You can keep the account after moving to Britain, but not keep paying in

Figures relate to tax year 2025-26 (UK) · 2025 (US)

An American moving to London keeps the health savings account itself. What ends almost at once is the right to pay into it.

NHS entitlement breaks the eligibility test. So contributions have to stop. An employer who carries on matching creates a charge nobody notices for years.

Therefore the first job here is administrative rather than investment led. Work out whether you can still contribute. Tell the payroll team. Then look at what the balance actually holds.

Key takeaways

• You can keep a health savings account after moving, but usually cannot pay in.
• NHS entitlement breaks the eligibility test for contributions.
• Employer matching that continues after the move becomes an excess contribution.
• Qualifying medical costs need not be American, so private care here can be reimbursed.
• Withdrawals for care stay untaxed in America and are not taxed in Britain.
• It is a US account, so no foreign account reporting applies.
• HMRC still taxes the interest, dividends and gains inside the health savings account.
• Some custodians will not keep a customer with a British address.

What is a health savings account?

An American account for medical costs. You need a qualifying high deductible health plan to open one. Money goes in untaxed, grows untaxed, and comes out untaxed if you spend it on care.

According to IRS guidance on these accounts, the 2025 limits are $4,300 for self-only cover and $8,550 for family cover, with a further $1,000 from age 55.

Many Americans treat it as a retirement account rather than a medical one.

Can you still contribute?

Usually not. You need that high deductible plan and no other cover that rules you out. Being entitled to NHS care normally breaks it. Somebody on an American employer plan while posted here may still qualify.

Contributing when ineligible brings an excess contribution charge.

Check the position for each month rather than for the year as a whole.

What happens if you contribute anyway?

A charge hits the excess for every year it sits there. Take it out, with the earnings on it, before the filing date and the charge goes. Leaving it there repeats the charge annually.

Our guide to amending a US return covers correcting an earlier year.

Employers sometimes keep contributing after a move without anybody noticing.

Does your employer still match it?

Only while you stay on their American plan. A move to a British payroll normally ends both the cover and the match. Any employer money that lands after you cease to qualify is an excess contribution like your own.

Tell the payroll team the month your cover changes.

They rarely notice a move abroad on their own.

Do you still file Form 8889?

Yes, in any year the account moves. Form 8889 reports contributions and distributions, and it travels with your return wherever you live. Living in Britain changes nothing about it. A year in which nothing at all happens needs no form, which is rarer than clients expect.

Your custodian issues Form 1099-SA for what came out and Form 5498-SA for what went in. Those go to your address of record, so a stale American address loses them. Therefore keep the custodian's details current from Britain.

Equally, the sterling invoices matter. A reimbursement of private care in London needs both the amount and the rate you used, because the form asks for dollars.

• Form 8889 — contributions to and distributions from the health savings account.
• Form 1099-SA — distributions, issued by the custodian each January.
• Form 5498-SA — contributions, issued by the custodian after the filing season.
• Form 8853 — only for the older Archer medical savings account.

Can you spend it on UK medical costs?

Qualifying medical costs need not be American. So you can usually pay for private care here from it. What counts is the kind of expense, not where you had it. Keep invoices in case anybody asks later.

NHS treatment you receive free of charge produces no expense to reimburse.

Private consultations, dentistry and prescriptions often qualify.

Is a withdrawal taxable in Britain?

Taking out your own money is not income, so Britain charges nothing on the withdrawal. Britain has already taxed the growth as it accrued. The withdrawal is simply a movement of money you own.

That is a rare instance where the British treatment is the simpler one.

America applies its own rules depending on what you spend it on.

What about non-medical withdrawals?

America charges income tax plus a 20% penalty on anything you take for other reasons before 65. After 65 the penalty falls away and only income tax applies. Britain adds nothing further either way.

That makes the account behave like a retirement account from 65 onwards.

Many Americans abroad plan to use it exactly that way.

Should you close it altogether?

