Americans living or working in the UK face dual tax obligations: US federal tax (and possibly state tax) plus UK income tax. Understanding both systems, available exclusions, and credits can reduce double taxation and avoid costly mistakes.
US Tax Obligations for Americans Abroad
US citizens and green card holders must file US tax returns regardless of where they live. Worldwide income is taxable in the US. However, several mechanisms can reduce or eliminate US tax on foreign earnings.
Foreign Earned Income Exclusion (FEIE)
You can exclude up to about $120,000 (2024) of foreign earned income if you meet the Physical Presence Test (330 days abroad in 12 months) or Bona Fide Residency Test. This applies only to earned income—not investment income.
Foreign Tax Credit (FTC)
UK tax paid on income can often be credited against US tax, reducing double taxation. The FTC is dollar-for-dollar up to your US tax liability on that income. Excess credits can sometimes be carried forward.
Foreign Housing Exclusion or Deduction
Additional exclusion or deduction for qualifying foreign housing expenses in excess of a baseline amount. Useful in high-cost cities like London.
UK Tax for US Expats
If you are UK tax resident, you pay UK tax on worldwide income (with remittance basis options for non-doms). UK tax rates, bands, and deductions differ from the US. Proper planning ensures you use treaties and reliefs correctly.
US-UK Tax Treaty
The treaty addresses double taxation, residency tie-breakers, and certain income types. Pensions, dividends, and capital gains may have special treatment. Working with a professional who knows both systems is important.
Common Pitfalls
- FBAR and FinCEN 114 (reporting foreign accounts over $10,000)
- Form 8938 (FATCA) for specified foreign assets
- State tax—some states tax residents even when living abroad
- Retirement accounts (UK pensions, ISAs) and US reporting
Americans in the UK need tailored advice. Contact A2N Advisory for support with US expat tax and cross-border planning.
