US-UK Tax: A Cross-Border Guide for Americans in the UK and Brits in the US

In most cases an American living in the UK does not pay full tax twice on the same income, but they do have to file in both countries and rely on credits to cancel out the overlap. The UK taxes you because you live here and are UK tax resident under the Statutory Residence Test. The US taxes you because you are a US citizen or green card holder, regardless of where in the world you live. So the same salary, dividend or gain can fall inside both tax nets at once.

What stops genuine double taxation is the foreign tax credit system supported by the US-UK tax treaty. In broad terms, the country where you live taxes the income first, and the other country gives you a credit for the tax already paid. Because UK income tax rates are generally higher than US federal rates, an American employed in the UK often finds that UK tax wipes out the US liability on that employment income, leaving little or no extra US tax to pay. The reverse can be true for income types where the US taxes more heavily.

The important word is 'mostly'. The credits are not automatic and they do not cover every type of income perfectly. Mismatches in how the two systems categorise income, time gains, or treat pensions and investments can leave you genuinely taxed twice if the returns are not coordinated. That is where careful planning earns its keep.

The US-UK tax treaty and the foreign tax credit work together so that, for most income, you end up paying roughly the higher of the two countries' rates rather than both rates stacked on top of each other. The treaty allocates the primary right to tax each type of income, and the country that does not have primary taxing rights gives a credit for the tax the other country charged.

On the US side, the two main tools are the Foreign Tax Credit, claimed on Form 1116, and the Foreign Earned Income Exclusion, claimed on Form 2555. The Foreign Tax Credit lets you offset UK tax paid against your US tax bill dollar for dollar within limits. The Foreign Earned Income Exclusion lets a qualifying person exclude up to 130,000 US dollars of foreign earned income for the 2025 tax year, with a separate and conditional housing amount potentially available on top. For most Americans in the UK the Foreign Tax Credit is the better choice, because UK tax usually exceeds the US tax anyway and the credit also covers investment income, which the exclusion does not.

Two features of the treaty trip people up. The first is the 'saving clause', which lets the US tax its own citizens as if most of the treaty did not exist. This is why being a US citizen in the UK is harder than being, say, a French citizen in the UK: many treaty reliefs are switched off for you by the saving clause. The second is that credits are claimed type by type and basket by basket, so it is possible to have surplus UK tax that cannot be used and surplus US tax that cannot be sheltered at the same time. Matching income types across the two returns is exactly the kind of detail that gets missed when a UK and a US preparer work in isolation.

If you are a US person living in the UK, you generally file a US Form 1040 with the IRS and a UK Self Assessment return with HMRC for the same year, and the two have different tax years and different deadlines. The UK tax year runs from 6 April to the following 5 April, while the US tax year is the calendar year. That means a single US tax year straddles two UK tax years, and apportioning income and credits across that overlap is one of the fiddlier parts of the job.

The deadlines you need on a calendar are as follows. For the UK, the online Self Assessment filing deadline is 31 January after the end of the tax year, and any UK tax owed is due on the same date. For the 2024/25 UK tax year that deadline was 31 January 2026. On the US side, the standard deadline is 15 April, but Americans living abroad get an automatic two-month extension to 15 June to file. Be careful: that June extension is to file only, and any US tax owed still accrues interest from 15 April. A further extension to 15 October is available by filing Form 4868.

• UK Self Assessment: register with HMRC, report worldwide income (subject to the FIG regime where it applies), file online by 31 January, pay by 31 January with payments on account where relevant.
• US Form 1040: report worldwide income, claim foreign tax credits on Form 1116 and/or the exclusion on Form 2555, attach the relevant information returns, file by 15 June as an expat with payment due 15 April.
• Coordinate the order: because each return credits tax paid in the other country, the calculation can be circular, and the sequencing of UK and US numbers matters.

This dual-filing dance is the single most common reason cross-border individuals overpay. We handle the UK return and dovetail it with your US preparer so the credits line up and you are not paying for the same income twice.

