Do Americans living in the UK really owe US tax?
Usually not much. UK income tax is higher than US tax on most salaries, so once the credit for it goes on your 1040, the typical Londoner on PAYE owes the IRS nothing. The money gets lost elsewhere: in an ISA full of UK funds, a pension lump sum taken without planning, or a British bank account that never made it onto an FBAR.
That goes for dual US/UK citizens and "accidental Americans" who left the US as babies, too. US tax follows the passport, not the address.
Which year these figures apply to
US figures are for tax year 2025, the return you file in 2026. UK figures are for 2025/26 (6 April 2025 to 5 April 2026) unless we say otherwise. Where we convert, we use the IRS yearly average rate for 2025: £0.759 per $1, or about $1.32 to the pound.
Who has to file a US return from the UK, and when?
For 2025 you file if your gross worldwide income is at least $15,750 (single, under 65), counting income you’ll later exclude. Married to a Brit and not filing jointly? You’re usually married filing separately, and the threshold is $5. Sole traders file once net self-employment earnings reach $400.
US filing deadlines for Americans in the UK (tax year 2025)
- 1
15 April 2026: tax is due
This is the regular due date, and the date any US tax you owe has to be paid. You can file later; paying later costs interest.
- 2
15 June 2026: automatic extension for Americans abroad
If on 15 April you live outside the US and your main place of work is outside the US, you get two extra months to file without asking. Attach a statement saying you qualify.
- 3
15 October 2026: with Form 4868
File Form 4868 by 15 June and the deadline moves to 15 October. The FBAR gets an automatic extension to 15 October as well.
Moved over during 2025? You may not qualify for the foreign earned income exclusion by the deadline. Form 2350, filed by the regular due date, extends it until after you qualify, so you file once instead of filing and amending.
How do I fit a UK tax year onto a US return? (P60, P11D, SA302)
Your 2025 US return runs January to December, which is the last three months of UK 2024/25 and the first nine of 2025/26. None of your UK paperwork lines up with that, so here’s what we ask for:
| UK document | What it shows | How we use it |
|---|---|---|
| Payslips | Pay, PAYE, NI and pension, year to date | December’s payslip plus the previous P60 gives us calendar-year pay and tax |
| P60 | Pay and tax to 5 April | Anchors the April–March totals |
| P11D | Benefits like private medical or a company car | Most are US income too, valued and put in the right year |
| SA302 | Final UK tax if you file Self Assessment | UK tax on rent, investments and self-employment, for the credit |
You can claim UK tax in the year you pay it or elect to claim it as it accrues. With a 5 April year-end that choice matters, and the accrual election sticks once made, so we get it right the first time. For currency, regular income and PAYE go at the IRS yearly average rate; one-offs like a share or home sale use the spot rate on the day; FBAR balances use the Treasury’s 31 December rate.
FEIE or foreign tax credit: which is better in the UK?
Our default for most people in the UK is the foreign tax credit on Form 1116: a dollar-for-dollar credit for UK income tax on the same income. The UK’s 20%, 40% and 45% rates bite sooner than US brackets, so the credit usually takes US tax on your wages to $0, and the excess carries forward for up to ten years (or back one).
Two limits trip people up. National Insurance isn’t creditable. And credits sit in separate baskets, so spare credit from your salary can’t shelter investment income the UK didn’t tax, like anything in an ISA.
Example: Sarah, a US citizen on a £90,000 London salary
Say Sarah is single, works for a UK employer in London and earned £90,000 in 2025, about $118,600 at the IRS average rate. She has no other income.
Her UK income tax is about £23,430 (≈ $30,870): 20% from the £12,570 personal allowance up to £50,270, and 40% above that. The bands were the same in 2024/25 and 2025/26. She pays National Insurance as well, which doesn’t count toward the credit.
On the US side, the $15,750 standard deduction leaves taxable income of about $102,800 and US tax of about $17,500. Her UK tax more than covers that, so she owes the IRS $0, and roughly $13,300 of unused UK tax carries forward.
Why not the exclusion? She’s under the $130,000 limit, so it would get her to $0 too. But it leaves no carryforward, and excluded wages can’t fund an IRA. If a bonus year pushes her over the limit later, she’ll be glad of that $13,300.
Illustrative, rounded figures. A real return also deals with her pension contributions, benefits in kind and how UK tax is timed across the two years.
When the foreign earned income exclusion still makes sense
The FEIE (Form 2555) excludes up to $130,000 of foreign earned income for 2025 ($132,900 for 2026) if you pass the bona fide residence or physical presence test. It covers wages and self-employment income only. Here we mostly use it in someone’s first part-year, when UK tax is small, and for lower earners and modest sole traders (it never removes US self-employment tax, though). Don’t switch casually: revoke it and you generally can’t use it again for five years without IRS consent.
With the FEIE you can also exclude housing costs above a $20,800 base. IRS Notice 2025-16 lifts the usual $39,000 cap to $67,000 for London, so a London renter can exclude up to about $46,200.
What does the US–UK tax treaty actually do for a US citizen?
Less than people hope. The 2001 treaty (amended 2002, in effect 2003) has a saving clause, Article 1(4), that lets the US tax its citizens as if the treaty had not come into effect. So on salary, rent, dividends and gains it doesn’t lower your US bill; the foreign tax credit does that.
It earns its keep in the Article 1(5) exceptions, which are mostly about pensions. Article 17(3) makes social security taxable only where you live, so neither the UK State Pension nor US Social Security is taxed by the US while you’re in Britain. Article 18(5) lets a US citizen working for a UK employer deduct UK pension contributions and exclude the employer’s share, within comparable US-plan limits. Article 24, relief from double taxation, survives too. A treaty position that overrides US law generally goes on Form 8833.
