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From what I've seen on JTIS and alldata, the procedure is to fill up coolant to the bottom of the filler neck of the expansion tank. Having done this, I noticed that after a drive, the coolant is slightly lower by about a quarter inch but doesn't really get lower than that. Wondering if I've misinterpreted the fill instructions and overfilled the expansion tank, leading the car to dump it off (I read a post by Rev Sam that said the car would dump the excess via some mechanism near the right front wheelwell).
I would think that if I truly had a leak, the level would keep getting lower, but it's not. I suppose it would make sense to have a little room for actual expansion. But I also want to make sure I'm not passing off evidence of a small leak somewhere.
The coolant flows to the atmospheric overflow tank in the fender well as the engine heats up, then is drawn back as the system cools. The level typically stabilizes at 3-5 mm below the neck.
RJ is correct in the way the system works. If you find over time that the level is slowly dropping it maybe because of the expansion tank cap. Mine over a period of weeks depending on trips would drop to about a half tank level. Pour in 4 or 5 ounces and back to normal. The cause was the cap was leaking when the engine cooling vacuum was drawing fluid back to the expansion tank.
If yours is settled out and stable then no need to worry.
Here's the coolant flow and containment. I've taken the diagram from JEPC and removed everything except the essentials:
On your early XK8, there's 2 Bleed Hoses (items 7 and 16) from the Radiator to the Expansion Tank (item 1). On later vehicles, Bleed Hose 16 is deleted and the second Expansion Tank inlet blanked off.
As the engine warms up to operating temperature, coolant expands in volume and the excess passes from the Expansion Tank to the Atmospheric Recovery Bottle (item 11) along Expansion Hose (item 8). The Atmospheric Recovery Bottle (arrowed in red) is mounted behind the RH wheelarch liner.
When the engine is switched off and cools down, coolant is drawn back from the Atmospheric Recovery Bottle to the Expansion Tank to maintain the correct level. As stated above, this is normally a few millimetres below the filler neck.
If there is too much coolant in the system, excess from the Atmospheric Recovery Bottle is dumped through the Overflow Pipe (item 17) onto the ground below the vehicle.