Complete Tax Guide for US Expats in the UK

Living as an Expat in the UK

The UK’s rich history, English-speaking culture, and long-standing position as a world power have made it a popular choice for American expats. However, if you’re hoping to make the UK your new home, it’s important to understand how living in the UK will impact your tax situation.

Read on to learn all about UK taxes for US expats—as well as how living in the UK will impact your US tax obligations.

UK Taxes at a Glance

• Tax Year: April 6–April 5
• Tax Deadline: October 31 if filing a paper return & January 31 if filing online
• Currency: Great British Pound (GBP)
• Population: 67 million
• Number of US Expats in the UK: Estimated 200,000
• Capital City: London
• Primary Language: English
• Tax Treaty: Yes
• Totalization Agreement: Yes

What Are Taxes like for American Citizens Living in the UK?

The UK equivalent to the IRS is the Her Majesty Revenue & Customs (HMRC) office. The HMRC is the principal revenue collection agency of the United Kingdom government. They collect taxes, administer some of the regulatory systems like the national minimum wage, and are responsible for payment of some state support/welfare.

The UK tax system is much like the US tax system, where tax is levied as you earn your salary, wages, business income, and investment income. Payroll taxes are known as Pay As You Earn (PAYE) taxes. PAYE includes your income tax and national insurance contributions. The tax rates are progressive, meaning the more you earn, the higher your rate of tax for each additional dollar of income.

Do expats pay taxes in the UK?

The first question most expats living in the UK have is whether they should file their taxes with the UK government or the US. In most cases, the answer is both. This is because:

• Most expats living in the UK will have at least some local tax obligations
• Every US citizen is required to file an annual US tax return no matter where they live

To help clarify exactly what taxes you may owe, here’s an overview of how UK and US taxes impact Americans living abroad.

Who Has to File Taxes in the UK? 

In the UK, most employees’ taxes are withheld through the Pay As You Earn (PAYE) system. You will generally only need to file a UK tax return if:

• You have employment income exceeding GBP 100,000 (including salary and benefits)
• You have investment income exceeding GBP 10,000
• You have self-employment income exceeding GBP 1,000
• You are the director of a company (unless the company is a non-profit and you receive no salary or benefits)
• You or your partner have income exceeding BGP 50,000 and you claimed the Child Credit
• You have income from a non-UK source

If you are required to file, Her Majesty’s Revenue and Customs (HMRC) should send you a form to fill out. However, to double-check your tax filing obligations, you can use this HMRC tool. You may also want to file a tax return to claim deductions or receive a refund from the HMRC. Common examples of deductions include:

• Donations to charity
• Private pension contributions
• Work expenses over GBP 2,500

If you have not received a tax form from the HMRC, but need to file one, you must register online with the HMRC. Do this as early as possible to avoid late filing penalties. The sign-up process takes 10–14 days to complete, as the HMRC will need to mail you a verification PIN.

Your residency status will determine what forms of income you should report. If you are a non-resident, you will only need to report your UK-source income. If you qualify as a resident, on the other hand, you will typically be taxed on your worldwide income. (However, there are special rules for UK residents whose permanent home, or “domicile,” is located outside the UK, and for those who are not considered “ordinarily resident.”)

Who Qualifies as a Tax Resident in the UK? 

The UK defines residency status based on your long-term intentions and how many days you are physically present in the UK. You will generally be considered a resident for tax purposes if any of the following apply:

• You expect to stay in the UK for two years or more
• You spend more than 183 days in the UK
• You spend an average of 91 days or more per year in the UK over the past four years

You can also be considered “ordinarily resident” and “not ordinarily resident.”

• If you come to the UK and expect to stay for three years or more, you are considered “ordinarily resident”
• If you intend to stay in the UK for two years, but not three, you are considered “not ordinarily resident”

What Is a “Domicile” in the UK?

The concept of a domicile is very important in UK tax law. It can help determine whether you owe taxes on your worldwide income and assets, or only UK-sourced income and assets.

Your domicile, or origin, is the same as your father’s domicile at the time of birth. If your father changed domicile while you were still a dependent, your domicile will also have changed. Otherwise, you have your domicile of origin unless you acquire a different domicile.

