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.
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.
1. File Your US Tax Return and Report UK Income
The first step in avoiding double taxation is making sure you properly file your US federal tax return each year, even if you live in the UK. This means reporting all sources of income—including UK wages, rental income, and investment income—on your Form 1040.
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.
2. Use the Foreign Earned Income Exclusion (FEIE)
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 2024, you can exclude up to $126,500 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, each of you can claim up to $120,000 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.
3. Claim the Foreign Tax Credit (FTC)
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.
4. Leverage the US–UK Tax Treaty
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 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.
5. Watch for Timing Differences
The UK and US tax years do not align. The UK tax year runs from April 6 to April 5, while the US tax year is the calendar year.
This can create timing mismatches in when income is taxed and when credits can be claimed. It’s important to keep careful records of when income was received and taxes were paid. You may also need to consider filing under the accrual method for the Foreign Tax Credit if your UK taxes are paid after the US tax filing deadline.
This is especially important for people with UK bonuses, year-end income, or capital gains near tax deadlines. Working with a tax professional who understands both systems is highly recommended.
6. Be Aware of Self-Employment and National Insurance
If you are self-employed in the UK, you may still be liable for US self-employment tax (Social Security and Medicare), even if you’ve paid UK National Insurance.
However, under the US–UK Totalization Agreement, you can often avoid double contributions to social security systems. If you’re working and paying into the UK system, you may be exempt from US self-employment tax, and vice versa. To claim this exemption, you typically need a certificate of coverage from the appropriate country.
7. Don’t Forget About State Taxes
If you last lived in a US state before moving abroad, check whether that state still considers you a resident for tax purposes. Some states, like California and New York, are especially strict and may try to tax your worldwide income even if you’ve moved overseas.
To avoid state tax issues, cut as many ties to your former state as possible, establish tax residency abroad, and file final returns with a clear change of residence.
Double taxation can feel like a major burden, but it doesn’t have to be. The combination of the Foreign Earned Income Exclusion, the Foreign Tax Credit, and the US–UK Tax Treaty means that most Americans living in the UK can legally reduce or eliminate their US tax liability on UK income.
Filing correctly and using the right strategy can make a big difference. If you’re unsure how to proceed, get in touch with a tax professional who understands both UK and US systems. You don’t have to face it alone, and you shouldn’t pay more tax than you’re legally required to.
