U.S. Expat Tax Guide for Living in the UK
- What's New for the 2025 Tax Year
- Why Do I Have to File Taxes in Both Countries?
- Am I a UK Tax Resident?
- How Do UK and U.S. Tax Systems Compare?
- What UK Taxes Will I Pay?
- What Are the UK Income Tax Rates?
- How Do I Avoid Double Taxation?
- What About the End of the Remittance Basis?
- What Is Making Tax Digital?
- What Tax Forms Do I Need to File?
- How Are UK Pensions Treated for U.S. Taxes?
- How Are UK ISAs Taxed?
- What About UK Property and Capital Gains?
- What Are Common Mistakes U.S. Expats Make?
- What If I'm Behind on Filing?
- How Can Greenback Help with UK and U.S. Taxes?
- Related Resources
Living in the UK as a U.S. citizen means filing taxes in both the U.S. and the UK. According to HMRC data, over 166,000 Americans call the UK home, and each one faces the challenge of dual tax compliance. Whether you’re in London, Edinburgh, or Manchester, you’ll need to stay compliant with both U.S. and UK tax obligations.
The good news? You won’t pay tax twice on the same income. The U.S.-UK tax treaty, combined with the Foreign Earned Income Exclusion and Foreign Tax Credit, can eliminate or significantly reduce your U.S. tax liability.
This guide walks you through UK tax residency, income tax rates, avoiding double taxation, and the forms you’ll need to file.
What’s New for the 2025 Tax Year
Two major changes are affecting U.S. expats in the UK:
The Remittance Basis Is Gone (April 2025): Most UK tax residents are now taxed on all worldwide income and gains as they arise, regardless of whether the money stays offshore. The only exception is for new arrivals who qualify for the 4-year Foreign Income and Gains (FIG) regime.
Making Tax Digital Expands (April 2026): If you earn over £50,000 from self-employment or rental income, you’ll be required to file quarterly tax updates using MTD-compliant software. The threshold drops to £30,000 in April 2027.
Read our complete Making Tax Digital guide for detailed compliance steps.
Why Do I Have to File Taxes in Both Countries?
The U.S. and UK use different tax systems:
- The UK taxes based on residency: If you live in the UK and meet the residency requirements, you’ll pay UK tax on your worldwide income.
- The U.S. taxes based on citizenship: As a U.S. citizen or green card holder, you must file U.S. tax returns and report worldwide income every year, regardless of where you live.
This means filing in both countries; however, the U.S.-UK tax treaty and tax credits ensure that you won’t pay tax twice.
Get help with your UK and U.S. expat taxes
Am I a UK Tax Resident?
Your UK tax residency is determined by the Statutory Residence Test (SRT), which considers:
- Days spent in the UK (183+ days = automatic resident)
- UK ties (home, job, family)
- Split-year treatment if you moved mid-year
| Residency Status | What Gets Taxed |
|---|---|
| UK Tax Resident | Worldwide income (U.S. wages, dividends, rental income, capital gains) |
| Not a UK Tax Resident | Only UK-sourced income (UK job, UK rental property) |
| Split-Year Treatment | Only income during the UK-resident portion of the year |
Example: Maria’s First Year in London: Maria moved from New York to London on September 1. She earned $60,000 from her U.S. employer (January-August) and £30,000 from her UK employer (September-December). With split-year treatment, the UK only taxes her £30,000 UK income. She reports both amounts on her U.S. tax return.
Planning to move to the UK? Learn what to expect and how to prepare. Also, check out our 8-step tax checklist before moving to the UK.
How Do UK and U.S. Tax Systems Compare?
| Tax Factor | UK | U.S. |
|---|---|---|
| Tax System | Residency-based | Citizenship-based |
| Top Income Tax Rate | 45% England/Wales/NI (48% Scotland) | 37% federal + state taxes |
| Social Contributions | National Insurance: 12% | Social Security & Medicare: 7.65% |
| VAT/Sales Tax | 20% | 0%-10% (varies) |
| Tax Year | April 6 – April 5 | January 1 – December 31 |
Key Differences: UK rates are higher, but taxes in the UK fund the NHS. The tax year mismatch requires careful recordkeeping for both returns.
See our detailed UK vs. U.S. tax comparison for a comprehensive breakdown.
What UK Taxes Will I Pay?
- Income Tax: Deducted through PAYE if employed, or filed via Self Assessment if self-employed.
- National Insurance (NICs): Similar to U.S. Social Security. The U.S.-UK Totalization Agreement prevents double taxation of social security. If you work in the UK for under 5 years, you typically pay only UK NICs. Over the course of 5 years, you may switch to paying U.S. Social Security.
- Capital Gains Tax (CGT): Annual exempt amount for 2025-2026 is £3,000. Rates are 10-20% (18-24% for property).
- VAT: 20% consumption tax built into prices.
- Council Tax: Local tax based on your home’s value (£1,000-£3,000+ annually).
What Are the UK Income Tax Rates?
