The United Kingdom is a popular destination for American expats. With its captivating history and landscape full of castles, beaches, and historic sites, it’s hard to deny the allure. The UK also boasts a thriving economy with several large multinational corporations headquartered there.
As an American expat living in the UK, what you might not be aware of is that you may be required to file a tax return with the British tax authority, known as the HMRC (short for HM Revenue & Customs).
The UK Tax Year Differs From the US
Although the British tax year is a fiscal one –and it runs from April to April. The deadline for submitting a tax return to the HMRC is January 31st, and the following are those required to file a UK tax return (called a self-assessment).
You must file if, in the last tax year (April 6, 2017 to April 5, 2018), you were:
- Self-employed as a ‘sole trader’ and earned more than £1,000; or
- A partner in a business partnership.
You will not usually need to send a return if your only income is from your wages or pension, but you may need to send one if you have any other untaxed income, such as:
- Money from renting out a property
- Tips and commission
- Income from savings, investments and dividends
- Foreign income
If you’re unsure, this tool offers a series of questions that can help.
After filing, should you need to amend your return you can make a change to your tax return after you’ve filed it, for example, because you made a mistake. You’ll need to make your changes by:
- January 31, 2019 for the 2016 to 2017 tax year
- January 31, 2020 for the 2017 to 2018 tax year
If you miss the deadline or if you need to make a change to your return for any other tax year, you’ll need to write to HMRC.
Your balance due will be updated based on what you report. You may have to pay more tax or be able to claim a refund.
UK Tax Rates:
|Band||Rate||Income after allowances|
2018 to 2019
|Income after allowances|
2017 to 2018
|Starting rate for savings||10%||Up to £5,000||Up to £5,000|
|Starter rate in Scotland||19%||Up to £2,000||–|
|Basic rate in Scotland||20%||£2,001 to £12,150||Up to £31,500|
|Basic rate in rest of UK||20%||Up to £34,500||Up to £33,500|
|Intermediate rate in Scotland||21%||£12,151 to £31,580||–|
|Higher rate in Scotland||40%|
(41% from 2018 to 2019)
|£31,581 to £150,000||£31,501 to £150,000|
|Higher rate in rest of UK||40%||£34,501 to £150,000||£33,501 to £150,000|
|Top rate in Scotland||46%||Over £150,000||–|
|Rest of UK Additional rate||45%||Over £150,000||Over £150,000|
|Band||Dividend tax rates|
|Basic rate (and non-taxpayers)||10%|
|Additional rate (from 6 April 2013)||37.5%|
|Additional rate (dividends paid before 6 April 2013)||42.5%|
In the UK, much like the US, taxes are normally withheld by your employer under the Pay as you earn (PAYE) system.
Things to Know About Expat Taxes in the UK
If you’re a citizen or permanent resident of the US, you must file a US tax return each year, no matter what country you happen to live in at the time. While the US taxes the international income of all citizens and permanent residents who live overseas, fortunately, it does provide several provisions to help protect you from double taxation on your US tax for expats. These include:
- The Foreign Earned Income Exclusion, which allows you to exclude up to $103,900 in foreign earned income from your 2018 US taxes.
- The Foreign Tax Credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The Foreign Housing Exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.
Note that in addition to your US tax for expats, you may also be required to file an informational return on your assets held in foreign financial accounts called a Foreign Bank Account Report (FBAR), otherwise known as FinCEN Form 114.
Finally, there’s a tax treaty between the US and the UK which helps determine to which country different types of US tax for expats should be paid and at what point they should be paid. The purpose of the treaty is to ensure taxes are paid to the right country. Navigating the treaty on your own can be a bit complicated, so it’s a good idea to consult with an expat tax professional if you’re unsure of the requirements for your situation.
By planning ahead, you should be able to take advantage of the strategies above in order to minimize or eliminate your US tax obligation.
Looking for More on Taxes for Expats Living in the UK?
For even more UK specific information, you can download the free guide, Living in the United Kingdom: Complete Guide to Taxes or, have one of our UK specialists take care of your taxes so that you know they’re correct, on time, and that you’re not spending more than necessary.