Understanding Your Tax Residency
As a US citizen or green card holder, you are a US tax resident for life, no matter where in the world you live. Moving to the UK does not change this. You must continue reporting your worldwide income to the IRS every year.
UK Tax Residency
In the UK, tax residency is determined by the Statutory Residence Test (SRT). In simple terms, if you spend 183 or more days in the UK in a tax year, you are automatically UK tax resident. Fewer days may still result in UK residency depending on other ties (home, family, work).
Once you become UK tax resident, HMRC taxes you on your worldwide income, just like the IRS does. This is why coordination between the two systems matters so much.
In 2025, the UK replaced the remittance basis non-dom rules with the new Foreign Income and Gains (FIG) regime. New UK residents who were non-resident for the previous 10 tax years may qualify for a 4-year exemption on certain foreign income.
However, most US expats see limited benefit because using the regime means losing the Personal Allowance (£12,570) and Capital Gains Tax exemption (£3,000).
UK Tax Rates
Understanding the UK tax system is the foundation for knowing how to file in both countries. For an American expat, the UK tax system is often top-heavy compared to the US. While the rates are generally higher, this often works in your favor by creating Foreign Tax Credits that can wipe out your US tax liability.
2025 UK Tax Rate (England, Whales, and Northern Ireland)
| Tax Band | Tax Rate | Income Range |
| Personal Allowance | 0% | Up to £12,570 |
| Basic Rate | 20% | £12,571 to £50,270 |
| Higher Rate | 40% | £50,271 to £125,140 |
| Additional Rate | 45% | Over £125,140 |
UK Tax Year
The UK tax year runs from April 6 to April 5 of the following year. For example, the 2025/2026 tax year began on April 6, 2025, and will end on April 5, 2026.
When preparing your US tax return (which runs Jan–Dec), you cannot simply copy the figures from your UK P60. You’ll need to add your earnings from Jan 1 – April 5 (the end of one UK tax year) to your earnings from April 6 – Dec 31 (the start of the next UK tax year).
If you are employed, your taxes are generally withheld automatically through the PAYE (Pay As You Earn) system. Self-employed individuals or those with additional income must file a Self-Assessment return directly with HMRC.
The PAYE System Explained
If you are moving to the UK for a job, you will encounter PAYE. This is the UK’s primary method for collecting income tax and National Insurance (NI) contributions directly from your paycheck.
How it Works
Your employer is responsible for deducting the correct amount of tax and NI before your salary reaches your bank account. By the time you get your payslip, the figure you see as Net Pay is yours to keep; HMRC has already taken its cut.
Understanding Your Tax Code
HMRC assigns every employee a Tax Code, which tells your employer how much tax-free Personal Allowance you get.
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1257L: The most common code. It means you can earn £12,570 tax-free before deductions begin.
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K Codes: This means your benefits in kind (like a company car or private medical insurance) are worth more than your tax-free allowance, so HMRC takes extra tax from your cash salary to cover it.
Why PAYE is a Win for US Expats
Because PAYE is highly precise, many employees in the UK never have to file a local tax return. For Americans, this simplifies your life because you already have a final, documented amount of UK tax paid that you can use to claim Foreign Tax Credits on your US return.
Since the UK and US tax years don’t align. When claiming Foreign Tax Credits on your US return, you’ll need to prorate UK taxes paid across two UK tax years to match the US calendar year.
National Insurance Contributions and Benefits
National Insurance (NI) contributions are mandatory for employees and self-employed individuals in the UK.
- Class 1 contributions: Paid automatically by employees through PAYE.
- Class 2 and Class 4 contributions: Paid by self-employed individuals.
These contributions help fund state pensions, healthcare, and unemployment benefits. Your eligibility for UK benefits depends on your contribution record and your residency status.
| NIC Band | Employee Rate |
| Up to £12,570 | 0% |
| £12,571 - £50,270 | 8% |
| Over £50,270 | 2% |
UK Tax Deadlines
While your US deadlines (April 15 and the June 15 expat extension) remain, you must also track these UK-specific dates if you are required to file a Self-Assessment (usually for self-employment, rental income, or earning over £150,000).
| Dates | What It Covers |
| April 5 | End of the UK tax year |
| April 6 | The new UK tax year begins; new tax rates and ISA allowances reset. |
| May 31 | Your employer must provide your P60, summarizing your total pay and tax paid. |
| October 5 | Deadline to register for Self Assessment |
| October 31 | Paper Self Assessment return deadline |
| January 31 | Online Self Assessment filing AND payment deadline |
| January 31 / July 31 | Payments on account (advance payments toward the next year's tax) |
How to File US Taxes from the UK
Living in the UK doesn’t exempt you from the IRS. However, while you are required to file, the vast majority of Americans in the UK do not end up owing any US tax due to the high UK tax rates.
