Applying for Permanent Residence
You will need to apply for EEA permanent residence on Form EEA4 before your existing residence stamp expires. Form SET(M) applies to those whose applications are not made on the basis of European free movement rights.
One of the benefits of applying on Form EEA4 is that it is illegal for you to be charged a fee. The downside of this is that you cannot submit your application at a UK Border Agency Public Enquiry Office and will have to deal with the slower pace of postal applications.
You will need to show that your civil partner has been continuously exercising treaty rights in the last five years and that you have been with him/her legally during that time. Such documents as bank statements, payslips, P60s, and educational records should be submitted.
I don't think that your partner has to apply for any confirmation of his/her acquisition of EEA permanent residence rights, but can do so using Form EEA3 is he/she so desires.
Applying for Naturalisation
Under existing law on naturalisation as a British citizen, you will be eligible for naturalisation one year after acquiring permanent residence. However, the "earned citizenship" rules from the Borders, Citizenship and Immigration Act 2009 will come into force in 2011 and will complicate matters. I summarised some of the requirements of the new rules in
this thread. You may have to wait longer before being eligible for citizenship or comply with the "activity condition" that is yet to be fully defined.
Retention of US Citizenship Following British Naturalisation
I should note that you will be able to retain your US citizenship if and when you are naturalised as a British citizen. Although US law makes it possible for you to lose your US citizenship on being naturalised abroad and declaring allegiance to a foreign state, you only do so if you intend to relinquish your US citizenship (18 USC § 1481). You may want to clarify matters immediately prior to naturalisation by executing an affidavit in which you declare your intent to retain your US citizenship. Additionally, continuing to comply with your obligations as a US citizen (such as
filing tax returns) and exercising your rights as a US citizen (such as
voting in US elections) could help to demonstrate intent to retain US citizenship.
Also remember when travelling that US citizens must enter and exit the US on their US passports regardless of whether or not they hold foreign passports.
