Tax obligations for American expats living anywhere in the world can be a incredibly complex and for those living in the UK it is no different. Here's our detailed guide that outlines your tax responsibilities if you're an American living in the UK
US expats tax obligations can be a highly complex, often a controversial affair and for Americans living in the UK, it is no different. Even British nationals who have a dual nationality with the US should be aware that they may also have tax obligations with the United States.
Failure to correctly file your taxes in the US and the UK can result in significant penalties (sometimes totally tens of thousands of dollars). However, it might also be possible to legally exclude some income earned from tax and reduce your tax liability.
Ultimately, getting it right could save you thousands of dollars, and is therefore worth getting professional advice to ensure you fully understand your tax obligations as a US expat.
This article is designed to look at the general tax requirements that American expats living in the UK must be aware of and the rules which must be met to avoid significant penalties – either in the UK or the US.
It is important to understand that this article is created as a guide only and must not be used in isolation to make any decisions about what tax is owed. You should always seek professional advice from a qualified tax adviser before making any decisions.
In a nutshell, the US tax rules for American expats in the UK are much the same as for Americans living in America in that worldwide income is subject to US income tax.
One major different is that for American’s living in the US, the deadline to file and pay your tax return is 15th April in any tax year, although Americans living abroad get an automatic two-month extension to file their taxes meaning the deadline is automatically 15th June. Taxpayers do not have to apply for this extension. However, any tax due must still be paid by the 15th April – failure to do so will attract interest on any late payment, beginning on the 15th April.
Obviously, if you don’t earn an income anywhere in the world, you will not have to pay tax anywhere in the world, including the United States. However, a tax return might still need to be filed, depending on your circumstances. This potentially avoids complications if the IRS investigate any disputes over your tax status/liabilities.
The United States has a tax treaty with the United Kingdom. The primary purpose of double tax treaties like this is to minimize the chance of double taxation on any particular income and is usually delivered through foreign tax relief. I.e. the US Government may allow a tax credit to reduce your US tax liability if tax has already been paid in the UK.
However, if it is not carefully managed, it may still be possible to be taxed twice on the same income. Correctly understanding and utilizing the double tax agreement between the US and UK is difficult and should only be done with the support and guidance from a qualified tax adviser who can understand how to apply to rules to maximize any tax credits.
It is possible to renounce your US Citizenship, however there are implications of doing so and your main motive for renouncing must not be to avoid paying UK tax.
If you are considering renouncing your citizenship you will need specialist advice from a qualified tax adviser.
Most Americans living abroad are likely to have a bank account in their country of residence, and potentially in other countries.
It is a legal requirement for all American expats to file a Report of Foreign Bank and Financial Accounts (FBAR) by 15th April (previously 30th June), and must be filed online.
FBAR covers ALL foreign accounts held by American expats including bank accounts, insurances, pensions, trusts whether you are the main beneficiary or a signatory for the account – and the total balance held in the accounts is in excess of $10,000 at any given time in the tax year.
Failure to correctly file a FBAR report carries an automatic penalty of $10,000 per account – so it is vital to understand your full responsibilities on what the status is and what is owed.
It is possible to file your own FBAR however, if you are unsure of your requirements or what you need to do, it is highly advisable that you seek professional assistance from a tax adviser who can walk you through the process.
The largest, and potentially most important tax opportunity available to American expats is the Foreign Earned Income Exclusion (FEIE).
The FEIE potentially enables American expats to avoid paying tax on the first $120,000 of foreign earnings in tax year 2023 (increased from $112,000 for tax year 2022) providing a number of criteria are met.
Firstly, income must be foreign earned, which means earnings must not:
To determine whether you can claim an exemption under FEIE, you must meet particular criteria, which means:
If you are eligible to claim an exclusion under FEIE rules, you will need to file Form 2555 or Form 2555-EZ (a shorter form). Which form you need to complete will depend on meeting a certain number of criteria.
In all cases, it is highly advisable to seek professional advice about FEIE and whether you are potential eligible for an exclusion – and potentially even assistance completing the form.
For a more detailed explanation of FEIE vs FTC, please read the following article: FTC vs FEIE >
Investments are one of the biggest tax traps for Americans living in the UK.
While UK residents often use ISAs or local funds for tax efficiency, the IRS does not recognise these benefits. Many UK-based funds are treated as Passive Foreign Investment Companies (PFICs) by the IRS, which can result in punitive tax treatment and complex reporting requirements.
If you’re building savings or considering UK investments, it's vital to understand how both the IRS and HMRC will treat them.
Getting advice before you invest can prevent expensive mistakes and help you create a portfolio that works across both tax systems.
For more detailed information, read our guide: Investing as an American Expat in the UK
The UK tax year runs from 6th April to the 5th April the following year and anybody earning an income in the UK during the tax year will be liable to UK income tax. If this is not paid automatically through a PAYE (pay as you earn) scheme, you are a director of a company or your income is over £100,000, you will be required to file a Self Assessment Tax Return. Your “Self Assessment” will determine what tax is owed, and must be filed and paid by 31st January of the following year.
If you are an American living in the UK, you are considered a UK non-dom and the first thing that needs to be established is whether you are a tax resident of the UK.
Introduced in April 2013, the Statutory Residence Test is a series of questions which ultimately determines your UK tax residence status.
If you are considered a tax resident of the UK, you will be liable to pay tax on your worldwide earnings to the UK government.
If you are not considered a tax resident of the UK, you will only be liable for any income arising from work or investments in the UK (for example, a UK based salary or rental income).
This is a very brief very simplified overview of the tax requirements of non-doms living in the UK.
If you’re a US citizen living in the UK, here are the tax essentials you should review each year. This checklist isn’t exhaustive, but it highlights the areas that most often catch people out.
Yes. If you are resident in the UK, you may need to pay UK tax on your worldwide income. However, US citizens must also file a US tax return each year, even if they live abroad. To prevent being taxed twice, the US–UK tax treaty and reliefs such as the Foreign Tax Credit may apply.
The FEIE allows qualifying US expats to exclude a portion of their foreign-earned income from US taxation (over $120,000 for 2023). Eligibility depends on residency or physical presence tests, and it often works alongside the Foreign Tax Credit.
If you have non-US bank or investment accounts with a combined balance above certain thresholds, you must file an FBAR (FinCEN Form 114). In addition, FATCA (Form 8938) may apply to foreign assets. These are separate requirements, and penalties for non-compliance can be severe.
The US–UK tax treaty, Foreign Tax Credit, and FEIE are the main tools to reduce or eliminate double taxation. The best approach depends on your income type, residency status, and long-term plans, so professional advice is strongly recommended.
Our free introduction service will connect you with a trusted US tax specialist who understands cross-border challenges, such as:
