Roth IRAs for Americans living in the UK

A Roth IRA is the closest thing the US has to an ISA: after-tax money in, tax-free growth and withdrawals out. Living in the UK changes two things: whether you can still contribute, and how the UK treats the account.

Contributing from the UK

Contributions need US taxable compensation. If you exclude all your UK earnings under the Foreign Earned Income Exclusion you have none, and no contribution is allowed for that year. Using the Foreign Tax Credit instead keeps your earnings in the base, so a contribution is possible even when the net US tax is nil. This is one of the main reasons the credit usually wins in the UK.

Limits: US$7,000 for 2025 (US$8,000 if 50 or over), with the usual phase-outs by modified adjusted gross income, which for this purpose adds back any FEIE you did claim. Check the current year's IRS figures; they move annually.

The backdoor route

Above the income phase-out, a non-deductible traditional IRA contribution followed by a conversion to Roth achieves the same result, tracked on Form 8606. The pro-rata rule bites if you also hold pre-tax IRA balances. The conversion is taxable in the US only to the extent of earnings; see below for the UK side.

How the UK sees a Roth

HMRC's manual at DT19853 says a distribution from a US IRA to a UK resident is exempt from UK tax to the extent it would be exempt in the US. Qualified Roth distributions are tax-free in the US, so that wording supports UK exemption on qualified distributions. The manual does not single out Roth accounts, and the treatment of income and gains arising inside the account during UK residence depends on the treaty position taken for the account as a pension scheme. The usual approach is to claim treaty treatment on the UK return so that growth is not taxed year by year, and to document the position; without that claim HMRC can take the view that dividends and gains inside the account are taxable as they arise.

The point to take from this: the position is claimable and defensible, but it has to be claimed and recorded, not assumed.

Conversions while UK resident

A Roth conversion is taxable income in the US in the year of conversion. For a UK resident it may be taxable in the UK too, as a pension payment under the treaty, with credit for the US tax. Model both before converting; the long-term Roth benefit has to outweigh two tax bills now.

Roth or ISA?

For a US person neither is sheltered in both countries. An ISA is UK-free and fully US-taxable (with PFIC problems if it holds UK funds). A Roth is US-free and defensibly UK-free with the right treaty position. If you expect to retire in the US the Roth is clearly better; if in the UK it still generally beats an ISA, because the US problem with ISAs is certain while the UK treatment of a Roth is claimable. We explain the tax; the investment decision is yours or your financial adviser's.

Frequently asked questions

Do I report my Roth IRA on my UK return?

If you claim treaty treatment, state the position; if you do not, report income and gains inside it. Either way, be consistent year to year.

Does the Roth count for FBAR or Form 8938?

No. It is a US account.