For many Americans living in the United Kingdom, one of the biggest concerns about cross-border living is the risk of being taxed twice, once by HM Revenue & Customs (HMRC) in the UK and again by the Internal Revenue Service (IRS) in the US.
Because the United States taxes its citizens and green card holders on their worldwide income, Americans living abroad must report their UK earnings to the IRS each year, even if they are fully taxed in the UK. Fortunately, several tax provisions and international agreements exist to help prevent double taxation.
Americans in the UK avoid double taxation primarily through three mechanisms: the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit (FTC), and the US-UK Tax Treaty.
This guide explains how to leverage these tools to eliminate IRS debt on UK earnings
Key Summary: Avoiding Double Taxation for US Expats in the UK
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All US citizens in the UK must file an annual IRS return and report worldwide income, regardless of where it was earned or if UK tax has already been paid.
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Most expats can eliminate their US tax bill entirely by leveraging the Foreign Tax Credit (FTC) for a dollar-for-dollar offset or the Foreign Earned Income Exclusion (FEIE) to exclude up to $130,000 in wages.
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The US-UK tax treaty determines which country taxes certain income types, such as pensions, Social Security, dividends, and interest, helping avoid being taxed twice.
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Because the UK tax year ends on April 5 and the US ends on December 31, you must prorate your income or use the accrual method on Form 1116 to avoid timing-based double taxation.
Why Americans in the UK Are at Risk of Double Taxation
Double taxation occurs when two countries tax the same income. For example, if you earn a salary in the UK and pay tax on it to HMRC, and then also have to pay tax to the IRS on that same income, you could be taxed twice.
The United States taxes its citizens regardless of where they live, unlike most countries which use a residence-based tax system. Meanwhile, as a UK resident, you’re generally required to pay UK tax on UK-source and worldwide income (if you’re domiciled in the UK for tax purposes).
Without special provisions, this could mean UK tax on UK wages, rental income, and pensions, and US tax on the same income, even though it’s earned abroad. That’s why the US tax code and the US–UK tax treaty provide mechanisms to reduce or eliminate this overlap.
Reporting UK Income on a US Tax Return
The first step in avoiding double taxation is to properly file your US federal tax return (Form 1040) each year, even while living in the UK. This includes reporting all sources of income, such as UK wages, rental income, investment income, and details from your P60, which summarizes your annual earnings and tax paid to HMRC.
For most expats, the goal is not to avoid filing, but to use tax credits and exclusions to eliminate or reduce the US tax due.
In addition, if you have foreign bank accounts over $10,000 in total, you must file the FBAR (FinCEN Form 114), and if your foreign assets exceed certain thresholds, you must file Form 8938 under FATCA. Filing properly is essential to claiming benefits that help avoid double taxation.
How the Foreign Earned Income Exclusion (FEIE) Works
One of the most common ways to reduce US tax on UK income is through the Foreign Earned Income Exclusion, available on Form 2555.
For tax year 2025, you can exclude up to $130,000 of earned income from US taxation if you meet certain residency tests:
- Physical Presence Test: You were physically present in a foreign country for at least 330 full days in a 12-month period
- Bona Fide Residence Test: You were a resident of a foreign country for an entire tax year and have no immediate plans to return to the US
If both you and your spouse qualify, you may claim up to $260,000 in exclusions, which can significantly reduce or eliminate your US taxable income from UK wages or self-employment.
Note: The FEIE only applies to earned income (like wages or freelance income), not to pensions, investment income, or rental income.
How to Claim the Foreign Tax Credit (FTC) on UK Taxes
If you pay UK taxes on income that is also subject to US tax, you can typically claim a Foreign Tax Credit on Form 1116. This allows you to offset your US tax liability dollar for dollar using the UK tax you’ve already paid.
The FTC is especially useful for income that does not qualify for the FEIE, such as UK pensions or annuities, UK dividends and interest, UK rental income, and capital gains.
For example, if you paid £10,000 in UK tax on rental income, and that income is also taxed in the US, you can claim a credit against your US tax using that £10,000, converted to US dollars.