The Filing Threshold: Do You Even Need to File?
You must file a US federal tax return if your total worldwide income (from both US and UK sources) exceeds the standard deduction for your filing status. For the 2025 tax year (filing in 2026), the thresholds are:
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Single: $15,750
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Married Filing Jointly: $31,500
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Head of Household: $23,625
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Married Filing Separately: $5 (Yes, just five dollars)
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Self-Employed: $400 (Net earnings)
Need Help With US Taxes in the UK?
Universal Tax Professionals specializes in US expat taxes for Americans living in the UK, including foreign income reporting, FBARs, FATCA, and cross-border tax issues.
Step 1: Gather Your Documents
You cannot file US taxes using only UK documents; you must translate Pounds to Dollars and Fiscal Year to Calendar Year. More on this below.
Step 2: Choose Your Double Taxation Relief Strategy
This is the most important decision you’ll make. There are two main tools to avoid double taxation in the UK and the US:
Foreign Earned Income Exclusion (FEIE) — Form 2555
The FEIE lets you exclude a set amount of foreign earned income from US taxation. For the 2025 tax year, the limit is $130,000 per person ($260,000 for married couples filing jointly, if both qualify).
To qualify, you must meet one of two tests:
- Physical Presence Test: 330 or more full days outside the US in any 12-month period
- Bona Fide Residence Test: You are a legal resident of the UK for an uninterrupted tax year.
Foreign Tax Credit (FTC) — Form 1116
The FTC gives you a dollar-for-dollar credit on your US tax bill for taxes already paid to the UK. Instead of excluding income, you calculate your US tax bill and then subtract the taxes you already paid to the UK.
Since UK tax rates are generally higher than US rates, many Americans in the UK use the FTC to reduce their US tax bill to zero.
FEIE vs. FTC: Quick Comparison
| Feature | FEIE (Form 2555) | FTC (Form 1116) |
| Primary Benefit | Excludes income from US tax | Credits UK taxes paid against US tax owed |
| 2025 limit | $130,000 per person | No limit on credits |
| Best for | Lower income earners, freelancers | Higher earners, those paying significant UK tax |
| Covers passive income? | No (dividends, interest, rent — not covered) | Yes |
| Self-employment tax? | Does NOT eliminate it | Does NOT eliminate it |
| Future Flex | Hard to switch away from once chosen | Very flexible |
If you claim the FTC, you may still qualify for the Child Tax Credit (CTC). However, taxpayers using the FEIE are generally not eligible to claim the refundable portion of the CTC.
Step 3: File the Necessary Forms
Beyond the standard Form 1040, expats must navigate a suite of international information returns. These forms are used to disclose foreign assets, claim treaty benefits, and eliminate double taxation. Failure to file these can trigger significant penalties, even if no tax is owed.
| Form | Purpose |
| FinCEN 114 (FBAR) | Report UK bank/financial accounts over $10,000 |
| Form 8938 | FATCA reporting for high-value foreign assets (Thresholds vary). |
| Form 8621 | The PFIC form for UK mutual funds/ISAs (Extremely complex). |
| Form 3520-A | Certain foreign trusts (may apply to some UK pensions) |
| Form 5471 | Mandatory for Americans who own or control a UK Limited Company (Ltd). |
| Form 8833 | Used to claim US-UK Tax Treaty benefits, like protecting your UK pension status. |
| Form 8858 | Required for Americans operating in the UK as a sole trader or disregarded entity. |
US Tax Deadlines for Expats
Missing a tax deadline can lead to penalties, but expats get a bit more breathing room through a series of automatic and requested extensions:
April 15: The Payment Deadline. Even if you have an extension to file, any tax you owe must be paid today to avoid interest.
