US Tax Services for American Expats: London to Monaco

An American moving from London to Monaco still files a US return for every year of the move: citizenship-based taxation does not stop at the border. The UK side ends with a final Self Assessment and, usually, split-year treatment. Monaco levies no income tax on most residents, so there is nothing to credit, and the US liability has to be worked out from first principles.

At Jungle Tax, most US-UK returns we prepare rely on a simple fact: UK tax is high enough that foreign tax credits normally cancel the US bill. That logic breaks the day you become resident in Monaco. Specialist US tax services for American expats who prepare relocation-year returns know the move year produces three documents that must agree with each other: a UK return that closes residence correctly, a US return that changes method part-way through the year, and a full set of foreign account disclosures. This guide sets out how each one is prepared, where they interact, and where wealthy filers most often go wrong.

Why does the London-to-Monaco move change your US tax position so sharply?

While you lived in London, your US return probably relied on the foreign tax credit (Form 1116). UK income tax rates on salary, bonuses, dividends and gains are generally equal to or higher than US rates, so the credit for UK tax paid usually reduced the US liability on that income to little or nothing. Many London-based Americans never thought much about their US bill because, in practice, there was rarely one.

Monaco works differently. The Principality does not levy personal income tax on its residents, with one important exception: French nationals resident in Monaco are taxed by France under a long-standing bilateral convention between the two countries. For an American who is not also a French citizen, Monaco-source salary, worldwide investment income and capital gains attract no local income tax at all. There is also no US-Monaco income tax treaty.

Two consequences follow for your US return:

• There is no foreign tax to credit. Income earned after you become a Monaco resident is, from the IRS's perspective, untaxed foreign income. Unless an exclusion applies, it is taxed at full US rates.
• The foreign earned income exclusion (FEIE) becomes central. It was often irrelevant, or even unhelpful, in London. In Monaco it can be the only mechanism that keeps salary or self-employment profit out of US income tax, and it covers only earned income, up to an annually indexed limit.

Investment income (dividends, interest, gains on securities, rent) is never covered by the FEIE. For most high-net-worth Americans in Monaco, that is the bulk of income, and it is fully taxable in the US at ordinary or preferential rates, with the 3.8% Net Investment Income Tax potentially on top and no foreign tax to offset it.

The UK side: closing your UK tax residence correctly

The statutory residence test in the year you leave

UK residence is decided by the statutory residence test (SRT), not by a form or a declaration. In the tax year you leave (UK tax years run 6 April to 5 April), you will almost always be UK resident for the year as a whole under the SRT, because you will have spent enough days in the UK before the move and had a UK home for part of the year. The question is then whether split-year treatment applies. HMRC's own guidance is in RDR3: Statutory Residence Test.

Split-year treatment on departure

Split-year treatment divides the departure tax year into a UK part and an overseas part. Broadly, you are taxed as a UK resident on worldwide income and gains arising in the UK part, and as a non-resident (UK-source income only) in the overseas part. It is not elective; it applies automatically if your facts fit one of the statutory cases. The departure cases most relevant to an American relocating to Monaco are:

• Case 1, starting full-time work overseas: for executives taking up a Monaco-based role, subject to strict tests on working hours and limits on UK days and UK workdays.
• Case 2, the partner of someone in Case 1: for a spouse or partner who moves with them.
• Case 3, ceasing to have a UK home: often the decisive case for wealthy individuals who are not taking up employment. It requires that you have no UK home in the overseas part, that you become resident in, or have sufficient ties to, the new country within a set period, and that UK presence stays below a threshold. Keeping the London house available to you can defeat Case 3 entirely.

Where split-year treatment does not apply, you are UK resident for the whole departure year, and income or gains realised after arriving in Monaco remain within the UK charge. This is the most expensive single error we see on departure-year returns, and it usually comes from retaining a UK property as a "home" without realising its significance.

The final Self Assessment return and form P85

If you are already in Self Assessment, and most wealthy Americans in London are, you report departure through the residence pages (form SA109) of your Self Assessment return for that year, claiming split-year treatment and identifying the case relied upon. Form P85 is designed for people who are not in Self Assessment; HMRC's page on tax if you leave the UK explains which route applies. Either way, P85 is a notification, not a residence determination. Filing it does not make you non-resident, and failing to file it does not keep you resident.