Rarely. Closing it means a non-qualified withdrawal, with income tax and maybe a penalty. Keeping it, simplified into cash, usually beats liquidating it. The medical spending route preserves the American shelter on the way out.

Spending it down on genuine medical costs is the efficient exit.

There is no deadline forcing you to use it.

Does it need foreign account reporting?

No. It is an American account at an American bank. Foreign account reporting covers accounts outside the United States. An American living in Britain reports British accounts, not American ones.

Our guide to FBAR signature authority covers what is actually reportable.

That is one genuine simplification here.

Is the account at risk of being closed?

Some providers will not keep a customer with a foreign address, in the same way British banks drop American ones. Moving the account to a provider that accepts overseas addresses is usually possible.

Our guide to bank account closures for Americans covers the mirror problem.

Keep a US address on file only if it is genuinely yours.

Does any US state tax it as well?

Two of them do. California and New Jersey never adopted the federal treatment, so they tax the interest and dividends inside the account much as Britain does. Consequently somebody who left one of those states can face three sets of rules on a single balance.

However, the state charge stops when the state residence does. Breaking that residence properly matters here, and the test differs from the federal one. Some states look at where your home and family sit rather than at days alone.

In our practice the Californians spot this first, because they were already reporting the growth before they left.

What if you return to America?

Everything reverts cleanly. The British charge stops when your residence here does. The account goes back to normal American rules, and contributions become possible again once you hold qualifying high deductible cover. So the British years leave no lasting mark on it.

Our guide to moving back to the US covers the wider checklist.

Nothing about the British years damages the account permanently.

Should you move the balance into cash?

Often yes, and it is the single most effective step. Cash produces interest, which Britain taxes simply at your marginal rate. Pooled funds throw off dividends, British gains, and a harsh American regime if they are not US based.

Our guide to Form 8621 and PFIC reporting covers that regime.

Switching inside the account is itself a disposal for British purposes.

How much British tax does it actually cost?

On a cash balance, very little. Interest of a few hundred pounds often disappears inside the savings allowance entirely. However, on a six figure balance invested in equities, the dividend and gains charge each year becomes a real annual cost.

So the answer depends almost entirely on what the balance holds.

In practice we see the same account cost one client nothing and another several thousand.

Does the timing of a switch matter?

Considerably. Selling funds inside the account is a disposal for British purposes, so doing it while still non-resident avoids the charge altogether. Equally, doing it inside the four year relief window for new arrivals achieves much the same.

Therefore the cleanest moment is before you land, or soon after.

Leaving it invested for a decade is what builds the problem.

Does the personal savings allowance help?

A little, at the smaller end. Basic rate payers get £1,000 of interest free, higher rate payers get £500, and top rate payers get nothing at all. So on a modest cash balance the allowance can cover the whole British charge for the year.

Our guide to UK savings interest and US tax covers the allowance.

On a six figure balance it barely registers.

A worked example

Take an illustrative example. An American arrives in London in 2025 with $60,000 in a health savings account, fully invested in index funds.

America continues to ignore the growth entirely. Britain taxes the dividends each year and any gains when the funds are sold inside the account.

Because she is American, those pooled funds also fall under the punitive American rules on foreign funds if they are not American domiciled.

The account that was her most efficient holding is now her most complicated one.

The same account, two systems

Why does Britain tax it?

Because British law has no such account, and nothing that recognises the American one. HMRC sees an account in your name holding cash or investments. So it taxes the interest, the dividends and any gains just like a share dealing account.

The American shelter is a creature of American statute alone.

Nothing carries it across the Atlantic with you.

Does the treaty protect it?

No, and this is the question everybody asks first. The treaty covers pension schemes that each country recognises. This is not one of them. No article covers medical savings, so the normal rules on interest, dividends and gains apply.

Our guide to the US UK tax treaty covers what is actually protected.

People assume a tax free account must be protected somewhere. It is not.

Does it interact with the exclusion?