June 15: The Automatic Expat Extension. You get two extra months to file your paperwork without needing to ask.
October 15: Final Extension. File Form 4868 by June 15 to extend your deadline to October, which many UK expats need because UK tax documents are usually unavailable before the extended US filing deadline.
December 15 – Discretionary Extension: In special cases, you may request an extra two-month extension beyond October 15 by sending a written request to the IRS before October 15 explaining the reason (such as delayed UK tax documents).
An extension is an extension to file, not an extension to pay. If you think you might owe the IRS, you should estimate the amount and send a payment by April 15 to stop interest from accruing.
The US–UK Tax Treaty
The US–UK tax treaty is designed to prevent double taxation and clarify which country has the right to tax certain types of income. Most expats don’t invoke it directly because the FEIE and FTC already handle most double-tax situations.
However, the treaty is especially relevant for pensions, Social Security, and certain investment income.
Key points:
- Pension income (Articles 17 & 18): The treaty provides relief on pension distributions, often allowing them to be taxed only in the country of residence
- Social Security: A totalization agreement between the US and UK prevents double Social Security/NIC contributions
- The Saving Clause: This clause means the US retains the right to tax its citizens as if the treaty didn’t exist — so the treaty helps less than you’d think for most US citizens
To invoke a treaty position on your US return, file Form 8833.
US Tax Treatment of UK Pensions
UK pensions are one of the most complex areas for American expats, and getting this wrong can be expensive.
| Pension Type | UK Treatment | US Consideration |
| UK State Pension | Taxable in the UK | Taxable in the US; treaty may provide relief |
| Workplace / auto-enrolment pension | Contributions via PAYE, tax-free growth | Generally reported; treaty may defer US tax on growth |
| SIPP (Self-Invested Personal Pension) | Tax-free contributions and growth | Complicated — may require Form 3520; seek specialist advice |
| NHS / public sector pension | Defined benefit | Taxable in the US upon distribution; treaty relief available |
UK Investments & Savings
ISAs (Individual Savings Accounts)
ISAs are completely tax-free in the UK, no tax on interest, dividends, or capital gains. However, the IRS does not recognize ISA tax-free status. You must still report income earned inside an ISA on your US return. Additionally, if your ISA holds UK-domiciled funds, PFIC rules may apply.
PFICs (Passive Foreign Investment Companies)
This is one of the most important and underappreciated issues for Americans in the UK. Any UK mutual fund, ETF, or unit trust is likely classified as a PFIC by the IRS. The default PFIC tax treatment is punitive; gains are taxed at the highest ordinary income rate plus interest charges.
Many US expats in the UK choose to hold US-domiciled index funds (such as Vanguard US-listed ETFs) in brokerage accounts rather than UK funds for this reason.
US Expat Tax Service in the UK
Universal Tax Professionals has helped thousands of Americans in the UK stay tax compliant. Get specialized guidance from a firm that understands both the US and the UK tax systems and works for American expats every day.
Capital Gains
The US and UK both tax capital gains, but differently:
- The UK applies CGT only when you sell an asset, with an annual exempt amount of £3,000
- The US taxes capital gains based on holding period: short-term gains (under 1 year) are taxed as ordinary income; long-term gains (1 year+) at preferential rates of 0%, 15%, or 20%
- Exchange rate fluctuations also matter; a gain in GBP terms may be a larger gain in USD terms
UK Documents You’ll Need to Prepare Your US Taxes
Every tax season, Americans in the UK need to gather UK-specific documents before they can complete their US return. Here are the common forms to look out for:
| Document | What It Is | Why You Need It for US Taxes |
| P60 | Year-end summary of pay and tax deducted | Your UK equivalent of a W-2. Shows total UK income and tax paid — essential for Form 1116 (FTC) |
| P45 | Leaving certificate from a previous employer | Needed if you changed jobs during the year — confirms income and tax paid at that employer |
| SA302 | HMRC tax calculation (Self Assessment) | Assessment)Shows tax owed and paid if you filed a UK Self Assessment return — critical for FTC |
| Payslips | Monthly pay and deductions | Supporting documentation for income and UK tax withheld |
| Pension statements | Annual summaries from workplace or personal pensions | Required for pension reporting and may trigger additional IRS forms |
| ISA & investment statements | Year-end summaries from ISA providers or brokers | Required for PFIC analysis, FBAR, and FATCA threshold checks |
| UK bank statements | Year-end or monthly statements | Needed to determine if your aggregate UK account balances exceeded $10,000 at any point (FBAR threshold) |
Reporting UK Accounts to the IRS: FBAR & FATCA
Even if you owe no US tax, you may still have mandatory reporting obligations for your UK financial accounts.