The departure-year return should also capture:

• Final employment income, including bonuses or deferred awards that relate to UK workdays and may remain taxable in the UK even when paid after you leave.
• Gains realised before the departure date, and any gains realised in the overseas part on UK residential property, which remain within UK non-resident capital gains tax rules.
• Continuing UK income, such as rent from a retained London property, which stays taxable in the UK and normally requires registration under the non-resident landlord scheme.

Can HMRC tax Monaco gains if you return to the UK?

Leaving for Monaco does not permanently shelter gains from the UK. Under the temporary non-residence rules, if you were UK resident for at least four of the seven tax years before departure and you return to UK residence within five years, certain gains and income realised while you were away can be taxed in the UK in the year you come back. This covers gains on assets you held before leaving and certain types of income, such as distributions from close companies and some pension lump sums.

For a departure-year return, this matters in two ways. First, the return must establish a clean departure date, because that date starts the five-year clock. Second, records of any disposals made in Monaco should be kept to a UK reporting standard, since you may need them on a future UK return if plans change. We prepare the return; whether to return to the UK is your decision. We make sure your records will support either outcome.

UK accounts you leave behind: ISAs and pensions

An ISA can usually be kept after you leave, but no new subscriptions can be made once you are non-resident. For US purposes, an ISA was never tax-free. Income and gains inside it are reportable on your US return, and if it holds UK or other non-US collective funds, those holdings may be passive foreign investment companies (PFICs) reportable on Form 8621. UK pensions remain reportable on the FBAR and, depending on values, on Form 8938. Their US treatment often depends on positions taken under the US-UK treaty in earlier years, which must be carried through consistently.

The US side: preparing the move-year Form 1040

The move year is a hybrid year

Your US tax year is the calendar year, so the US return for the year you move almost always contains a London period and a Monaco period. In practice, the London months are often best handled with the foreign tax credit, and the Monaco months with the FEIE. That combination is permitted, but not on the same income: income you exclude under the FEIE cannot also support a credit, and the credit available on remaining income is reduced proportionately.

A further complication: UK tax is assessed on a 6 April to 5 April year, and US tax on a calendar year. Your UK departure-year tax has to be allocated across two US returns, and UK tax paid for the UK part of the year must be matched to the income it relates to. Getting this mapping wrong overstates or understates foreign tax credits, and it is the most common technical error on move-year US returns.

Qualifying for the FEIE: bona fide residence vs physical presence

The FEIE is claimed on Form 2555. To use it, your tax home must be in a foreign country and you must meet one of two tests, described in the IRS's foreign earned income exclusion guidance:

• Bona fide residence test: you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. This is often overlooked: the test refers to foreign countries, not one country. An American who was a bona fide UK resident throughout the previous calendar year and moved directly to Monaco may be able to show uninterrupted foreign residence through the move year itself. Residence is a question of fact and intent, so the evidence (Monaco residence card, home, family, the London home being given up) must be assembled and stated carefully.
• Physical presence test: you are physically present in a foreign country or countries for at least 330 full days in any period of 12 consecutive months. Days in the UK and Monaco both count, as do days in France or Italy; days in the US and over international waters or airspace generally do not. For a first-time expat this is often the easier test, because the 12-month window can be chosen to maximise the exclusion in the move year.

If you have not yet met either test when the return is due, an extension using Form 2350 allows time to qualify before you file. Americans abroad also receive an automatic two-month extension to file (to mid-June), and Form 4868 can extend further to October.

A previously revoked FEIE election

Many London-based Americans either never elected the FEIE or, more problematically, elected it once and later revoked it in favour of the credit. A revocation generally prevents a new FEIE election for five tax years without IRS consent. Before the Monaco-year return is prepared, prior returns should be reviewed to confirm that the exclusion is actually available.

What does the FEIE not cover in Monaco?

The exclusion is capped (it is indexed annually and was around $130,000 for 2025), and a separate foreign housing exclusion or deduction can add to it. The IRS sets higher housing limits for expensive locations, and Monaco is among them. But for many Monaco residents, the more important point is what sits outside the exclusion:

• Dividends, interest, capital gains, rents and pension distributions: fully taxable in the US, with no Monaco tax to credit.
• Net Investment Income Tax: the 3.8% surtax applies to investment income above the threshold and cannot be offset by the FEIE.
• Self-employment tax: the FEIE does not reduce it, and there is no US-Monaco social security (totalisation) agreement to exempt self-employed Americans.
• Income stacking: excluded income still pushes the remaining income into higher brackets, so the FEIE saves less than the headline figure suggests.

