Moving Investment Income from US to UK

I wanted to see if anyone had any advice on my circumstances as I am trying to sense check my finances ahead of potentially buying a first home in the UK (first home anywhere).

I am a dual US/UK Citizen living in the UK for about eight years. I generally send my extra income from the UK to the US and invest in HMRC reporting ETFs like VOO/VTI via a US based Vanguard account. I have never really sold any of these shares but may be considering doing so soon to use some of the funds for a deposit on a home in the UK.

I was curious about any tax implications this will trigger that I haven't thought of? I understand I will likely have to report the US capital gain to HMRC but would there be some relief from the double tax liability in the US? As my income is below the FEIE I report no income on my US tax returns outside of some interest from UK savings accounts (not too meaningful overall). My gains for the amount I need for a deposit will likely bring me near the threshold to be liable for some tax to be paid in the US but I doubt it will be that high, maybe a $10-15k LT CG when factoring in the money I would also contribute from UK based savings (and a LISA/nothing that is a PFIC) and this could be adjusted to whether I use FIFO or LIFO.

Also, are there any implications of sending UK income to the US, investing that income and then bringing it back to the UK? All my US investments have gone into reporting funds after sending money to the US via TransferWise to a US bank and then into Vanguard.

Lastly, as I will be purchasing the house with my partner (UK Citizen) are there things to consider when purchasing a first home in the UK (likely under £450k for LISA eligibility) as a dual US/UK citizen to reduce future tax liability?

I know there are a few complex questions here but any guidance would be greatly appreciated.

Investing in ETF funds in a US Vanguard account regardless of where the money comes from only produces taxable income from the proceeds of such funds.  My wife and I are both dual citizens with investments in US Vanguard ETF funds that are HMRC reporting. We pay both US and UK tax on the dividends from the funds and from the sale of shares. Foreign tax credits are used to minimize tax paid. The funds are in my wife’s name who is in the 20% UK tax bracket which means that the first £12,300 of capital gains are tax free and above that taxed at 10%. So, a taxable capital gain of £12,600 would be subject to £30 tax.  Dividends from the funds also attract a lower UK tax rate as the first £2,000 is tax free then the remainder is taxed at 8.75%

https://www.gov.uk/capital-gains-tax/rates

The initial purchase price and proceeds from the sale of shares have to be converted into £s at the exchange rate in effect on those dates. XE.com is what I use to look up historical exchange rates. Of course this does mean that the gain or loss in £ is quite different to what you might expect as the exchange rates have been quite dynamic over the years.

Dividend taxes
https://www.gov.uk/tax-on-dividends

The FEIE only covers "earned" income, like it says on the tin. For passive income, like dividends, capital gains, and interest, you'd need to use the Foreign Tax Credit, to take credit on your US taxes for taxes paid to the UK (or vice versa, if it's US income, like dividends from a US fund).

That said, if you're looking at $15k in gain, there's likely no UK tax due, you'd use the £12,300 capital gains allowance in the UK. Because there's no UK tax to pay, there's no credit to take on US taxes - you may actually owe US tax on this. That's one of the downsides of the tax treaty, we're always subject to the higher of the two rates. If you've got income that the US taxes but the UK doesn't, you wind up paying US tax on it.

Also worth noting that the UK doesn't do FIFO, LIFO, or SpecID, there's only one method of calculating gains. Definitely read the rules before trying to calculate it, but at a very high level it's a pooled average cost.

Transferring the money is not taxable in either country. Wise may ask for additional verification of the source of the funds, as part of anti-money laundering (just a quick email describing where it came from if they ask, maybe a brokerage statement). And if you haven't been filing an FBAR, you'll need to. But no tax.

Taxes on the house are pretty straightforward. UK has no tax on sale of primary residence. US has a generous exemption of $250k of gains ($500k if MFJ). So unless you do very well on price appreciation of the house, nothing to worry about there.

The fun one can be US tax on phantom gains on the mortgage. Very high level, the IRS sees the mortgage as a second transaction, separate from the house. If you borrow £100,000 at $1.3 to the £, you've borrowed $130,000 (the IRS only thinks in USD). If the exchange rate changes to £1.2 to the dollar and you pay back all £100,000, you've only paid back $120,000 - you've made $10,000 profit, according to the IRS. Of course, if the exchange rate goes the other way, that's just too bad for you, the IRS doesn't allow the loss. Silly, nasty part of US taxes for those abroad, a bit more detail here: https://www.bogleheads.org/w/index.php?title=US_tax_pitfalls_for_a_US_person_living_abroad&mobileaction=toggle_view_desktop#Phantom_currency_gains

Thank you both for these detailed replies - both exceptionally useful!

What I gather is that I will eventually need to get some professional help with my taxes as this will become quite complex once positions are exited, but investing in the US still seems to be the most reasonable course of action if a dual citizen and using the correct investments.

If you're willing to wade into the details and are reasonably confident reading really boring IRS and HMRC instructions, I think your situation is doable by yourself (with software help - wouldn't try to do it on paper, but it's theoretically possible).

Not to dissuade you from getting professional help, it can be hugely useful, IF you find the right person. But we're lucky that the US and UK have a pretty good tax treaty and, while the language is dense, at least all the instructions are in English.