FBAR and FATCA are reporting requirements, not extra taxes, but the penalties for getting them wrong are severe, so US persons in the UK must take them seriously. They are two separate filings with different forms, thresholds and even different agencies, and many people have to do both.

FBAR, the Report of Foreign Bank and Financial Accounts (FinCEN Form 114), is filed with the Treasury's Financial Crimes Enforcement Network. You must file it if the combined high balance of all your non-US financial accounts exceeds 10,000 US dollars at any single point during the year. That is an aggregate figure across every account, so a current account, an ISA, a pension and a stocks account can easily breach it together even if none does alone. The FBAR deadline is 15 April with an automatic extension to 15 October, and no form is needed to claim that extension.

FATCA reporting is done on IRS Form 8938, filed with your Form 1040. The thresholds are much higher and depend on filing status and where you live. For US persons living abroad, a single filer must report if specified foreign financial assets exceed 200,000 US dollars on the last day of the year or 300,000 at any point during the year; for married couples filing jointly abroad the figures are 400,000 and 600,000 respectively. Form 8938 covers a broader range of assets than the FBAR, including certain foreign pensions and interests in foreign entities.

Two practical points. First, because UK banks and providers report account information to the US under FATCA, the IRS often already knows about accounts you may have forgotten, so non-reporting is risky. Second, the forms overlap but neither replaces the other; many people genuinely need to file both. If you have fallen behind, the Streamlined procedures usually allow a clean catch-up where the failure was non-wilful, though the IRS has signalled this route may not stay open indefinitely.

The UK abolished the non-dom remittance basis on 6 April 2025 and replaced it with the four-year Foreign Income and Gains (FIG) regime, and for a US person newly arriving in the UK this can be a valuable, time-limited shelter. Under the FIG regime, a qualifying new arriver can claim 100 percent relief from UK tax on most foreign income and gains for their first four tax years of UK residence, even if they bring that money into the UK.

To qualify you must be UK tax resident under the Statutory Residence Test and be within your first four years of UK residence following at least 10 consecutive tax years of non-UK residence. The relief is claimed year by year, you choose which foreign income and gains to shelter, and it runs for a maximum of four consecutive tax years starting with the year you become UK resident. It cannot be claimed for foreign income or gains arising before 6 April 2025, and there are no extensions beyond year four.

There is a cost. If you claim the FIG regime for a year, you lose your UK personal allowance for income tax (£12,570 for 2025/26) and your annual exempt amount for capital gains tax (£3,000 for 2025/26) for that year, and you lose them even if your claim covers only foreign income or only foreign gains. So the regime is worth claiming when your sheltered foreign income clearly exceeds the value of the allowances you give up, and not otherwise. It is a year-by-year decision, not a one-off election.

For a US person there is a crucial extra layer: the FIG regime is a UK relief only. It does nothing on your US return. The US still taxes your worldwide income, and if the UK is not taxing a slice of foreign income because of a FIG claim, then there is no UK tax on that slice to credit against your US tax. The result can be that income you thought was sheltered ends up taxed in full by the US. For Americans, a FIG claim therefore has to be modelled across both returns together, because the optimal UK answer and the optimal US answer are not always the same.

Pensions are where the US-UK treaty does its best and worst work, so the right wrapper on the right side of the Atlantic matters enormously. The treaty generally lets each country defer tax on growth inside the other country's recognised pension schemes and allocates taxing rights on withdrawals, which is genuinely helpful. But the saving clause and some technical gaps create traps.

• 401(k) and traditional IRA: contributions and growth are broadly respected by both systems, and periodic pension payments in retirement are generally taxed primarily in the country of residence under the treaty, with a credit available to avoid double tax.
• Roth IRA: qualified Roth distributions are tax-free in the US, and a UK resident generally has a strong treaty position that the UK should treat them as exempt too, but the position should be confirmed for your facts before relying on it.
• UK pension and SIPP: contributions and growth can be tax-deferred for US purposes under the treaty, but the UK's 25 percent tax-free pension lump sum is a notorious trap. The US does not have to honour that UK exemption, so a lump sum the UK treats as tax-free can still be taxed by the IRS.
• ISA: for a US person an ISA gives no US tax shelter at all. The UK treats it as tax-free, but the US taxes the income and gains inside it as if the wrapper did not exist, and the underlying funds can be treated as PFICs.

