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US/UK Dual Citizens Tax Guidance

Being a dual citizen of the UK and the US can have significant tax implications. Ensure you know the requirements and how you can avoid potential penalties

Last updated 24 September 2021 at 09:31

If you are a citizen of two countries at the same time, you are considered a “dual citizen”. While being born in a country might automatically give you citizenship of that country, citizenship is not normally gained simply by moving and living there, but through a combination of additional factors and legal applications.

While some countries do not permit dual citizenship, it is possible to be a dual citizen of the US and another country, including the UK.

Being considered a dual citizen of the US can have significant tax implications, which could expose your financial assets to US tax, including:

  • Investments that you hold (including ISAs)
  • Inheritance that you receive from a US citizen (such as pensions)
  • Properties sold or re-mortgaged
  • Foreign earned income over $107,600 (in 2020) or $108,700 (2021).

The unfortunate aspect of this potential tax minefield is that many US dual citizens are unaware that they have this responsibility – and only realise when tax bill is owed to the IRS.

This article identifies the potential US tax obligations that US dual citizens will have with the IRS, however it is intended as a guide only and must not be used in isolation to make any decisions. You must always seek professional advice from someone qualified to assist with your tax affairs, especially when it relates to UK/US dual citizenship.

If you would like to speak to an expert in assisting US dual citizens, please request an introduction using our free introduction service and we will review your situation and connect you with somebody who will be able to assist you.

Who is considered a US (dual) citizen?

Due to the tax requirements of the IRS around US dual citizens, it is essential to understand when you might be considered a US dual citizen as soon as possible to ensure you minimise any tax bill. Pleading ignorance once you are aware of your obligations will not be accepted as an excuse to avoid any tax responsibilities and you should seek expert advice as soon as you can.

The first step is understanding if you are a US citizen.

Generally, if you are born in the United States you will be considered a US citizen.

Also, if you are born outside the US to parents who are US citizens you might also be considered a US citizen. This may be slightly more complex depending on the rules of the country you were born in. For example, if you were born in the UK to US citizens, you would be considered a US/UK dual citizen.

Do US Dual Citizens have to file US taxes?

Unlike virtually all other countries, US citizens are subject to US tax laws wherever they live in the world. Therefore, yes, if you are considered a US citizen you will have to file your taxes in the US as well as your country of residence.

However, just because you have to file your taxes in the US, you may not have any tax owed depending on the tax treaty between the US and your other country of citizenship.

For example, if you are a dual citizen of the US and UK, and also live in the UK, you are unlikely to have to pay tax in the US as there is a tax treaty between the two countries which ensures you only have to pay tax in one jurisdiction (i.e. the UK). Additionally, for US/UK dual citizens living in the UK, any payments into UK pensions are treated the same as payments into a 401k in that the amount invested is deducted from income, reducing your overall tax bill. This is not a benefit enjoyed through all US tax treaties, so if you live outside the US you should check with a specialist to ensure you know the particular rules between the two countries.

The Foreign Earned Income Exclusion (FEIE) for US/UK dual citizens

If you live outside the US, and you do not qualify as a Bona Fide Resident while also not meeting the Physical Residence Tests, you will be eligible for Foreign Earned Income Exclusion tax relief. This ensures that any foreign earned income (for example if you live and work in the UK and earn a UK salary) up to $107,600 in 2020 ($108,700 in 2021) will be excluded from US tax.

Accidental Americans, US tax and Streamlined Foreign Offshore Procedures

Early we explored how you can become a US citizen (i.e. being born in the US or having US parents but being born outside the US).

While most US citizens who move abroad in later life are aware of their US tax obligations, those with US passports who have only fleeting visited the US – or in some cases, never visited at all – are generally unaware of any obligation to file US taxes at all.

Often these US citizens are considered "Accidental Americans" because it is their circumstances in life, of which they have no control over, which have created the dual citizenship.

There are other circumstances where you can also be considered an "Accidental American" such as being employed in the US, or receiving an inheritance from another US citizen among other potential situations.

If you are reading this article then it is likely that you are concerned about your US tax obligations and it is possible that you have never filed a tax return in the US.