You can’t use both the FEIE and the FTC on the same income, but in many cases, it makes sense to use a combination of both to minimize your US tax.
FEIE vs. FTC: Which is Best for Americans in the UK?
Choosing between the Foreign Earned Income Exclusion and the Foreign Tax Credit depends largely on your income level and family situation. Because the UK is a high-tax jurisdiction (tax rates are often higher than in the US), many expats find the FTC more advantageous. Here’s a comparison between FEIE and FTC:
| Feature | Foreign Earned Income Exclusion (FEIE) | Foreign Tax Credit (FTC) |
|---|---|---|
| Best Suited For | Lower earners or Americans living in lower-tax UK situations | Higher earners in the UK subject to higher HMRC tax rates |
| Income Types Covered | Earned income only (salary, wages, self-employment) | Earned and passive income (dividends, rental income, interest) |
| 2025 Exclusion / Credit Limit | Up to $130,000 of earned income excluded | No limit; provides a dollar-for-dollar credit for UK taxes paid |
| Child Tax Credit Impact | May reduce or eliminate eligibility for refundable credits | Preserves eligibility for the Child Tax Credit |
| Carryforward Rules | No carryover — unused exclusion is lost | Unused credits can be carried forward for up to 10 years |
How the US-UK Tax Treaty Prevents Double Taxation
The US–UK Income Tax Treaty is a powerful tool that helps prevent double taxation on certain types of income. It clarifies which country has taxing rights over different categories of income and may reduce or eliminate US tax liability.
Some examples include UK pensions, where Article 17 of the treaty allows the UK to tax UK pensions, and the US generally defers to the UK in most cases. UK residents generally only pay tax to the UK, not the US, on US Social Security benefits (and vice versa).
Dividends and interest may be taxed at reduced rates under treaty rules, and students and teachers may be exempt from some types of tax during temporary stays.
To claim treaty benefits, you may need to file Form 8833 (Treaty-Based Return Position Disclosure) with your US tax return. While the treaty doesn’t eliminate the need to file a US return, it helps coordinate taxation rights and resolve conflicts.
Solving the US-UK Tax Year Mismatch
The biggest technical hurdle for Americans in the UK is that the tax calendars do not align. The US tax year follows the calendar year (January 1 to December 31), while the UK tax year runs from April 6 to April 5.
If you don’t account for this 3-month gap, you risk having a “tax credit shortfall”, where you owe the IRS in April but haven’t yet paid your final UK tax bill to claim the credit.
To prevent double taxation caused by timing, you should use one of the following strategies:
1. The Accrual Method
Most US expats are “cash basis” taxpayers, meaning they claim credits only when they physically pay the tax. However, the IRS allows you to elect the Accrual Method on Form 1116.
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How it works: You claim a US tax credit for the UK tax liability you accrued during the US calendar year, even if you haven’t paid HMRC yet.
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The Benefit: It perfectly matches your UK tax credits to the same income reported on your US return.
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The Catch: This is a permanent election. Once you switch to the accrual method, you cannot switch back to the paid method without IRS consent.
2. Accelerate Your UK Tax Payments
If you prefer to stay on the paid basis, you can manually bridge the gap by making a voluntary UK tax payment before December 31.
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How it works: By paying your estimated UK tax bill (or a balancing payment) before the end of the US calendar year, that payment becomes eligible to be claimed as a credit on the US return you file the following April.
3. Prorating Your Income
When reporting your UK salary to the IRS, you cannot simply use your UK P60 (which ends in April). You must manually calculate your earnings from January to December.
Tip: Keep your monthly UK payslips. You will need to add the income from the last three months of one UK tax year to the first nine months of the next to get your accurate US calendar year total.
Work with US-UK Tax Specialists
Avoid costly mistakes and unnecessary taxes. Our team understands both the US and UK tax systems and can guide you through filing, credits, exclusions, and treaty positions.
