Complete Tax Guide for US Expats in the UK
- Living as an Expat in the UK
- UK at a Glance
- What Are Taxes like for American Citizens Living in the UK?
- Who Has to File Taxes in the UK?
- Who Qualifies as a Tax Resident in the UK?
- What Is a "Domicile" in the UK?
- What Types of Taxation Does the UK Have?
- Does the US Have a Tax Treaty with the UK?
- Does the US Have a Totalization Agreement with the UK?
- What Tax Forms Do Americans Living in the UK Have to File?
- US Tax Forms for Expats
- What Tax Deductions Are Available for Expats Living in the UK?
- Need Help with Your US Expat Taxes in the UK?
Living as an Expat in the UK
Living in the UK as a US expat has become increasingly popular in recent years. However, it’s crucial to understand the tax laws and regulations that impact your financial planning. This tax guide for US expats living in the UK provides essential information to navigate the complexities of the UK tax system.
One crucial aspect to consider is the impact of Brexit and other political issues on the US-UK relationship. Despite this, the UK’s rich history, English-speaking culture, and position as a world power continue to make it a popular choice for American expats.
The cost of living in the UK is another critical factor to consider. While it may be higher than in some parts of Europe, it’s still relatively affordable compared to other countries worldwide. Factors that impact the overall cost of living include food costs, which vary depending on where you shop and what you buy. Rent is also generally cheaper in the UK than in the US, although areas like London can be expensive.
This tax guide provides essential information on how living in the UK will impact your US tax obligations. It covers UK tax rates, tax treaties between the US and the UK, and tax obligations for self-employed individuals.
With the right UK expat tax advice, you’ll be equipped with the knowledge to make informed decisions about your financial future as a US expat living in the UK.
UK at a Glance
- Primary Tax Form for Residents: Self-Assessment Tax Return
- 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: 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, 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 and are basically the taxes that are withheld from your UK salary. PAYE includes your income tax and national insurance contributions. The tax rates are progressive, meaning the more you earn, the higher your tax rate for each additional dollar of income.
The UK has a residence-based tax system, which means that if you are considered a tax resident in the UK, you will usually have to pay HMRC tax on all of your worldwide income. Residents typically pay tax on all their income, whether from the UK or abroad. But there are special rules for residents whose permanent home (‘domicile’) is abroad. Non-residents pay tax on their UK income but not foreign income.
To navigate the complexity of taxes in the UK for Americans living abroad and avoid overlooking key factors, seeking the advice of an expat tax professional service like Greenback is highly recommended.
Who Has to File Taxes in the UK?
Most employees’ taxes are withheld in the UK 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 an 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, you can double-check your tax filing obligations using 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 must 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 have spent 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 domicile is fundamental 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 at birth. If your father had changed domicile while you were still a dependent, your domicile would also have changed. Otherwise, you have your domicile of origin unless you acquire a different domicile.
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 challenging 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.
What Types of Taxation Does the UK Have?
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 – 37,500||20%|
|37,501 – 150,000||40%|
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%|
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 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 primary 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.
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.
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.
If you own property in England or Northern Ireland, you’ll need to be aware of the Stamp Duty Land Tax (SDLT). The amount you’ll pay in SDLT depends on the value of the property you’re buying. As of 2023-2024, the following rates apply:
- 0% on properties worth up to £250,000
- 5% on the next £675,000 (the portion from £250,001 to £925,000)
- 10% on the next £575,000 (the portion from £925,001 to £1.5 million)
- 12% on the remaining amount (the portion above £1.5 million)
However, if you’re a first-time homebuyer, you may be eligible for a reduced tax rate on properties worth £625,000 or less:
- 0% on properties worth up to £425,000
- 5% on the next £200,000 (the portion from £425,001 to £625,000)
It’s important to note that the rates may differ if you’re buying a new residential leasehold property, already own property, or are not a UK resident. You can use the SDLT calculator for assistance with calculating your SDLT liability.
It’s worth mentioning that if you’re buying property in Scotland or Wales, you won’t be subject to SDLT. In Scotland, you’ll pay the Land & Buildings Transaction Tax (LBTT) to Revenue Scotland, while in Wales, you’ll pay the Land Transaction Tax (LTT) to the Welsh Revenue Authority.
Apart from SDLT, you may also need to consider council tax, which is a local-level property tax. Council tax rates vary depending on the value of your home, the local council tax rate in your area, and whether you’re eligible for any discounts or exemptions. It’s important to check with your local council for more information on council tax in your area.
Does the US Have a Tax Treaty with the UK?