If you have been previously unaware of any tax obligation, you are likely to be termed as a ‘delinquent filer’ which means that you have are likely to escape any penalties for not filing or paying a US tax return – however, it is vital that you seek advice to get your US tax affairs in order to avoid future potential penalties.

Thankfully, as it is relatively common for accidental Americans to be unaware of their US tax filing obligations, the IRS introduced Streamlined Foreign Offshore Procedures which ensures you do not suffer any penalties. However, to qualify, you must have lived outside the US for 330+ days in any one of the previous three years while not having a US home and also confirm that any non-filing of US taxes was due to a genuine misunderstanding of your US tax responsibilities.

Once you recognise that you may have tax obligations in the US, your opportunity to prove a genuine misunderstanding significantly diminishes and the chances of paying a penalty increases substantially.

We have created an article which covers this in more depth, so If you are concerned about whether you are an Accidental American, please read our article: Accidental Americans and the streamlining process

FATCA and FBAR

In addition to filing US taxes, US dual citizens are also subject to both FATCA and FBAR rules which require US citizens living abroad to share information about any non-US financial accounts (eg a UK bank account) with the IRS through Form 8938 (FATCA) and also submitting your FBAR with FinCEN.

The purpose of this is to ensure that your financial affairs are transparent with the US government and minimise the chance that you are evading tax.

Getting your US tax affairs up to date

As discussed in this article, as a US dual citizen, your worldwide income, inheritances, capital gains, investment income, savings and more are all subject to US tax rules.

For example, you may have inherited a pension from a US citizen, have ISA’s in the UK, have sold or remortgaged a UK property and earn over $107,600 in 2020 or $108,700 in 2021 from your job in the UK.

The first step to getting your US tax affairs up to date is overcoming the initial fear of approaching the IRS. It can be daunting, and the fear of potential penalties can lead to inaction.

However, this is not an acceptable approach and may end up costing more.

While it is possible to get yourself up to date yourself, it can be incredibly complex and it is easy to make mistakes which may end up with significant financial penalties. It is therefore vital to begin by speaking to a US tax specialist who is skilled and experienced assisting US dual citizens get their US tax filing in order.

They will be able to evaluate your circumstances and help you begin the Streamlined Foreign Offshore Procedure as soon as possible.

If you are reading this article, you probably need to consider whether you can genuinely consider yourself non-wilful going forward. Our recommendation is to request a free introduction to one of our partners to ensure you are aware what your tax obligations are in the US.

What are the longer-term tax implications US dual citizens?

Once you have brought your tax filings up to date, you will be subject to the same tax rules as other US citizens living abroad – which includes income tax exemptions as well as requirements to file details of foreign accounts and income.

It also means that you will be subject to any double tax treaties between the US and your countries of residence (the US and UK have a double tax treaty).

We have created a guide which covers the main tax obligations you are likely to be subject to as a US citizen living in the UK.

However, if you are ever in any doubt about what tax you are subject to, you should always seek professional advice from someone who understands the intricacies of the UK/US tax systems for people living abroad.

How can a free introduction via Experts for Expats help US/UK dual citizens?

We have partnered with US tax specialists in the UK who have extensive experience and understanding of the US tax system for dual citizens of the US and UK who do not live in the US. The as part of our introductory service you will receive a free initial consultation that is designed to answer general questions you may have, the accountants will ultimately be able to assist any US/UK dual citizen who needs to:

  • Establish whether they are subject to US tax and whether they qualify as being 'non-wilful'
  • Get their US tax filing up-to-date
  • Prepare and complete US Federal and State tax returns
  • Manage the timing of UK and US tax payments and other foreign tax credit planning
  • Plan any cross-border pension schemes
  • Understand how to apply rights and opportunities under the UK/US double tax agreements
  • Tax efficiently manage estates with regards to UK inheritance and US gift & estate tax regimes

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John W. United Kingdom, US Tax Return

Great Service! I was worried that I would be opening myself up to endless marketing emails and calls. This was not the case at all. A thoroughly professional service.

Paul E. United States, US/UK dual tax matters

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