April 2025 and settled in Milan. Specialist US tax services for American expats treat the move year as one job, not three, because the UK, US and Italian returns use different tax years, different currencies and different residence rules, and every figure has to reconcile across all of them. This guide covers how each return is prepared, where they affect each other, and where wealthy filers most often get it wrong. It is about return preparation and compliance, not relocation planning.

Why is the London-to-Milan year harder than an ordinary expat year?

Most guides for Americans in Italy assume you arrive from the United States. Arriving from London is different in three ways.

• The tax years do not line up. The UK tax year runs from 6 April to 5 April. The US and Italian years both follow the calendar. A departure in July 2026 touches two UK tax years (2025/26 and 2026/27), one US year (2026) and, depending on the date, either one or no Italian tax years.
• You are foreign-resident on both sides of the move. For US purposes you never return to the United States, so the year is not a dual-status year. You are a US citizen abroad throughout, but your foreign tax, housing costs and residence change part-way through. Form 1116, Form 2555 and the foreign-asset forms all have to show that change.
• Three disclosure regimes overlap. Your UK accounts, your new Italian accounts and any US accounts appear on different reports with different values, dates and exchange rates: the FBAR (highest balance in the year), Form 8938 (year-end and maximum value) and the Italian quadro RW (start and end values, adjusted for days held).

Generalist pages handle each of these one country at a time. The real risk is in how they interact. For example, a gain taxed in Italy but caught again by UK temporary non-residence rules years later can leave a US foreign tax credit with nothing to offset.

Step 1: The final UK Self Assessment for the departure year

Are you entitled to split-year treatment?

Under the Statutory Residence Test you are UK resident or non-resident for a whole tax year. Split-year treatment divides that year into a UK part and an overseas part, but only if your facts fit one of the statutory cases. HMRC sets these out in its RDR3 Statutory Residence Test guidance. Three cases cover people leaving the UK:

• Case 1, starting full-time work overseas: for example, an executive moving to a Milan employer or a Milan branch, who meets the overseas working-hours and UK-day limits.
• Case 2, the partner of someone in Case 1: a spouse or partner who relocates to stay with them.
• Case 3, ceasing to have a UK home: the usual route for a founder or investor who sells or lets the London house and has a home only in Italy from the departure date, within six months.

Every case also requires that you were UK resident in the previous tax year and are non-resident in the following year. If you keep a London flat available to you, Case 3 usually fails, and the whole year can stay UK resident. We confirm the case before preparing anything else, because it decides which income HMRC can tax.

How the departure year is reported

The return is a normal SA100 with the residence pages, SA109. On the SA109 you claim split-year treatment, state the case and the date the overseas part began, and give your day count and ties. HMRC publishes the SA109 residence pages and notes. Points we check for wealthy leavers:

• Employment income and bonuses: a deferred bonus or share award vesting after you leave may still be partly UK-taxable, apportioned by workdays across the vesting period. The same award will be on your US return in full and may also be taxable in Italy.
• Gains in the overseas part: split-year relief for capital gains has its own rules. Disposals in the overseas part are generally outside UK capital gains tax, except UK land and property, which non-residents remain liable on.
• Sale of the London home: private residence relief, the final-period exemption, and the non-resident CGT return that may be required if completion falls after the overseas part begins.
• Post-April 2025 regime: the remittance basis no longer exists for income and gains arising from 6 April 2025. If you designated pre-2025 foreign income or gains under the Temporary Repatriation Facility, the designation and charge go on the return. The rate and the windows for claiming are legislated, and we confirm them for the year concerned.

Temporary non-residence: the watch-point that outlasts the move

If you were UK resident in at least four of the seven tax years before you leave, and you come back within five years, the temporary non-residence rules can tax certain income and gains from your time abroad in the year you return. The most common items for HNW leavers are gains on assets you owned when you left, and dividends from close companies paid out of pre-departure profits.