England, Wales, Northern Ireland
| Taxable Income | Tax Rate |
|---|---|
| £0 – £12,570 | 0% (Personal Allowance) |
| £12,571 – £50,270 | 20% |
| £50,271 – £125,140 | 40% |
| Over £125,140 | 45% |
Note: Personal allowance reduces by £1 for every £2 of income over £100,000.
Scotland
| Taxable Income | Tax Rate |
|---|---|
| £0 – £12,570 | 0% |
| £12,571 – £14,876 | 19% |
| £14,877 – £26,561 | 20% |
| £26,562 – £43,662 | 21% |
| £43,663 – £75,000 | 42% |
| £75,001 – £125,140 | 45% |
| Over £125,140 | 48% |
Example: David’s UK Tax Bill (London): David earns £100,000. His UK tax is £27,432 plus £5,519 in NICs (total: £32,951, about 33% effective rate). For his U.S. return, he claims the Foreign Tax Credit of £32,951, thereby eliminating his U.S. tax liability.
How Do I Avoid Double Taxation?
Foreign Earned Income Exclusion (FEIE)
Exclude up to $130,000 of foreign earned income from U.S. taxation. You must meet either:
- Physical Presence Test: 330+ days in a foreign country during any 12-month period
- Bona Fide Residence Test: Resident of a foreign country for an entire tax year
Example: Sarah’s FEIE Strategy Sarah, a freelance writer in Manchester, earns £60,000 ($75,000 USD). She qualifies for the Physical Presence Test and claims the FEIE to exclude her entire income from U.S. taxation, owing $0 in U.S. tax.
Foreign Tax Credit (FTC)
Get a dollar-for-dollar credit for UK taxes paid. Best if you earn more than the FEIE exclusion or your UK tax rate exceeds your U.S. rate.
Example: James’s Foreign Tax Credit James, a London finance director, earns £180,000 ($225,000 USD). His UK tax bill is £64,732. His U.S. tax before credits would be $52,000. Because he paid more in UK taxes, he claims the FTC and reduces his U.S. tax to $0, carrying forward excess credits.
U.S.-UK Tax Treaty Benefits
The treaty provides protections for pensions, dividends, and interest. Private UK pensions are generally taxed only in the UK for UK residents.
Example: Tom’s Self-Employment Tom, a London consultant, earns £80,000. He pays £7,500 in UK NICs. Because of the Totalization Agreement, he doesn’t pay U.S. self-employment tax (15.3%), saving him roughly $15,000 annually.
If you’re a dual citizen, see our comprehensive guide on managing dual U.S.-UK tax obligations.
What About the End of the Remittance Basis?
Starting April 6, 2025, most UK tax residents are taxed on all worldwide income as it arises. New UK residents (non-resident for the prior 10 tax years) may qualify for a 4-year Foreign Income and Gains (FIG) exemption, but you’ll lose your Personal Allowance (£12,570) and Capital Gains Tax exemption (£3,000).
For most U.S. expats, the FIG regime isn’t beneficial because losing the personal allowance costs more than the tax saved.
What Is Making Tax Digital?
Starting April 6, 2026, MTD applies if your income from self-employment or property exceeds £50,000. You’ll submit quarterly updates using MTD-compatible software, file an End of Period Statement, and submit a Final Declaration by January 31.
HMRC will notify you if you’re enrolled. Penalties start at £200 for non-compliance.
Read our complete Making Tax Digital guide for software requirements and deadlines.
What Tax Forms Do I Need to File?
UK Forms
Self Assessment Tax Return (SA100): Required if you’re self-employed (income over £1,000), have rental income over £1,000, earn over £150,000, or have untaxed income over £2,500.
- Deadlines: Paper returns by October 31, online by January 31
Learn more about UK Self Assessment requirements.
U.S. Forms
- Form 1040: Standard U.S. tax return (deadline: April 15, automatic extension to June 15 for expats)
- Form 2555 (FEIE): To claim the Foreign Earned Income Exclusion
- Form 1116 (FTC): To claim the Foreign Tax Credit
- FinCEN Form 114 (FBAR): Required if foreign accounts totaled over $10,000 at any point
- Form 8938 (FATCA): Required if foreign assets exceed $200,000 (single) or $400,000 (married, abroad)
- Form 8833: Required if claiming treaty benefits that reduce U.S. tax
How Are UK Pensions Treated for U.S. Taxes?
The U.S.-UK tax treaty generally allows UK pension contributions to grow tax-deferred. However:
- While Contributing: UK pension contributions are not deductible on your U.S. tax return. Growth is generally tax-deferred (treaty protection). You may need to file Form 8938 if balances exceed thresholds.
- When Taking Distributions: The treaty allows the UK to tax distributions for UK residents. You report the distribution on your U.S. return but claim the Foreign Tax Credit. The 25% tax-free lump sum available in the UK is NOT tax-free for U.S. purposes.
Example: Lisa’s Pension Distribution Lisa takes a £40,000 pension distribution. Under UK rules, she receives a £10,000 tax-free lump sum. For U.S. tax purposes, she reports the full £40,000 ($50,000 USD) on Form 1040 and claims the UK tax paid as a Foreign Tax Credit, offsetting her U.S. tax.
