The penalties are waived. The interest has been running since 2019

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

The programme forgives the penalties, which is the part everybody remembers. It does not forgive the tax, and it never touches the interest.

For most people that distinction costs nothing. Three returns come out at nil and the submission goes in with a covering letter.

For a minority there is real tax owed, and it has been accruing interest since the original due date of each return. Knowing which group you fall into changes how you plan the whole exercise.

Key takeaways

• Penalties are waived for filers living outside the United States.
• Any tax owed and the interest on it are not waived.
• Interest runs from the original due date of each return.
• Most of the tax owed comes from funds, property or the surcharge.
• The investment surcharge cannot be reduced by foreign tax credits.
• A payment plan is available where the money is not there.
• Filing late with partial payment still beats not filing.

What is the tax owed on a streamlined filing?

Whatever the three amended or late returns show as due after reliefs, plus interest on each year from its original deadline. The programme removes failure to file, failure to pay and accuracy penalties for qualifying overseas filers. Interest sits outside that waiver entirely.

According to IRS guidance on the procedures, full payment accompanies the submission.

That is a condition of the route rather than a suggestion.

Why do most people owe nothing?

Because British tax rates run above American ones across most of the income range, and the foreign tax credit absorbs the difference. An exclusion covers a large slice of earnings as well. A salaried life with a workplace pension usually produces three nil returns.

In our practice roughly three quarters of streamlined cases finish with nothing to pay.

The remaining quarter nearly always share one of three features.

Where does a real liability come from?

Pooled British funds come first, because America taxes them under a hard regime that ignores any ISA wrapper. Most tax owed on a catch up starts there. Selling a property comes second, since Britain exempts a main home and America only partly does. An investment surcharge comes third.

Our guide to the net investment income tax covers the third one.

That surcharge is the cruellest, because no foreign tax credit can offset it.

A worked example

Take an illustrative example. An American in Bath files streamlined in 2025 covering the 2021 to 2023 tax years.

Her salary produces no American charge at all. A stocks and shares ISA holding two British funds produces $4,100 across the three years.

Interest at the published underpayment rate adds several hundred dollars more. The oldest year costs the most, because its clock has run the longest.

Nothing else in her affairs generates a penny. One product carried the entire liability.

Penalties and interest compared

How is the interest calculated?

At the published underpayment rate, compounded daily from the original due date of each return until payment. For 2025 that rate has stood at 7 per cent a year for individual underpayments. The rate changes quarterly, so a long catch up spans several different figures.

Daily compounding matters over four or five years.

Our guide to IRS payment plans from abroad covers what happens afterwards.

Do you calculate the interest yourself?

You can estimate it, and most preparers do so the client knows the number. The IRS computes the final figure after processing and sends a notice for any shortfall. Paying a reasonable estimate with the submission demonstrates good faith even where it falls slightly short.

Overpaying slightly is usually the easier course.

The excess comes back or offsets the next year.

How do you actually pay it?

Electronically is simplest, because a British cheque is useless and an American one takes weeks to clear. The payment system lets you direct money to a specific year, which matters enormously here. Three years means three separate payments, each tagged correctly.

An American bank account makes this straightforward.

Without one, a card payment through an approved processor still works, at a small fee.

Why does tagging the year matter?

Because an untagged payment lands against the wrong year and leaves the right one apparently unpaid. The IRS then issues a notice for a balance you have already settled. Untangling a misapplied payment takes months of correspondence from Britain.

So pay year by year, never as one lump.

In our practice misapplied payments cause more client distress than the tax itself.

What if you cannot pay the tax owed?

File anyway, because the alternative is staying outside the programme entirely. Pay what you can with the submission and request an instalment arrangement for the rest. The IRS accepts payment plans routinely, and interest continues while the balance sits.

Do not delay a submission to save up.

A year of delay adds a year of interest and risks losing the route altogether.

Does partial payment void the programme?

The guidance expects full payment, so a shortfall introduces risk rather than certainty. In practice the IRS has processed submissions where the taxpayer paid promptly and arranged terms for the remainder. The certification itself remains the critical document.

Explain the position in the covering material rather than leaving it unsaid.

Silence looks worse than candour.

Can the foreign tax credit wipe it out?

It covers most income tax owed and almost none of the investment surcharge. The credit offsets American tax on foreign income within the same category. The surcharge sits outside the credit regime by design, so British tax paid on the same income provides no relief.

