US taxes for Americans living in the UK: the short version
Moving to London, Edinburgh or anywhere else in Britain does not end your US tax obligations. The United States taxes its citizens and green-card holders on their worldwide income, so if you live in the UK you deal with two tax systems: HMRC, which taxes you as a UK resident, and the IRS, which taxes you as a US person. That includes dual US/UK citizens and "accidental Americans" who were born in the US and have never lived there as adults.
In practice, most Americans in the UK owe the IRS little or nothing, because UK tax is usually higher than US tax on the same income and the US gives credit for it. The work is in the reporting — and in a few UK products that are tax-efficient in Britain but not in America.
- File Form 1040 every year — due 15 June for Americans abroad, extendable to 15 October.
- Use the Foreign Tax Credit (Form 1116) for most UK salaries; the Foreign Earned Income Exclusion (Form 2555) suits fewer people here than in lower-tax countries.
- Treat ISAs and UK funds with care — the US does not recognise the ISA wrapper, and UK funds are usually PFICs.
- Report your UK accounts on the FBAR and, above higher thresholds, Form 8938.
Which year these figures apply to
US figures are for tax year 2025 — the return you file in 2026. UK figures are for the UK tax year 2025/26 (6 April 2025 to 5 April 2026) unless stated. Where we convert pounds to dollars we use the IRS yearly average rate for 2025, £0.759 per $1 (about $1.32 per £1).
Filing a US tax return from the UK
You must file if your gross worldwide income is at or above the filing threshold for your status — for 2025, $15,750 if you are single and under 65. Income you later exclude or offset with credits still counts. Two thresholds catch Americans in the UK out:
- Married to a British (non-US) spouse? Unless you elect to treat your spouse as a US resident and file jointly, you usually file as married filing separately, and that threshold is just $5.
- Self-employed or a sole trader? You must file if you have $400 or more of net self-employment earnings.
US deadlines for Americans in the UK (tax year 2025)
- 1
15 April 2026 — payment due
The regular due date, and the date any US tax owed must be paid. Filing later is allowed; 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 automatically. Attach a statement to the return saying you qualify.
- 3
15 October 2026 — with Form 4868
File Form 4868 by 15 June to push the filing deadline to 15 October. The FBAR is automatically extended to 15 October as well.
Moved to the UK during 2025? You may not yet qualify for the Foreign Earned Income Exclusion by the due date. Form 2350 extends the deadline until after you expect to qualify, so you can file once with the exclusion instead of filing without it and amending. It must be filed by the regular due date (15 June if you qualify for the automatic extension).
UK tax year vs US tax year: using your P60, P11D and SA302
The UK tax year runs from 6 April to 5 April; the US tax year is the calendar year. Your 2025 US return therefore covers the last three months of the UK 2024/25 year and the first nine months of 2025/26 — and none of your UK year-end documents line up with it.
| UK document | What it shows | How it is used on a US return |
|---|---|---|
| Payslips | Monthly pay, PAYE tax, NI and pension contributions, with year-to-date totals | The main source for calendar-year figures: the December payslip, combined with the previous P60, gives January–December income and tax |
| P60 | Pay and tax for the UK year to 5 April | Anchors the April–March totals; used with payslips to split income between calendar years |
| P11D | Taxable benefits in kind, such as private medical cover or a company car | Most benefits are also taxable income for US purposes, and have to be valued and allocated to the right calendar year |
| SA302 / Self Assessment calculation | Your final UK tax for the year if you file Self Assessment | Shows the UK tax on rental, investment and self-employment income, which feeds the foreign tax credit |
The foreign tax credit has its own timing rules. You can claim UK tax in the year you pay it, or elect to claim it in the year it accrues, and for a UK year that ends on 5 April the difference matters. Once made, the accrual election applies to later years too, so it is worth getting right the first time.
Converting pounds to dollars
- Income and tax received through the year — salary, dividends, interest, PAYE — can be converted at the IRS yearly average rate (for 2025, £0.759 per $1).
- One-off transactions — buying or selling shares or a home, a pension lump sum — use the spot rate on the date of each transaction.
- FBAR balances use the Treasury reporting rate for 31 December.
