Roth IRA Conversions for Americans Living in the UK: The US and UK Tax Position

Short answer

A Roth conversion moves money from a traditional IRA into a Roth IRA. The US taxes the converted amount as ordinary income in the year you convert. Living in the UK does not change that. Your UK salary exclusion does not shelter it, and UK income tax usually gives no credit against it, so the US tax is often a real cash cost. On the UK side, the treatment of a conversion made while you are UK resident is not settled. Many advisers are concerned that it could weaken the Roth's protection under the US-UK tax treaty. This page sets out the tax position only. Whether converting suits you is a decision for you and your financial adviser.

Key points

• The full pre-tax amount converted is ordinary income on your US return for that year.
• There is no 10% early withdrawal penalty on the conversion itself. Each conversion starts its own five-year clock for penalty-free access before age 59½.
• The foreign earned income exclusion only covers earned income, so it cannot exclude a conversion.
• UK income tax is generally not credited against US tax on a US-source IRA conversion.
• The UK generally respects a Roth IRA as a pension under the treaty. Contributions or conversions made after becoming UK resident are where the uncertainty lies.
• A conversion cannot be undone. Recharacterisation of conversions ended in 2018.

How the US taxes a conversion

The converted amount, less any after-tax basis you already have in your traditional IRAs, is added to your income. If you have both pre-tax and after-tax money in traditional IRAs, the pro-rata rule applies across all of them. You cannot pick out only the after-tax dollars.

For 2026 the ordinary income brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. A single filer moves from 22% to 24% at $105,700 of taxable income, and from 24% to 32% at $201,775. Many Americans in the UK exclude their salary with Form 2555. In that case, the "stacking" rule taxes the conversion at the rate it would face if the excluded salary were still counted. So a conversion can land in a higher bracket than people expect.

Why foreign tax credits rarely help

Foreign tax credits offset US tax on foreign-source income. An IRA conversion is US-source income. If the UK does not tax the conversion, there is no UK tax to credit. If the UK did tax it, the treaty's resourcing rules for US citizens would come into play, which is complex and fact-specific. Most people should plan on the US tax being payable in full.

The UK side

Under Article 17 of the US-UK treaty, a Roth IRA is generally treated in the UK as a pension scheme. Growth inside it is not taxed in the UK, and qualified distributions that would be tax-free in the US are not taxed in the UK either. The protection is usually described as applying to a Roth that was funded before you became UK resident.

Contributions made while UK resident are widely regarded as putting that protection at risk. HMRC has not published clear guidance on whether a conversion counts as a contribution. Some advisers treat a conversion as a contribution. Others see it as a transfer between US retirement accounts. Until the position is clearer, a conversion made while UK resident carries a UK risk that has to be weighed and recorded, not assumed away.

The conversion itself, a transfer between two US retirement accounts, is not normally a payment to you that the UK taxes.

Timing questions people ask

• Converting before moving to the UK avoids the UK question entirely and is the cleanest position for treaty purposes.
• Converting in the tax year you move back to the US may also avoid the UK point, depending on split-year treatment.
• Converting in a low-income year, such as a career break, can reduce the US bracket.

These are tax observations, not recommendations. TaxStone is not a financial adviser and is not authorised by the FCA. We do not advise whether you should convert, how much to convert or how the money should be invested.

What we can help with

We can model the US tax on a proposed conversion alongside your other income, show the stacking effect if you use the exclusion, and prepare your US and UK returns for the year so the conversion and Form 8606 are reported correctly. Please tell us about all your income sources for the year, in every country, so the figures are complete. We work by email, so you have the workings in writing.

Sources

• IRS Publication 590-A and 590-B (Contributions to and distributions from IRAs)
• IRS Form 8606 and instructions
• IRS, Rev. Proc. 2025-32 (2026 tax brackets)
• Internal Revenue Code section 911(f) (stacking rule)
• US-UK Income Tax Treaty (2001), Article 17 and Technical Explanation
• Tax Cuts and Jobs Act 2017, section 13611 (end of recharacterisation of conversions)