The US government uses these disclosures to track offshore wealth and prevent financial crime, and the penalties for forgetting a bank account can be significantly higher than the taxes themselves.
FBAR (FinCEN114)
Filed separately from your tax return, the FBAR is required if your combined foreign account balances exceeded $10,000 at any time during the year.
Reportable accounts include UK current accounts, savings, ISAs, investment accounts, and some pensions.
FATCA (Form 8938)
Filed with your Form 1040, FATCA applies when foreign assets exceed higher thresholds.
It covers broader foreign wealth, including bank accounts, investments, life insurance, and foreign entities. For expats, reporting generally starts above $200,000 (Single/MFS) or $400,000 (MFJ).
Keypoint: FBAR and Form 8938 are different forms with different thresholds. Filing one does not satisfy the other. Many expats are caught out assuming they’re the same thing.
Non-willful FBAR violations can result in penalties up to $10,000 per violation. Willful violations can exceed $100,000 or 50% of account balance per violation.
Property in the UK
Renting Out UK Property
Rental income from UK property must be reported to both HMRC and the IRS. In the UK, you report via Self Assessment. For the US, rental income is included on Schedule E of Form 1040.
You can generally deduct expenses in both countries, though the rules differ.
Selling Your UK Home
- UK CGT: You may qualify for Private Residence Relief, which can eliminate UK CGT on the sale of your main home
- US: The US offers a Principal Residence Exclusion of $250,000 ($500,000 for married couples). However, exchange rate fluctuations mean your USD gain may differ from your GBP gain. Both systems need to be considered simultaneously when planning a sale
Catching Up on US Taxes If You’re Behind
Many Americans living in the UK discover, sometimes years after moving, that they were supposed to be filing US tax returns the whole time. This is more common than you’d think.
If this is you, the good news is that the IRS has a formal program designed specifically for expats in this situation, and most people who use it come out with zero penalties.
The IRS Streamlined Foreign Offshore Procedure
The Streamlined Foreign Offshore Procedure (SFOP) is the IRS’s official catch-up program for Americans living abroad who have non-willfully failed to file US tax returns, FBARs, or other required forms. Non-willful means you weren’t deliberately hiding income, you simply didn’t know you had to file.
To qualify, you must:
- Have lived outside the US for at least one of the last three years and not maintained a US abode (primary home)
- Not currently be under IRS audit or investigation
- Certify that your failure to file was non-willful
What you submit:
- The last 3 years of delinquent or amended US federal tax returns (Form 1040)
- The last 6 years of FBARs (FinCEN 114)
- Payment of any tax and interest owed across those returns
- A signed non-willful certification (Form 14653)
The penalty: None. Under the Streamlined Foreign Offshore Procedure, qualifying expats pay no FBAR penalties and no failure-to-file or failure-to-pay penalties, even if they owe some back taxes.
The Streamlined Procedure is not available if the IRS has already contacted you about the unfiled returns or accounts. If you’ve received any correspondence from the IRS about compliance, seek professional advice before taking any steps.
US Expat Tax Services in the UK
Navigating two tax systems from overseas is not something you should have to figure out alone. At Universal Tax Professionals, we specialize in helping Americans living in the UK stay fully compliant with their US tax obligations, without the stress and without overpaying.
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UK Tax Partnership: We partner with experienced UK tax firms that can assist with your UK tax filing and planning needs. This helps ensure your US and UK tax positions are properly coordinated to reduce double taxation issues.
Licensed EAs & CPAs: Your return is prepared and reviewed by licensed Enrolled Agents (EAs) and Certified Public Accountants (CPAs). This gives you confidence that qualified professionals are handling your tax matters.
Personalized Support: Unlike tax software that provides generic guidance, we assign you a dedicated accountant for personalized assistance. You’ll have direct support from someone who understands your specific financial and tax situation.