This matters for a US citizen because the US taxes that gain in the year you realise it, and Italy may tax it too. The UK charge only arises years later, in your year of return. US foreign tax credits carry back one year and forward ten, but they are tied to the category and the year, so the UK tax may not line up with the US income it relates to. We record every asset held at departure, with its UK base cost and US basis, in the departure-year file so a later return can be prepared without starting from scratch.

Step 2: The US return for a year spent in two foreign countries

Which exclusions and credits apply?

You file a full-year Form 1040 as a US citizen. The question is which relief applies to which slice of income.

• Foreign earned income exclusion (FEIE): the bona fide residence test is applied to you, not to one country. If you were bona fide resident in the UK and become bona fide resident in Italy with no break, you usually keep qualifying. If you do not, the 330-day physical presence test can bridge the move. Both are claimed on Form 2555.
• Foreign housing exclusion or deduction: the IRS sets a separate housing cap for each high-cost city, and London and Milan have different limits. In a move year the housing amount is worked out separately for each location and each period of days, not with one annual figure.
• Foreign tax credit (FTC): for most London earners the FTC beats the FEIE, because UK and Italian marginal rates are generally at or above US rates. Claiming the FEIE also bars a credit for foreign tax on the excluded income. If you revoke an FEIE election, you cannot claim it again for several years without IRS consent. Choose with the next five years in mind, not just the move year.

Form 1116 in a straddle year: by category and by country

Form 1116 is prepared separately for each income category: general (wages, bonuses, business income), passive (interest, dividends, most gains) and, where a treaty re-sourcing rule applies, treaty-resourced income. Within each form, foreign taxes and income are reported country by country. In a London-to-Milan year this usually means the following.

• UK PAYE tax on January to departure salary goes in the general category, UK column. UK tax on a post-departure bonus goes in the same column, but has to be traced to the US income it relates to.
• Italian IRPEF and regional and municipal surcharges on Milan salary go in the general category, Italy column.
• UK and Italian tax on investment income goes in the passive category. The passive category often has excess credits that cannot be used, because foreign tax on investment income is higher than the US rate.

Timing mismatch: UK tax for 2025/26 and 2026/27 accrues over two US years, and an Italian balancing payment is often settled the year after. Cash-method filers can elect to credit taxes when they accrue rather than when paid. That election is permanent, so it needs to be modelled first. Once made, it usually puts UK and Italian tax into the same US year as the income.

Currency: three currencies, three conventions

The US return is in dollars. Foreign tax paid is generally translated at the rate on the date of payment, or at the average rate for the year for accrued taxes that meet the conditions. Income can use yearly average rates where suitable. Repaying a sterling mortgage on the London home can create a foreign currency gain that is taxable in the US. A currency loss on a personal mortgage is not deductible. This is a frequent and expensive surprise on a London house sale that is otherwise exempt from tax in the UK, and possibly sheltered in the US under the home-sale exclusion.

Step 3: The Italian dimension and the quadro RW

When do you become Italian tax resident?

Italian residence is generally decided for the whole calendar year, by reference to presence, registration, domicile or habitual residence in Italy for most of the year. Italy reformed these criteria from 2024. The date of the move therefore matters. Someone arriving in the first half of the year may be resident in Italy under Italian domestic law for the whole of it, while still being UK resident for part of it. The UK-Italy double tax treaty's tie-breaker then decides which country has primary taxing rights over each period. If you arrive late in the year, your first Italian return may not be due until the following year. We confirm the position with your Italian commercialista before the US and UK returns are finalised, because it decides whose tax goes in which Form 1116 column.

Quadro RW alongside FBAR and Form 8938

Once you are Italian resident, the quadro RW in the Modello Redditi PF reports foreign assets: your UK bank and brokerage accounts, ISAs, pensions where reportable, US accounts, foreign property, and crypto. The same assets carry Italian wealth taxes: IVAFE on foreign financial assets and IVIE on foreign real estate. Each is charged at a modest percentage of value and adjusted for days held. The rates and the small-account thresholds have changed in recent budget laws, so we confirm the current figures with Italian counsel each year rather than quoting them here.

