Taxes After Renouncing US Citizenship: What You Still Owe

Taxes after renouncing US citizenship: an introduction

Your taxes after renouncing US citizenship do not stop on the day you take the oath. You still file a final US return for the year you expatriate, with Form 8854 attached. After that, the US taxes you only as a nonresident, on income from US sources. For most people in Britain that is a small amount, but it is rarely nothing.

This article explains your taxes after renouncing US citizenship: what you still owe and what you still file. Our full guide to IRS Streamlined Filing from the UK covers getting up to date before you renounce. Our expatriation service covers the filings around renunciation itself.

Why taxes after renouncing US citizenship still matter

The US taxes its citizens on worldwide income wherever they live. Renouncing ends that, but only from your expatriation date. Furthermore, the IRS sets out separate expatriation tax rules for the year you leave. Consequently, the year of renunciation is often your most complex US return.

The short answer

There are three layers to your taxes after renouncing US citizenship. First, you file a final return that splits the year at your expatriation date. Second, you work through the covered expatriate tests on Form 8854. Third, you keep reporting US-source income as a nonresident for as long as you have it.

What is the final return for the year you renounce?

It is a dual-status return. You are taxed as a US person on worldwide income up to your expatriation date, and as a nonresident on US-source income afterwards.

Form 1040-NR with a Form 1040 statement

A dual-status return is a return for a year in which you were a US person for part of the year and a nonresident for the rest. IRS Publication 519 says that if you are not a US resident on the last day of the year, you file Form 1040-NR as the return. You mark it "Dual Status Return". You then attach Form 1040 as a statement for the part of the year before you left, marked "Dual Status Stmt".

Restrictions on a dual-status return

A dual-status return carries restrictions. Publication 519 says you cannot claim the standard deduction, although allowable deductions can be itemised. In addition, you cannot use head of household rates or file a joint return in the usual way. Therefore, the final-year bill can be higher than usual.

When the final return is due

Publication 519 sets the due date for a dual-status filer who is a nonresident at year end. If you had US wages subject to withholding, it is 15 April of the following year. Otherwise, it is 15 June. So for a renunciation in 2026, a filer with no US wages is generally due by 15 June 2027.

What is Form 8854, and when is it due?

Form 8854 is the expatriation statement every former citizen files, whether or not any exit tax applies. It is due with your final return, by that return's due date.

Who files Form 8854

Everyone who relinquishes citizenship files an initial Form 8854 for the year of expatriation. The Form 8854 instructions say you attach it to your return for that year. If you have no return to file, you send it on its own by the date the return would have been due.

The penalty for not filing

The instructions set a $10,000 penalty for failing to file, or for filing an incomplete or incorrect form, unless there was reasonable cause. The penalty sits in section 6039G. Moreover, an unfiled form means you have not certified compliance, which alone makes you a covered expatriate.

Your expatriation date

Your expatriation date is the date your US tax residence ends. For a citizen, the Form 8854 instructions use the earliest of four dates. The usual one is the day you renounce before a US consular officer, provided the State Department later approves a Certificate of Loss of Nationality. Our guide on how to renounce US citizenship covers that step.

Are you a covered expatriate?

You are a covered expatriate if you meet any one of three tests on income tax, net worth or compliance. Covered status shapes your taxes after renouncing US citizenship more than anything else.

The three tests for 2026

The first test asks whether your average annual net US income tax for the five years before expatriation is above an indexed figure. Under Revenue Procedure 2025-32, that figure is $211,000 for 2026 expatriations, up from $206,000 for 2025. The second is a net worth of $2 million or more on your expatriation date. The third is certifying five years of compliance on Form 8854.

Why most people in Britain are not covered

UK tax is usually credited against US tax, so average US tax tends to be low. Nevertheless, the net worth test catches homeowners with good pensions. The certification test catches anyone with gaps in their filing. Furthermore, the instructions provide exceptions to the first two tests for certain dual citizens from birth and certain minors. Those groups must still certify compliance.

The exit tax in brief

For a covered expatriate, everything is treated as sold on the day before expatriation. Revenue Procedure 2025-32 reduces the resulting gain by $910,000 for 2026. Our article on the US exit tax explains the deemed sale in depth. Here, the point is simpler: covered status can affect your returns for years.

Relief for modest cases

The IRS runs relief procedures for certain former citizens whose failures were non-wilful. They require a net worth under $2 million and aggregate tax of $25,000 or less for the expatriation year and the five years before. If you qualify, you are not treated as a covered expatriate. Our article on the cost to renounce US citizenship sets this against the other costs.

How is US income taxed after you renounce?

As a nonresident, you pay US tax only on US-source income. For most people, taxes after renouncing US citizenship mean withholding at 30%, or a lower treaty rate.

US dividends and the treaty rate

Publication 519 says a 30% rate, or a lower treaty rate, applies to the gross amount of US-source fixed or periodic income. Dividends from US companies are the usual example. Under Article 10 of the US-UK income tax treaty, the US rate on portfolio dividends paid to a UK resident cannot exceed 15%. To claim it, you give your broker Form W-8BEN, replacing the W-9 you gave as a citizen.

US rental property

Rent from a US property stays taxable in the US, as Article 6 of the treaty allows. By default, Publication 519 applies 30% to the gross rent, collected by withholding. Alternatively, you can choose to treat the rent as effectively connected income. You then deduct expenses and pay tax only on the net figure, filing Form 1040-NR each year.

When you still file a US return

Publication 519 gives the example of a nonresident whose only US income is rent with tax fully withheld. That person does not have to file Form 1040-NR. However, anyone who makes the net basis choice, or whose withholding is wrong, does file. Therefore, taxes after renouncing US citizenship often include a short US return each year.