UK foreign tax credit carryovers

Americans who paid substantial UK tax often have unused foreign tax credits carried forward from London years. Those carryovers can sometimes absorb US tax on Monaco-period foreign-source income in the same category, which matters greatly once current foreign tax falls to zero. They expire, they are category-specific, and claiming the FEIE affects how they can be used, so the decision between exclusion and credit for the move year should be modelled both ways before filing.

Dual US-French nationals

An American who also holds French citizenship does not benefit from Monaco's no-income-tax position. They remain within the French tax net under the France-Monaco convention, while the US continues to tax them on citizenship. Their return needs a separate analysis under the US-France treaty, and the simple "no foreign tax" model described above does not apply.

Which Monaco and UK accounts go on the FBAR and Form 8938?

Moving does not reduce reporting. It often increases it, because Monaco residence typically involves opening local banking relationships while UK accounts stay open during the transition.

• FBAR (FinCEN Form 114): required where the combined maximum value of all your foreign financial accounts exceeded $10,000 at any time in the year. Every account counts: UK current accounts, ISAs, pensions, brokerage accounts, and every Monaco current, deposit and custody account, including joint accounts and accounts over which you hold signature authority. See the IRS FBAR guidance.
• Form 8938 (FATCA): attached to the Form 1040, with higher thresholds for taxpayers living abroad, and covering a wider class of specified foreign financial assets. See About Form 8938.
• Related forms: Form 8621 for PFIC holdings and Form 5471 for interests in foreign companies (common where a Monaco or UK holding company is used).

Monaco institutions report US account holders under FATCA, so accounts not on your FBAR are, in practice, visible to the IRS. If earlier years are incomplete, the clean route is usually the IRS streamlined procedures: our streamlined filing team handles the Foreign Offshore Procedure for Americans who qualify as non-resident. You can estimate exposure with our FBAR penalty calculator.

Does your former US state still claim you?

Federal and state residence are separate questions. If you lived in a state such as California, New York, Virginia or New Mexico before coming to London, that state may still regard you as domiciled there, and may claim the right to tax your worldwide income even though you have been abroad for years. Indicators such as a retained home, a driving licence, voter registration or an address used on brokerage accounts all point to continuing ties. The Monaco move is a natural point to document that the state domicile has been abandoned, and the first Monaco-year return should be consistent with that position.

US vs UK obligations in the move year: side by side

A worked sequence for the departure year

For a typical relocation in the middle of a calendar year, our return preparation follows this order:

1. Fix the departure date and test it against the split-year cases, with evidence of the UK home being given up or let.
2. Prepare the UK departure-year Self Assessment with SA109, so that UK tax for the UK part is finalised and can be allocated.
3. Map UK tax to calendar years, dividing UK tax for the departure year across the two US returns it straddles.
4. Decide the FEIE test (bona fide residence or physical presence), confirm no earlier revocation blocks it, and file Form 2350 if more time is needed.
5. Model credit vs exclusion for the London and Monaco periods, including carryovers and NIIT.
6. Complete all information returns: FBAR, 8938, 8621 and any entity forms, listing every UK and Monaco account opened or closed in the year.
7. Confirm state position and file a final or part-year state return where required.

For the first full Monaco year, the work is simpler but no less important. It is usually the first year in which the US return carries a real cash liability, and many clients need US estimated tax payments established so they are not exposed to underpayment penalties.

When earlier years are not clean

A relocation review often uncovers gaps in earlier filings: an ISA never reported as income, UK funds never treated as PFICs, a UK pension omitted from FBARs, or years when a US return was not filed because "the UK tax covered it". These should be corrected before, or alongside, the first Monaco-year return. Fixing them now, while UK records and statements are still easy to obtain, is much easier than reconstructing them from Monaco years later. Our US-UK tax accountants and high-net-worth return team handle these catch-up filings together with the current-year returns.

Speak to a cross-border return specialist

The London-to-Monaco move is one of the few relocations where the US return becomes more demanding, not less. The UK return must close residence precisely, the US return must switch from credit to exclusion without losing reliefs, and every account on both sides must be disclosed. If you are preparing to move or have already arrived in Monaco, contact our cross-border team for a confidential consultation, and we will prepare your departure-year and first Monaco-year returns together so they agree.