The same London brokerage account will then appear three times: on the FBAR at its highest balance in the year, on Form 8938 at its year-end and maximum value, and on the quadro RW at its start and end values in euros. These figures should not match, but they must be explainable. Italian banks report to the IRS under FATCA, and UK and Italian institutions exchange data under the Common Reporting Standard, so unexplained differences are where enquiries start.

Italian regimes for new residents

Two Italian regimes come up constantly in our Milan files. The first is the optional flat substitute tax on foreign income for new residents, a fixed annual amount that has been increased for later arrivals. The second is the impatriate worker regime, which partly exempts qualifying employment income and was tightened from 2024. Both change how much Italian tax you pay, so both change your US foreign tax credit position. A flat substitute tax may not be a creditable income tax for US purposes at all. That can leave UK-source and US-source investment income exposed to full US tax for the first time. The figures, eligibility conditions and the US creditability of these regimes need confirming for your arrival year. Your Italian adviser decides whether to elect, and we prepare the US and UK returns to fit that decision.

UK vs US vs Italy: the departure year at a glance

What usually goes wrong on London-to-Milan returns?

• Treating the US year as dual-status. It is not. You remain a US citizen abroad throughout, and filing as if you had arrived from the US distorts both the FEIE and the FTC.
• One housing figure for the year. London and Milan have different IRS housing caps. Using the London limit for the whole year overstates the exclusion.
• ISAs and UK funds left as UK-only. A Stocks and Shares ISA is fully taxable in the US. UK collective funds are usually passive foreign investment companies requiring Form 8621. Once you are in Italy they also go on the quadro RW and attract IVAFE.
• UK pensions overlooked on the Italian side. US treatment follows the US-UK treaty. Italy may report or tax the same scheme differently, so the reporting has to be checked separately for each country.
• Bonus vesting taxed three times without relief. Workday apportionment on the UK return, full inclusion on the US return and Italian taxation of the post-arrival part need matching credits. If they are not matched, relief is lost.
• Missed prior-year forms surfacing at the move. Opening Italian accounts and onboarding with a Milan private bank often brings unfiled FBARs or missing Forms 8938 and 5471 to light. If so, address it before the first Italian return, usually through IRS streamlined filing under the Foreign Offshore Procedure where the facts support non-wilfulness.

Our preparation sequence for a London-to-Milan year

1. Fix the dates. Departure date, Italian arrival and registration date, and the date your London home stopped being available. All three countries' positions depend on them.
2. Confirm the split-year case and Italian residence start, coordinating with your Italian commercialista on any treaty tie-breaker.
3. Build the asset register: every account and holding with its GBP, EUR and USD values at departure, highest balance and year end, so the FBAR, Form 8938 and quadro RW come from one dataset.
4. Prepare the UK return first, because UK tax feeds the US Form 1116 UK column.
5. Prepare the US return with the FEIE/FTC choice modelled over several years, the accrual election considered, and separate Forms 1116 per category.
6. Hand over a reconciliation pack to your Italian adviser so the quadro RW and the US forms report the same assets consistently.
7. Record temporary non-residence exposure and US basis for every asset held at departure, for future years.

Many of our clients' affairs also include UK rental income or company interests that stay behind after the move. Our US-UK tax accountants and high-net-worth team prepare those continuing UK filings alongside the US return. If you suspect earlier US filings were missed, our FBAR penalty calculator gives an initial indication of exposure.

Getting the departure year right

The London-to-Milan year sets the pattern for every return that follows. It fixes your US elections, your UK residence position and the base figures your Italian adviser reports from then on. If you have moved, or are about to file your first returns after the move, contact our cross-border team for a confidential consultation. We will review your dates, your accounts and any missed prior-year filings, and prepare UK and US returns that reconcile with your Italian position.