That last point deserves emphasis. Passive Foreign Investment Companies, or PFICs, are the single biggest investment trap for Americans in the UK. Most UK-domiciled funds, investment trusts and many ETFs are PFICs in US eyes, and they carry a punitive US tax and reporting regime on Form 8621. An American in the UK should generally avoid holding non-US pooled funds outside a pension, and should take advice before opening an ISA or a general investment account expecting it to be tax-efficient.

Capital gains create double-tax risk mainly through timing and rate mismatches, because the two systems can tax the same gain in different years and at different rates. The UK and US use different tax years, recognise gains on slightly different events in some cases, and apply different rates, so the foreign tax credit that should cancel the overlap can fall in the wrong year and become unusable.

A classic example is selling an asset late in the US calendar year. The US taxes the gain in that calendar year, but the matching UK tax may land in a UK tax year that the US return cannot easily credit, or vice versa. Currency movements add another layer: the US calculates gains in dollars, so a property or shareholding can show a US gain purely because the dollar weakened against the pound, even where there is little or no real-terms profit. Mortgages denominated in sterling can even generate a phantom US foreign currency gain when refinanced or repaid.

The practical lesson is that the date you sell, and the order in which gains and credits fall across the two tax years, can change the total tax materially. For anything significant, a sale of a property, a business, or a large investment holding, it is worth modelling the disposal across both systems before you pull the trigger rather than after.

A Brit moving to the US needs to plan the UK exit and the US arrival as a single project, because UK residence does not simply switch off when the plane lands and US tax residence can begin sooner than expected. On the UK side, your residence is governed by the Statutory Residence Test, and split-year treatment may apply so that you are taxed as UK resident only for the part of the year before you leave. Getting the split-year analysis and the day-counting right is what protects you from the UK taxing your post-move US income.

On the US side, your visa drives your tax status. A green card makes you a US tax resident from day one and brings you into worldwide US taxation and the full FBAR and FATCA regime. On many work visas you become a US tax resident once you meet the Substantial Presence Test, a day-count formula across the current and two prior years. The year you arrive can be a 'dual-status' year for US purposes, which has its own special rules.

Pre-move planning is where the value sits. Before you become a US tax resident it can make sense to review the timing of bonuses, share option exercises, asset sales and pension actions, because once you are inside the US net the worldwide rules and the PFIC regime apply. An ISA that was perfectly efficient as a UK resident, for instance, becomes a US tax problem the moment you are a US person. We map the UK exit and the US entry together so the handover between the two systems is clean.

Most cross-border tax problems come from the same handful of avoidable mistakes, and almost all of them stem from treating the UK and US returns as two separate jobs rather than one coordinated position. Watch for the following.

• Treating the US and UK returns in isolation, so foreign tax credits are claimed in the wrong year or wrong basket and double tax results.
• Assuming an ISA or UK fund is tax-free for a US person, when in fact it offers no US shelter and may be a punitive PFIC.
• Forgetting the FBAR because each account is small, when it is the 10,000 US dollar aggregate across all accounts that counts.
• Banking on the UK 25 percent tax-free pension lump sum being tax-free in the US, when the IRS may tax it.
• Claiming the UK FIG regime without modelling the US side, so income sheltered in the UK becomes fully US-taxable with no UK tax to credit.
• Missing the split-year analysis when moving, so the UK taxes income that should belong to the US side of the move.
• Not catching up unfiled US returns and FBARs through the Streamlined procedures while they are still available on a non-wilful basis.

None of these is exotic. They are the predictable result of two complex systems meeting, and they are exactly what coordinated, fixed-fee cross-border advice is designed to prevent. If any of them sounds familiar, a short clarity call is usually enough to tell you whether you have a real problem or just a paperwork tidy-up.