In order to do so, you must cut links with your previous domicile, move to a new jurisdiction, and have a permanent home in that jurisdiction. It is difficult to acquire a domicile of choice compared to a domicile of origin, and the responsibility to prove that your domicile has changed lies on you.

Most expats in the UK are considered non-UK domiciled. The HMRC constantly makes changes to UK residence and domicile regulations. We strongly advise that you get in contact with a UK tax expert if you want to be clear about your domicile status while living in the UK.

What Types of Taxation Does the UK Have? 

Income Tax

As mentioned, UK residents are taxed on their worldwide income, while non-residents are only taxed on their UK-source income. The rates for the UK income tax—excluding Scotland—are shown below. (All amounts are given in GBP.)

UK Income Tax Rate (Excluding Scotland)

Earnings in GBP	Rate Applicable to Income Level (%)
0–5,000	10%
0 – 37,500	20%
37,501 – 150,000	40%
Over 150,000	45%

The income rates for Scotland are as follows. (All amounts are given in GBP.)

UK Income Tax Rate for Scotland

Earnings in GBP	Rate Applicable to Income Level (%)
Over 12,500 – 14,585	19%
14,585 – 25,158	20%
25,158 – 43,430	21%
43,430 – 150,000	41%
Over 150,000	46%

In both cases, taxpayers can exclude up to GBP 12,500 of their income as a personal allowance. This is reduced by GBP 1 for every GBP 2 of income over GBP 100,000.

Non-cash compensation is considered taxable in the UK. This includes:

• Housing stipends
• Relocation expenses
• Meal and clothing allowances
• Commuting costs
• Club memberships
• Education reimbursement
• Home leave payments
• National insurance

There are exceptions, but in general, expats can expect to pay taxes on non-cash compensation in the UK.

Capital Gains Tax 

The UK also taxes capital gains, including:

• The sale of your only or main residence
• Life insurance policies
• Corporate bonds
• Motor cars
• Gifts of assets to charity
• Gains from ISA accounts
• UK government bonds

If you are a resident or ordinarily resident and domiciled in the UK, you will be taxed on your worldwide capital gains. If you are a non-resident and not domiciled, you will only be taxed on capital gains earned in the UK.

Inheritance Taxes

The UK imposes an inheritance tax on expats’ worldwide assets if either of the following applies:

• They are domiciled in the UK
• They have been a resident of the UK for at least 15 of the previous 20 years

If neither of these applies, you will only be subject to an inheritance tax on assets located in the UK.

Social Security 

Like the US, the UK maintains a social security system funded by contributions from the earnings of employers and employees. Fortunately, the US-UK totalization agreement establishes rules for social security contributions to avoid double taxation.

Does the US Have a Tax Treaty with the UK? 

Yes. The US-UK tax treaty defines which country an expat will owe income taxes to, reducing the risk of double taxation. Typically, whichever country you qualify as a resident of will receive your income tax debt.

Does the US Have a Totalization Agreement with the UK?

Yes, the US has a totalization agreement with the UK to clarify which country’s social security system an expat may be obligated to contribute to. As with the US–UK tax treaty, this agreement is designed to ward off double taxation.

What Tax Forms Do Americans Living in the UK Have to File? 

UK Tax Forms for Expats 

SA 100

The SA100 is the UK individual income tax form, an equivalent of the US’ IRS Form 1040.

The deadline for Form SA100 depends on how you intend to file it. If you file a paper return, the deadline is October 31 of the tax year in question. If you file an e-return online, the deadline is January 31 of the following year.

Unfortunately, no filing extensions are available.

US Tax Forms for Expats

What Tax Deductions Are Available for Expats Living in the UK? 

Because of the US-UK tax treaty, most Americans living in the UK are already exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:

• Foreign Earned Income Exclusion
• Foreign Tax Credit
• Foreign Housing Exclusion (or Deduction)

Most expats who use these tax credits can erase their US tax debt entirely.

Need Help with Your US Expat Taxes in the UK?

Filing UK taxes for US citizens doesn’t have to be a hassle! Learn about our tax services for American Expats in the UK.

If you have any questions about your expat taxes, please contact us.