That design produces genuine double taxation.

Our guide to the foreign tax credit baskets explains the matching rules.

Does the exclusion help with tax owed?

For salary yes, for investments no. The earned income exclusion only covers compensation for work, so it leaves fund income, dividends and gains untouched. Claiming it also blocks the refundable child credit, which matters in a catch up year.

Model both reliefs across the three years rather than one.

The better combination often differs from year to year.

What about self employment tax?

That one surprises people, because it applies even where income tax comes to nothing. A certificate of coverage from the British authorities removes it where you pay national insurance instead. Without the certificate the charge stands at the full rate.

Our guide to the certificate of coverage sets out how to obtain one.

Getting certificates for old years takes months, so start early.

Do state taxes come into it?

Only where you never broke residence with a state that claims you. Some states ignore foreign tax entirely, so a liability can arise there even where the federal return is nil. The streamlined programme covers nothing at state level.

California, New York and Virginia cause most of the trouble.

Our guide to state tax for expats covers breaking residence.

What happens after you pay?

Usually silence, which is the outcome you want. Processing takes several months and the account transcript eventually shows the returns posted. A notice sometimes arrives for a small interest shortfall, which you simply settle.

Order a transcript six months later to confirm everything posted.

Our guide to requesting a transcript from abroad covers the routes.

Does paying imply an admission?

No, and the distinction matters. Paying tax owed settles a liability that existed whether or not anybody noticed it. The certification you sign addresses your state of mind, not the arithmetic, and the two documents do different jobs.

Our guide to the Form 14653 certification covers the wording.

Write it carefully, because that document carries the real weight.

What should you do about the current year?

File it normally and on time, separately from the catch up submission. Mixing the two confuses processing and delays everything. Going forward, consider quarterly payments if the same investments keep producing a liability.

Better still, deal with the product that caused it.

Most clients sell the offending funds once they see the figures.

Does a refund in one year offset another?

Not automatically, because each year stands on its own in the system. A refund from 2022 does not reduce the tax owed for 2021 unless you ask for it to be applied. Overpayments usually sit as credits until somebody directs them.

Ask for an offset in writing rather than assuming one.

Refunds on old years can also be time barred, which is a separate trap.

Can you claim a refund on an old year?

Only within the refund window, which generally runs three years from the filing date or two from payment. Older years can show a theoretical overpayment that nobody will repay. That asymmetry stings, because the tax owed in other years remains fully collectable.

So the oldest year in a catch up often works against you.

Check the dates before building a plan around an expected refund.

What about currency movements?

They can create tax owed on their own, which few people anticipate. A sterling mortgage repaid when the pound has fallen produces a foreign currency gain in American eyes. Nothing visible happened in your bank account.

Our guide to foreign currency gains on a UK mortgage explains the charge.

Remortgaging during the catch up period is the usual trigger.

What records should you keep?

Keep the three returns, the payment confirmations showing which year each one covered, and the interest computation behind your figure. Those three items answer every question a later notice can raise.

Keep them for at least six years from submission.

Scan the payment confirmations, since online records disappear when accounts close.

How to pay what you owe

1. Prepare all three returns before calculating anything.
2. Identify which product or event created the tax owed.
3. Estimate interest from each original due date.
4. Set up an electronic payment method you can use from Britain.
5. Make one payment per year, tagged to that tax year.
6. Submit the returns and certification together.
7. Request an instalment arrangement if you cannot pay in full.
8. Check a transcript six months later to confirm posting.

Mistakes and penalties we see with tax owed

The first is one lump payment for three years. It lands in the wrong place and generates notices.

The second is delaying the submission until the money is available. The interest grows and the route can close.

The third is assuming the credit covers everything. The investment surcharge never gives way to it.

The fourth is forgetting the state. The programme is federal and stops at that boundary.

How US UK Tax Accountants helps

We calculate the three years first, so you see the real number before committing to anything. Where a liability exists, we trace it to the product that caused it and tell you whether to keep it.

Then we handle the payments year by year and keep the confirmations. Our streamlined filing service covers the whole submission.

If you are putting off a catch up because you fear the bill, get in touch and we will cost it properly first.

Last reviewed 15 October 2026. This article is general information and not personal tax advice. Liabilities turn on your own figures, so take advice before filing.