US tax guide for Americans living in the UK

The UK is the number one destination in Europe for Americans who move across the Atlantic. Living in the UK offers many benefits, from a rich history and the cultural landmarks of London to charming countryside and vibrant towns, not to mention its pub culture, the famous British sense of humour, and a world-class theatre scene.

New life, new start, they say. However, if you are a US citizen or green card holder, your obligations to file taxes in the US will move abroad with you, no matter where you go. Additionally, you may have to pay UK taxes if you qualify as a UK tax resident. 

To help you navigate these requirements and avoid double taxation, we’ve put together a US tax guide for Americans living in the UK, answering common expat tax questions and providing insights you will not want to miss to save on taxes.

Table of Contents

• Do Americans pay US taxes when living in the UK?
• The Foreign Earned Income Exclusion
• Exclude or deduct housing expenses in the UK
• Should expats in the UK claim the Foreign Tax Credit instead of the Foreign Earned Income Exclusion?
• Do Americans living in the UK also pay UK taxes?
• Filing taxes in the UK and the US – Where to file first?
• UK – US Totalization Agreement and Income Tax Treaty
• Foreign Bank Accounts and Assets Reporting – FBAR and Form 8938
• Other US reporting requirements for Americans living in the UK
• Filing US Expat Taxes while living in the UK

Do Americans pay US taxes when living in the UK?

Whether you’re retiring in the UK, working for a UK company or working remotely as a US citizen or green card holder, you are still required to file a US tax return if you meet certain income thresholds. Additionally, if you have bank accounts or financial assets in the UK (or outside the US in general) with balances that exceed certain limits, you may also need to report these.

What options do expats have to avoid double taxation?

As an American living in the UK, you can avoid double taxation by claiming IRS provisions such as the Foreign Earned Income Exclusion, the Foreign Tax Credit, and Tax Treaty provisions.

The Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is one of the most common tax benefits you can use as a US expat to reduce their US income tax liability. 

For the 2024 tax year, by claimingthe FEIE, you can exclude up to $126,500 per person in foreign earned income (i.e. income you earn while residing abroad) from US taxation. Married couples filing jointly can exclude up to $253,000 from income tax in 2024 if each spouse qualifies! 

To claim the FEIE, you must complete Form 2555 when you file your US taxes and meet either the physical presence test or the bona fide residence test to prove that you reside overseas.

The physical presence test is based on time spent abroad. To qualify, you must spend at least 330 full days within a 12-month period outside the US. 

On the other hand, to qualify for the bona fide residence test, you must prove that your residency has shifted to a foreign country. For instance, you have a work or resident permit in the UK, and you are paying into the tax system, there are great arguments to prove your residency has shifted to the UK. This test offers more flexibility regarding time spent in the US, but it can be harder to prove in case of an IRS audit due to its subjective nature.

By claiming the Foreign Earned Income Exclusion, American expats in the UK can significantly reduce their taxable income, making it a valuable way to avoid double taxation while living abroad.

Exclude or deduct housing expenses in the UK

If your taxable income exceeds the 2024 Foreign Earned Income Exclusion threshold, you may be able to lower your US tax liability further by claiming the Foreign Housing Exclusion or Deduction. This lets you exclude or deduct qualifying housing expenses, such as rent, utilities, and furnishings, while living abroad.

The standard limitation on housing expenses is set at 30% of the FEIE threshold, which is $37,950 for 2024. However, the allowable limit can vary depending on where you live and the number of qualifying days you lived abroad during the tax year. This is a great benefit in the UK if we consider the high cost of accommodation there.

You can claim the Foreign Housing Exclusion (or Deduction for self-employed expats) on Form 2555 too.

Should expats in the UK claim the Foreign Tax Credit instead of the Foreign Earned Income Exclusion?

The Foreign Tax Credit is an alternative for expats to avoid double taxation. It lets expats claim US tax credits up to the value of the foreign taxes they must pay. As the UK’s tax rates are higher than those in the US, this can often reduce expats’ US tax bill to zero. You can claim the Foreign Tax Credit by filing Form 1116.

There are often advantages to claiming the FTC rather than the FEIE. For example, there is no limit on how many tax credits you can claim, and no restrictions on income types. The FEIE on the other hand can only be applied to earned income such as salary or self-employment income. Furthermore, you can still make contributions to US retirement plans and claim refundable US credits such as the Child Tax Credit. 

As a result, claiming the Foreign Tax Credit is often a better option than the Foreign Earned Income Exclusion for many Americans living in the UK. This is because the UK is a high-tax rate country, so FTCs will generally reduce any US tax due to zero. 

Ultimately, whether you prioritize the FTC or the FEIE depends on your situation.

We recommend that you consult with a tax advisor familiar with both US and UK tax laws to develop a tax strategy that minimizes your overall liability and maximizes your benefits.

Do Americans living in the UK also pay UK taxes?

Americans living in the UK may need to file a UK tax return depending on their residency status and income sources. The UK tax authority is called Her Majesty’s Revenue and Customs (HMRC). Generally, UK tax residents are taxed on their worldwide income, while non-residents are only taxed on income sourced in the UK. If you’re employed in the UK, your employer will deduct UK income tax at source.

Americans living in the UK are considered a UK tax resident if they spend 183 days or more in the UK during a tax year. Even if you spend less time, the Statutory Residence Test may classify you as a resident based on ties like owning a home, having dependents in the UK, or working in the UK. For example, having a home (or home base) in the UK and significant time spent there could meet the residency requirements.

