Complete Tax Guide for US Expats in the UK

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:

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 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, 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.”)

Every expat should know these 25 things about US expat taxes. Find out for yourself.
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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 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 GBPRate Applicable to Income Level (%)
0 – 37,50020%
37,501 – 150,00040%
Over 150,00045%

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 – 14,58519%
14,585 – 25,15820%
25,158 – 43,43021%
43,430 – 150,00041%
Over 150,00046%

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

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, but in the case of expats, that due date is automatically extended to June 15.

Pro Tip

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, just fill it out, attach it to your Form 1040, and file them at the same time.

FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)

If you have at least $10,000 deposited in one or more non-US bank accounts, you’ll need to 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, 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:

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!

Don’t just guess. Get the best advice from one of our expat expert CPAs and EAs.
Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.
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