Some UK pensions may invest in funds classified as PFICs, triggering complex reporting and punitive taxation. Verify PFIC status before investing.
How Are UK ISAs Taxed?
ISAs are tax-advantaged in the UK, but the U.S. does not recognize their benefits.
UK Treatment: No UK tax on interest, dividends, or capital gains. Tax-free withdrawals. Annual limit: £20,000.
U.S. Treatment: Interest, dividends, and capital gains are all taxable. You cannot claim a Foreign Tax Credit because the UK didn’t tax the income. FBAR and FATCA reporting are required if thresholds are met.
Example: Emma’s ISA Dilemma Emma has £50,000 in an ISA generating £2,000 in dividends annually. She pays no UK tax, but must pay U.S. tax at rates of 15-20% on the $2,500 USD equivalent. She cannot claim a Foreign Tax Credit.
ISAs can be effective for short-term savings, but they lose much of their appeal for U.S. citizens due to U.S. tax treatment.
Read our complete guide on ISA reporting for expats to learn more.
What About UK Property and Capital Gains?
UK Capital Gains Tax
For 2025-2026: Annual exempt amount is £3,000. Tax rates are 18% (basic rate) or 24% (higher rate) on residential property. You must report and pay UK CGT within 60 days of completion.
U.S. Capital Gains Tax
The U.S. also taxes gains on UK property at 0%, 15%, or 20% rates. You can claim a Foreign Tax Credit for UK CGT paid. If the property is your primary residence, you may qualify for the U.S. Section 121 exclusion ($250,000 single, $500,000 married).
Example: Mark’s London Property Sale Mark bought a flat for £300,000 in 2020 and sold it for £450,000 (£150,000 gain). His UK CGT is £35,280 (24% on £147,000 after £3,000 exemption). His U.S. tax would be $28,125 (15% on $187,500), but the Foreign Tax Credit for UK CGT paid eliminates his U.S. tax entirely.
Learn more about UK property capital gains tax.
What Are Common Mistakes U.S. Expats Make?
- Not reporting foreign bank accounts (FBAR): The $10,000 threshold is aggregate across all accounts. Penalties up to $10,000+ per violation.
- Confusing ISAs for Roth IRAs: All ISA earnings are taxable on your U.S. return.
- Forgetting the 25% pension lump sum: It’s NOT tax-free for U.S. purposes.
- Ignoring PFIC rules: Many UK funds trigger complex reporting and punitive taxation.
- Not claiming treaty benefits: You must actively claim them by filing appropriate forms.
- Missing Making Tax Digital enrollment: HMRC will notify you, but it’s your responsibility to comply.
- Filing state taxes when not required: If you’re a bona fide UK resident, you likely don’t owe state taxes.
What If I’m Behind on Filing?
The Streamlined Filing Compliance Procedures offer a path to catch up with minimal penalties. You must:
- Certify non-willful failure to file
- File the last 3 years of U.S. tax returns
- File the previous 6 years of FBARs
- Pay any tax owed (usually little or nothing after credits)
Example: Rachel’s Catch-Up Filing Rachel, a Bristol teacher earning £45,000 annually, hadn’t filed for 5 years. Working with Greenback, she filed three years of returns and six years of FBARs, claimed the Foreign Tax Credit for UK taxes paid, and owed $0 in U.S. tax with $0 in IRS penalties via the Streamlined Procedures.
Learn more about our Streamlined Filing Package.
How Can Greenback Help with UK and U.S. Taxes?
At Greenback, we handle both sides of the Atlantic. Our team includes U.S. CPAs and Enrolled Agents specializing in expat taxes, plus in-house UK Chartered Accountants who can prepare your UK Self Assessment Tax Return.
Why This Matters:
- No miscommunication between separate preparers
- Strategic coordination to minimize total tax liability
- One team managing both compliance obligations
- Single document upload through your secure account
We’ve prepared over 71,000 returns for expats in 190+ countries with a 4.9-star rating across 1,200+ reviews. Whether you need help with one return or both, whether you’re current or years behind, we’ll give you peace of mind knowing your taxes were done right.
Learn more about our UK tax services, or contact us, and one of our Customer Champions will gladly help.
Talk to a UK expat tax specialist
This guide provides general information and should not be considered legal or tax advice. U.S. and UK tax laws are subject to frequent changes, and your specific situation may require professional guidance. Always consult with a qualified tax professional before making tax decisions.
Related Resources
UK-Specific Guides
- U.S.-UK Dual Citizen Taxes: Complete Guide
- Moving to the UK from the USA: What to Expect
- 8-Step Tax Checklist Before Moving to the UK
- UK Self Assessment Tax Returns: A Guide for US Expats
- Making Tax Digital for UK Expats
- UK vs. US Taxes: Complete Comparison
- ISA Reporting for Expats: Tax Guide
- Capital Gains Tax on UK Property
U.S. Tax Essentials