What happens to US pensions and Social Security?

The US-UK treaty generally lets only the UK tax your US pension and Social Security once you are a UK resident and no longer a citizen. Lump sums and covered expatriate rules are the main exceptions.

US Social Security benefits

For nonresidents, IRS Publication 915 says 85% of benefits are taxed at 30%, unless a treaty exempts them. It then lists the United Kingdom among the countries whose residents are exempt from US tax on their benefits. Article 17(3) of the treaty gives the same result. Consequently, Social Security rarely adds to your taxes after renouncing US citizenship while you live in the UK.

US pensions and IRAs

Article 17(1) of the treaty makes periodic pensions taxable only in the country where the owner lives. However, Article 17(2) keeps a lump sum from a US scheme taxable only in the US. As a cautious approach, we confirm with each plan how it will withhold before the first payment.

The ten-year rule in the treaty

Article 1(6) of the treaty is a safeguard. A former citizen whose loss of citizenship had tax avoidance as a principal purpose can be treated as a citizen for ten years. It applies only to US-source income. The treaty does not define how that purpose is shown, so practice is unsettled. We therefore record the reasons for renouncing in the working papers.

What extra rules apply to covered expatriates?

Covered expatriates face special rules for deferred compensation, tax-deferred accounts and trust interests. These rules extend taxes after renouncing US citizenship well beyond the final return.

Deferred compensation and Form W-8CE

Deferred compensation is pay earned now but paid later, such as a pension. Under section 877A, eligible items from a US payor are taxed at 30% withholding on each payment. To use that route, you waive treaty reductions and notify the payor on Form W-8CE. The Form 8854 instructions set the deadline: the earlier of the day before the first payment or 30 days after expatriation.

Specified tax deferred accounts

A specified tax deferred account includes an IRA, a 529 plan, a Coverdell account and a health savings account. For a covered expatriate, the instructions say your entire interest is treated as received on the day before expatriation. Ineligible deferred compensation, which includes most items paid by a non-US payor, is treated as received at its present value instead.

Annual Form 8854

Most former citizens file Form 8854 only once. However, Publication 519 says covered expatriates file it every year if they defer the exit tax, hold eligible deferred compensation or have an interest in a non-grantor trust. Section 877A also requires 30% withholding on taxable distributions from non-grantor trusts.

Does renouncing affect gifts to US family?

Yes, if you are a covered expatriate. A US citizen or resident who receives a gift or bequest from you can owe tax under section 2801.

The section 2801 tax

Section 2801 taxes the US recipient, not the donor, at the highest gift or estate tax rate in force. For 2026, Revenue Procedure 2025-32 applies it only to covered gifts and bequests above $19,000 in the year. The Form 8854 instructions add a presumption. A gift is presumed to come from a covered expatriate unless you authorise disclosure of your tax information to the recipient.

Form 708 is now available

The IRS estate and gift tax updates page says the final regulations apply to gifts and bequests received on or after 1 January 2025. The recipient reports on Form 708. Its instructions make it due by the 15th day of the eighteenth month after the year of receipt. For example, Form 708 for 2025 is due by 15 June 2027.

Does anything change on the UK side?

No. UK tax depends on where you live, not on your passport. Taxes after renouncing US citizenship are a purely US question.

Residence decides UK tax

Your UK tax turns on the statutory residence test, set out in HMRC's guidance note RDR3. GOV.UK explains how residence affects tax on foreign income. If you stay UK resident, you keep paying UK tax on your worldwide income as before.

Treaty relief continues

The UK still gives credit for US tax that the treaty lets the US charge, such as the 15% on dividends. After renouncing, the position is simpler, because the US taxes only US-source income. Our guide to the US-UK double taxation treaty covers the credit rules.

What does this look like in practice?

A worked example shows the taxes after renouncing US citizenship in order. It is an illustration, not a real client.

An example: a former citizen in Manchester

Consider a typical case. Emma is a US citizen who has lived in Manchester for fifteen years. She renounces at the London embassy in May 2026, and her certificate is later approved. Her net worth is under $2 million, her US tax is low and her returns are filed.

For 2026, Emma files Form 1040-NR as a dual-status return, with Form 1040 as the statement. She attaches Form 8854 and certifies her compliance, so she is not a covered expatriate. With no US wages, both are due by 15 June 2027.

Her taxes after renouncing US citizenship

From 2027, Emma holds US shares through a US broker. She gives the broker Form W-8BEN, so US tax on her dividends is limited to 15%. She claims that tax as a credit on her UK return. While she lives in the UK, her US Social Security will be taxed only there. Overall, her US position comes down to withholding and her UK return.

How US UK Tax Experts can help

We prepare the filings behind your taxes after renouncing US citizenship, for the year you renounce and after. First, we work through the covered expatriate tests and document each one. Next, we prepare the dual-status return and Form 8854 from the same records as your UK return. Finally, we set up the forms your US payers need, so withholding is right from the start.

If you have missed years, our streamlined filing service brings you up to date before the oath. We do not give legal advice on nationality, investment advice or financial planning; we prepare and file the returns.

Conclusion

In summary, taxes after renouncing US citizenship come in stages. You file a final dual-status return with Form 8854, generally by 15 June of the next year. You work through the covered expatriate tests, which for 2026 use a $211,000 average tax figure and a $2 million net worth test. Afterwards, the US taxes only US-source income, often at treaty rates.

Contact us

Are you planning to renounce, or have you just done so? Email us at hello@usuktaxexperts.com, or tell us about your situation through our contact page. We reply within one working day with the filings that apply and what we would need from you.