Avoiding Double Social Security Tax
To avoid paying Social Security contributions to both the IRS and HMRC on the same income, you must leverage the US–UK Totalization Agreement. This international treaty ensures that workers moving between the two countries only pay into one social security system at a time.
How to Qualify for an Exemption
Whether you pay US Social Security or UK National Insurance (NI) depends on your employment status and the length of your stay:
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For Employees on Assignment: If you are sent by a US company to work in the UK for five years or less, you typically remain in the US Social Security system. You will need a Certificate of Coverage from the Social Security Administration (SSA) to exempt you from UK National Insurance.
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For Local Hires and Long-Term Expats: If you are hired by a UK company or stay longer than five years, you will typically pay UK National Insurance and be exempt from US Social Security.
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For the Self-Employed: Generally, you pay social security taxes to the country where you reside. As a UK resident, you would pay UK National Insurance. To avoid the 15.3% US Self-Employment tax, you must obtain a certificate from HMRC proving your UK coverage.
Breaking State Residency: Eliminating US State Tax Liability
Unlike the federal government, US states do not have tax treaties with the UK. This means even if you owe $0 in federal tax, your former home state might still demand a percentage of your UK earnings.
Steps to End Your State Tax Obligations
To stop paying state taxes while living in the UK, you must prove you have abandoned your domicile in the US. This is more difficult in Sticky States like California, New York, Virginia, and New Mexico.
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Establish a New Domicile: You must demonstrate that the UK is your permanent home. Getting a UK residence permit, a long-term lease, or a local driver’s license helps prove this intent.
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Sever Financial Ties: Where possible, close bank accounts, cancel your voter registration, and relinquish your state driver’s license.
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File a Part-Year Resident Return: In your year of departure, file a part-year return rather than a full-year resident return. Clearly mark your date of move to signal the end of your residency.
2026 IRS Compliance Checklist for US Expats in the UK
Living as an American in the UK requires tracking two different tax systems simultaneously. Use this checklist to ensure you never miss a deadline or an opportunity to reduce your tax bill.
1. Confirm Your Tax Residency Status
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UK Statutory Residence Test (SRT): Confirm if you are a UK resident based on the 183-day rule or the Only Home test. Note that as of April 6, 2025, the non-dom remittance basis has been replaced with a new residence-based regime.
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US Substantial Presence Test: Track your days spent in the US. If you spent more than 35 days in the US, you may need to evaluate if you’ve triggered Substantial Presence (if not already a citizen/Green Card holder).
2. Organize and Convert Financial Data
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Convert GBP to USD: The IRS requires all income to be reported in US Dollars. For the 2025 tax year (filed in 2026), you can generally use the IRS Yearly Average Exchange Rate.
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Consolidate UK Income: Gather your P60 (issued after April 5) and any P45s if you changed jobs. Remember to include benefits in kind (like private health insurance or car allowances) which are taxable in both countries.
3. Identify Mandatory IRS Forms
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Form 1040: Your standard annual return.
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Form 2555 (FEIE): To exclude up to $130,000 (2025 limit) of UK earned income.
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Form 1116 (FTC): To claim credit for UK taxes paid to HMRC (highly recommended for high earners).
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FBAR (FinCEN Form 114): Required if your combined UK bank accounts exceeded $10,000 at any point in the year.
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Form 8938 (FATCA): If living in the UK, you must file if your foreign assets exceed $200,000 (Single) or $400,000 (Married) on the last day of the year.
4. Review Hidden Tax Traps
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UK ISAs: Report all interest, dividends, and gains. ISAs are not tax-free in the US.
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PFIC Reporting (Form 8621): Check if your UK-domiciled mutual funds or ETFs are classified as Passive Foreign Investment Companies.
5. Mark Key Filing Deadlines
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January 31, 2026: UK Self-Assessment deadline for the 2024/25 tax year.
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April 15, 2026: US Federal deadline for tax payments.
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June 15, 2026: Automatic extension deadline for US expats living abroad.
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October 15, 2026: Final extension deadline for US returns and FBARs.