Not really, since the earned income exclusion covers salary rather than investment income. Consequently the account's income sits outside it entirely. What the British tax on it does produce is a foreign tax credit against the American charge, except there is no American charge to offset.

Our guide to the foreign earned income exclusion covers what it does reach.

That is the asymmetry in a sentence: one country taxes, the other does not.

Does the new arrivals regime help?

For four years it can. New arrivals who qualify get relief on foreign income and gains. A health savings account is foreign income from a British perspective, so the relief applies to it. After four years the ordinary treatment resumes.

Our guide to the FIG regime for arriving Americans covers the conditions.

That window is a good time to decide what the account should hold.

What if you never touch it again?

The British charge still runs every year, because it attaches to income arising rather than to anything you do. Meanwhile the American side keeps sheltering it. In short, ignoring the account does not make it quiet.

Dormant accounts still produce dividends and interest.

Those figures belong on a British return whether or not you look at them.

Is a British alternative worth opening?

There is no equivalent, which is part of why this surprises people. Britain funds healthcare through general taxation rather than through individual accounts. Instead the nearest useful wrapper here is a pension, which the treaty does protect.

Our guide to ISA alternatives for Americans covers what works on both sides.

For most clients, redirecting future savings into a pension is the answer.

How do you report it to HMRC?

On the foreign pages of a self assessment return. You show the interest, dividends and gains that arose. The account itself needs no separate disclosure. What HMRC wants is the income, not the wrapper.

Our guide to registering for self assessment covers getting into the system.

Your provider's annual statement gives the figures, though not in British format.

What about your spouse's account?

A non-American spouse with their own account faces the same British charge, because the taxing point here is residence rather than nationality. So a British spouse living here pays British tax on the growth and gets no American shelter against it at all.

That makes the account a poor holding for them.

Spending theirs down first is often the sensible order.

Does it affect your UK pension planning?

Not directly. The account has no bearing on British pension allowances or relief. What it does affect is how much taxable income you report here, which can matter where you sit near a threshold.

A large dividend year can push you into the allowance taper.

Moving to cash smooths that out as well.

Does a flexible spending account differ?

A great deal. Those balances are use it or lose it, and they hold no investments. There is nothing to grow and therefore nothing for Britain to tax. An unused balance simply disappears at the end of the plan year.

The same applies to a health reimbursement arrangement in most cases.

Only the investable account creates this problem.

What records should you keep?

Keep the annual statements showing interest and dividends, a record of every trade inside the account, and receipts for every medical expense you reimburse. Those three answer HMRC on the income and the IRS on the withdrawals.

Record the dollar and sterling values at the date you became British resident.

That starting point matters for the British gains calculation.

How to handle the account

1. Check whether you remain eligible to pay into the health savings account at all.
2. Stop any employer contributions that no longer qualify.
3. Review what the balance is actually invested in.
4. Consider moving pooled funds into cash or American funds.
5. Record the health savings account value on the day you became UK resident.
6. Report the interest, dividends and gains to HMRC each year.
7. Reimburse genuine medical costs rather than drawing cash.
8. Revisit the position if you leave Britain again.

Mistakes and penalties we see with a health savings account

The first is assuming the American shelter travels. Britain taxes everything inside it.

The second is continuing contributions after moving, which triggers an annual excess charge.

The third is leaving the balance in pooled foreign funds, which creates the punitive American regime on top of British tax.

The fourth is closing the account in frustration, which costs income tax and a twenty per cent penalty.

How US UK Tax Accountants helps

We look at what the balance is invested in first, because that single fact decides whether the British cost is trivial or serious. Moving to cash often solves most of it in an afternoon.

Then we set up the annual reporting so the income reaches the right return. Our US federal returns service covers the American side.

If you moved here with a balance still invested, get in touch before the next year end.

Last reviewed 19 October 2026. This article is general information and not personal tax advice, and nothing here is a recommendation about any investment.