Yes. Typically, whichever country you qualify as a resident of will be the country that taxes you. As an American expat, you are taxed on your worldwide income. The use of a tax treaty is one of the ways to avoid being taxed on the same income twice. Note that the use of a treaty is optional. If you qualify for the use of a treaty provision, you can choose to use it by filing a treaty election form, or you can choose not to use it.
The US-UK Tax Treaty includes two passages that affect Americans the most. They are:
- The Savings Clause -The Savings Clause is an exception to the general rule that states you will pay tax in the country where you are a resident. It allows US citizens and residents to avoid paying taxes in both countries if they have not spent more than 183 days in the UK during any 12-month period.
- Article 17– This article states that you pay taxes in the country where you have a permanent home, which is defined as your ‘usual residence.’ This means that if you live in the UK for more than six months of the year, it is considered your permanent home, and any income earned in Britain will be taxed there.
Does the US Have a Totalization Agreement with the UK?
A Totalization agreement is a bilateral agreement between two countries that aims to eliminate the double payment of social security taxes for expats who work in one country, but also are required to pay social security in their home country. The US has totalization agreements with over 30 countries worldwide, but does it have one with the UK?
The answer is yes; the US and the UK have a totalization agreement. The agreement was signed in 1984 and has been in effect since 1985. The agreement aims to help workers and employers avoid double social security taxation and ensure that individuals who have worked in both countries can qualify for benefits.
Under the US-UK totalization agreement, employees must only pay social security taxes one country at a time. If an employee is sent to work in the UK by a US company for five years or less, for example, the employee will only pay social security taxes in the US and not in the UK. Similarly, if a UK employee is sent to work in the US for five years or less, they will only pay social security taxes in the UK and not in the US.
The agreement also allows individuals who have worked in both countries to combine their social security credits to qualify for benefits in either country. For example, suppose a US worker has earned enough credits in the UK and is not eligible for US social security benefits. In that case, they may still be eligible for UK social security benefits.
The US-UK totalization agreement benefits both countries, as it helps reduce the administrative burden and costs associated with double taxation. It also provides greater flexibility for workers who move between the two countries and helps ensure they receive the social security benefits to which they are entitled.
What Tax Forms Do Americans Living in the UK Have to File?
UK Tax Forms for Expats
When it comes to UK tax forms, Americans living in the UK may need to file a Self-Assessment tax return if they meet specific criteria. For example, if they are self-employed or have income from sources other than employment, they may need to file a Self-Assessment tax return. The tax year in the UK runs from April 6 to April 5, so the deadline for filing a Self-Assessment tax return is typically January 31 of the following year.
Additionally, Americans living in the UK may be eligible for certain tax credits or deductions, such as the UK Personal Allowance, which is a tax-free amount of income that can be earned each tax year. To claim these credits or deductions, they may need to fill out additional UK tax forms, such as the P85 or SA101 forms.
Tax laws and regulations can be complex, and the requirements for filing tax forms can vary depending on individual circumstances. It’s always a good idea to consult with a tax professional familiar with US and UK tax laws to ensure you comply and take advantage of all available tax benefits.
Form 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
IRS Form 1040: Individual Income Tax Return
Form 1040 is the standard US individual income tax return. All US citizens are required to file this form regardless of whether they live in the US, the UK, or anywhere else.
The due date for Form 1040 is typically April 15 (April 18th, 2023), but in the case of expats, that due date is automatically extended to June 15th, 2023 (You can also request a further extension to October 16th, 2023.)
You can also request a further extension to October 15 for filing this form.
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
If you own non-US financial assets valued above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of the UK.
If you do have to file a FATCA report, fill it out, attach it to your Form 1040, and file them simultaneously.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have at least $10,000 in one or more non-US bank accounts, you must report it by filing FinCEN Form 114, also known as the FBAR.
Unlike the previous forms, you can’t file the FBAR by mail. You must file it electronically using the FinCEN BSA E-Filing System.
The FBAR is technically due on April 15, but if you miss that deadline, it automatically extends to October 15. You won’t even have to file an extension request.
What Tax Deductions Are Available for Expats Living in the UK?
Because of the US-UK tax treaty, some 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.
Need Help with Your US Expat Taxes in the UK?
Filing UK taxes for US citizens doesn’t have to be a hassle! The US expat tax filing deadline is fast approaching, and it’s important that you make sure your taxes are in order. Fortunately, there are several steps you can take to make this task a little easier.
Contact us, and one of our customer champions will gladly help. If you need precise advice on your tax situation, you can also click below to get a consultation with one of our expat tax experts.