UK income tax rates range from 20% to 45%. If you meet residency criteria or have taxable UK income, you’ll need to file and pay taxes to HMRC. Consult a UK tax advisor to navigate local tax laws and ensure compliance with both UK filing rules.

Filing taxes in the UK and the US – Where to file first?

Typically, a US taxpayer living in the UK would file their UK tax return first, as claiming the Foreign Tax Credit on your US tax return requires information about foreign taxes paid. However, this can pose a timing challenge since the tax deadlines differ.

In the UK, the tax year runs from April 6 to the following April 5, with tax returns for individuals generally due by January 31 of the following year. In contrast, in the US the tax year is the same as the calendar year and US tax returns are due by April 15 the following year. However, Americans abroad automatically receive a two-month extension to June 15.

Note that an extension to file is not an extension to pay! This means that if you expect to owe US taxes for a certain tax year, you must make an estimated payment by April 15th, otherwise a small interest and a penalty fee will apply for every month your payment is delayed. 

It is generally advisable to file your UK tax return before your US return, so you can claim the foreign tax credit in the US. If you need more time to finalize your US return, you can request an extension until October 15, but make sure you work with an expat tax professional to ensure that you make estimated payments by April, if needed, to avoid incurring penalties.

For seamless tax coordination, work with both US and UK expat tax advisors to ensure compliance with each country’s rules and minimize your tax bill.

UK – US Totalization Agreement and Income Tax Treaty

The US has a Tax Treaty Agreement in place with the UK to prevent double taxation. This treaty covers issues like pension income, dividend taxes, corporate income, and other cross-border income matters to ensure individuals are not taxed twice on the same income.

The treaty can help reduce your UK tax liability for these types of income. This tax treaty is one of few that allows each company to respect the tax benefits of the respective retirement saving plans in each country.

In addition, there is a Totalization Agreement between the US and the UK which helps prevent double social security taxation for those working in both countries. It ensures that US citizens do not have to contribute to both the US Social Security system and the UK National Insurance system at the same time. It also allows credits in either system to qualify in the country where you eventually retire.

Put simply, if you pay social security in the UK, it means you are exempt from self-employment tax in the US (which consists of Social Security taxes and Medicare).

Foreign Bank Accounts and Assets Reporting – FBAR and Form 8938

If you are a US citizen or resident, you must report your foreign financial accounts to the US government if their balances have an aggregate value of over $10,000 at any time during a calendar year.

Financial accounts include bank, joint, pension, and individual pension accounts, as well as any other accounts you have signatory authority over, such as a business bank account. These should be reported by filing FinCEN Form 114, commonly referred to as an FBAR (Foreign Bank Account Report). The FBAR is not filed with your tax return, but separately online to the US Treasury.

Additionally, as a US expat living in the UK, you may be required to file Form 8938 (Statement of Specified Foreign Financial Assets) with your tax return if the total value of your foreign financial assets exceeds certain thresholds. The thresholds are $200,000 at the end of the year or $300,000 at any time during a year for single filers or double the amount for married couples filing jointly. While real estate is excluded from Form 8938 reporting, assets such as stocks, bonds, bank balances, and foreign business interests qualify.

For example, if you have a SIPP (a Self-Investment Pension Plan) in the UK, you must include it on your FBAR and Form 8938, if applicable.

Other US reporting requirements for Americans living in the UK

After moving to the UK, many expats consider investing in a Self-Invested Pension Plan (SIPP), Individual Savings Accounts (ISA) or open-ended investment companies such as Fundsmith LLP or BlackRock Investment Management (UK) Ltd. These are generally attractive investments in the UK due to the tax benefits they offer. You generally do not pay income tax or capital gains tax on your investment returns.

However, the US does not recognize this tax-exempt status and will tax them accordingly. Often, these funds also contain what’s called PFICs (Passive Foreign Investment Companies). PFICs have a punitive tax regime in the US.

Always consult a US tax expert on the potential consequences of holding certain types of investments abroad. You may need to file additional tax forms or pay additional taxes. Ensure this is done correctly as the penalties for failure or filing incorrectly are steep!

Americans living in the UK who hold UK registered corporations may also have additional US reporting requirements if they own or control more than 10% of a British corporation. Furthermore, if these entities are more than 50% owned by US individuals, an additional tax called the GILTI tax applies. GILTI stands for ‘’Global Intangible Low-Taxed Income.   

These reporting requirements are complex, so it’s always helpful to seek advice from a US tax professional with experience working with Americans living in the UK. Note also that UK banks and other financial institutions (including the UK tax authority) are passing information about their US citizen clients to the US government due to certain US laws and international agreements. 

Filing US Expat Taxes while living in the UK

While moving to the UK is an exciting new adventure, it will bring complexities to your US tax situation. If you’re also a UK tax resident, you will be subject to both US and UK taxes. Fortunately, with the right strategies it’s possible to avoid double taxation and optimize your taxes in both countries.

If you’ve been living in the UK but not filing US taxes because you didn’t know you had to, you may be able to catch up with your US tax filing without facing IRS penalties. The IRS offers an amnesty program known as the IRS Streamlined Offshore Filing Procedures.

Many tax professionals in the US may not be familiar with these provisions for expats, so it’s essential to work with a tax advisor with experience in the intersections of the US and UK tax systems. If you need help navigating these complexities, consulting with an expat tax expert can help you minimize your tax burden in both countries while ensuring compliance in both the US and the UK.