Do I pay National Insurance and US Social Security?
Normally just one. The US–UK totalization agreement (in force since 1985) puts UK employees in National Insurance only, and lets someone sent over temporarily by a US employer (generally five years or less) stay in US Social Security instead. Self-employed people living here pay NI and are exempt from US self-employment tax, but only with an HMRC certificate of coverage. Without one, expect the IRS to assess self-employment tax even when the FEIE has cleared your income tax.
Are ISAs and UK funds a problem for Americans?
Yes, and this is where we see the most avoidable damage. An ISA shelters up to £20,000 a year from UK tax, but the US ignores the wrapper. A cash ISA is an ordinary savings account on your 1040 and a stocks and shares ISA an ordinary brokerage account, with no UK tax to credit.
The real problem is what’s inside. UK unit trusts, OEICs, investment trusts, UK- or Ireland-domiciled ETFs and robo-adviser portfolios are nearly all Passive Foreign Investment Companies (PFICs), whatever account they sit in. Each one generally needs a Form 8621 every year. Without an election, gains are spread back over your holding period, taxed at the top US rate for each year, plus interest. A mark-to-market or QEF election limits the damage, ideally from the first year.
Example: James and his stocks and shares ISA
Take James, a dual US/UK citizen in Manchester. Over several years he’s put £40,000 into a stocks and shares ISA holding a UK-domiciled global index fund, and it’s now worth £55,000, about $72,500 at the 2025 average rate.
In the UK, he’ll never pay tax on that growth. In the US, the fund is a PFIC. If he sells without an election in place, the gain gets allocated across every year he held it, taxed at the top US rate for each of those years, and charged interest. He could pay more than a British neighbour would ever pay on the same investment.
What we’d do: get the fund onto Form 8621 now, look at a mark-to-market election, and steer new ISA money into individual shares rather than funds. UK platforms generally won’t sell US-domiciled ETFs to UK retail investors, so for fund investing the usual fix is a US brokerage account that accepts UK residents.
One smaller one: Premium Bond prizes are tax-free in the UK but taxable income on your US return. NS&I holdings are generally treated as foreign financial accounts for the FBAR and Form 8938.
How does the IRS treat my UK pension or SIPP?
Mostly kindly, thanks to the treaty. Cases vary a lot, though, so treat this as a map rather than advice.
| UK pension | US treatment (in brief) |
|---|---|
| Workplace pension through a UK employer | Contributions can be deductible and employer contributions excluded (Article 18(5)), up to US-plan limits; growth generally tax-deferred |
| SIPP or personal pension | Growth commonly treated as tax-deferred, but contributions outside UK employment may get no US deduction |
| Withdrawals and annuity income | Generally taxable in the US, with credit for any UK tax paid on the same income |
| 25% tax-free lump sum | Tax-free in the UK, but generally taxable for a US citizen living in the UK, with no UK tax to credit |
| UK State Pension | Taxable only in the UK while you live there (Article 17(3)) |
Plan the 25% lump sum before you take it
Article 17(2), on lump sums, isn’t a saving-clause exception, and Article 17(1)(b) helps US residents rather than Americans in Britain. So the tax-free lump sum is generally taxable by the US. Practitioners differ on some cases, and timing, excess credits and where you live when you draw it all change the result, so talk to us first.
Selling a UK home: why Private Residence Relief isn’t the end of it
Private Residence Relief usually makes your main home’s gain free of UK tax. The US §121 exclusion stops at $250,000 ($500,000 married filing jointly), for a home you owned and lived in for two of the last five years, and the rest is taxable with no UK tax to credit.
The gain is measured in dollars, with purchase and sale each converted on the day, so a flat that barely moved in pounds can still show a US gain if sterling rose. A sterling mortgage has its own result: if the pound has fallen by the time you repay, that’s a taxable exchange gain, while a loss isn’t deductible. A long-held London home is the classic tax-free-in-the-UK sale that still sends a US bill.
FBAR and Form 8938 for UK accounts
If the highest balances of all your non-US accounts added up to more than $10,000 at any point in 2025, you file an FBAR (FinCEN Form 114). That includes ISAs, NS&I and many pensions, plus accounts you can sign on but don’t own. It goes to FinCEN, due 15 April with an automatic extension to 15 October. Our FBAR guide has the detail, or we can file it for you.
Form 8938 goes with your 1040 when your foreign financial assets pass the thresholds for people living abroad: $200,000 on the last day of the year or $300,000 at any time if you’re single or married filing separately, and $400,000 or $600,000 if you’re married filing jointly.
Don’t assume the IRS doesn’t know. Under the US–UK FATCA agreement, UK banks and platforms report US account holders to HMRC, which passes it on. That’s why they asked for your US tax number.
Do I still owe state tax after moving to the UK?
Possibly. California, New York and Virginia can keep treating you as a resident if you keep a home, licence or voter registration there, and California doesn’t allow the FEIE at all. Our state tax guide for expats covers how to leave cleanly.
Behind on US filing from the UK? Catching up with Streamlined
Plenty of dual citizens find out years late, usually when the bank asks for a US tax number. If it was non-willful, the Streamlined Foreign Offshore Procedures mean three years of returns, six years of FBARs and a signed Form 14653, with no penalty if you meet the non-residency test. For most UK residents the tax and interest due is little or nothing. Read our Streamlined guide or see our Streamlined package (from $1,500).
What we’d do for you
For most UK employees, our Expat return at $275 is the right fit: Form 1040 with the foreign tax credit or FEIE, the FBAR and Form 8938. If you hold UK funds, in an ISA or anywhere else, you’ll need Form 8621, which is in our Premier return ($475) along with RSUs and other equity pay. An extra state return is $75. We’ll tell you which one you need on the first call. See full pricing or get in touch.