FEIE vs Foreign Tax Credit for Americans in the UK
There are two ways to stop the US taxing income the UK has already taxed, and choosing between them is the biggest decision on a UK-based return.
Foreign Tax Credit (Form 1116): the usual choice in the UK
The Foreign Tax Credit gives a dollar-for-dollar credit against US tax for the UK income tax you pay on the same income. UK rates of 20%, 40% and 45% — applied to bands that reach the higher rate sooner than the US brackets do — mean UK income tax on a salary is usually more than the US tax on it. The credit therefore typically brings US tax on UK wages to $0, and the unused excess carries forward for up to ten years (or back one). It also works on other income — UK rent, dividends, interest — to the extent UK tax was paid on it.
Two limits apply. National Insurance is not creditable, because the totalization agreement (below) already covers it. And credits are separated into categories: excess credit on your salary (general category) cannot shelter investment income (passive category) that the UK did not tax, such as income inside an ISA.
Example: Sarah, a US citizen on a £90,000 London salary
Sarah is single, works for a UK employer in London and earned £90,000 in 2025 — about $118,600 at the 2025 IRS average rate. She has no other income.
- UK income tax: about £23,430 (≈ $30,870) — 20% from the £12,570 personal allowance to £50,270, 40% above that. The bands were the same in 2024/25 and 2025/26. She also pays National Insurance, which is not creditable.
- US tax before credits: after the $15,750 standard deduction, taxable income of about $102,800 gives US tax of about $17,500.
- Foreign Tax Credit: her UK tax more than covers it, so her US tax is $0.
- Carryforward: about $13,300 of unused UK tax carries forward to shelter future general-category foreign income.
Why not the FEIE? Her salary is under the $130,000 limit, so the exclusion would also bring her to $0 — but it would generate no carryforward, and excluded wages cannot be used to contribute to an IRA. If she later has a bonus year above the limit, the carryforward is worth having.
Illustrative figures, rounded. A real return also deals with her pension contributions, benefits in kind and how UK tax is timed across the two tax years.
Foreign Earned Income Exclusion (Form 2555): when it still helps
The FEIE lets you exclude up to $130,000 of foreign earned income for 2025 ($132,900 for 2026) if your tax home is in the UK and you meet the bona fide residence or physical presence test. It covers wages and self-employment income only, not investment income or pensions. In the UK it tends to suit:
- Lower earners and part-year movers, where UK tax is small in the first year.
- Self-employed people with modest profits — though it never removes US self-employment tax; only the totalization agreement does that.
- Higher earners combining it with the FTC: exclude the first $130,000 and credit UK tax on the rest.
Revoking the FEIE after using it generally bars you from claiming it again for five years without IRS consent, so it is not a choice to make casually.
Foreign housing exclusion: London’s higher limit
If you claim the FEIE you can also exclude housing costs — rent, utilities, insurance — above a base amount of $20,800 for 2025. The default cap on housing expenses is $39,000, but the IRS sets higher limits for expensive cities. For 2025, IRS Notice 2025-16 sets the London limit at $67,000 of housing expenses for a full year, so the most a London resident can exclude is about $46,200. Several other UK locations have their own limits too.
The US–UK tax treaty and the saving clause
The current US–UK income tax treaty was signed in 2001, amended in 2002 and took effect in 2003. It decides which country may tax each kind of income, and it contains a saving clause — Article 1(4) — that lets the US tax its own citizens as if the treaty had not come into effect. So for most income — salary, rent, dividends, gains — the treaty does not reduce your US tax. Double tax is avoided through the foreign tax credit instead.
Article 1(5) lists the exceptions, and several are the pension provisions that matter most to Americans in the UK:
- Article 17(3) — social security: social security paid by one country to a resident of the other is taxable only in the country of residence. So US Social Security paid to you while you live in the UK is taxable only in the UK, and the UK State Pension is not taxed by the US either. This survives the saving clause.
- Article 18(5) — UK pension contributions: a US citizen employed in the UK by a UK employer can deduct their own contributions to a UK pension scheme, and exclude employer contributions and benefits accrued, on their US return — to the extent the contributions get UK tax relief, and up to what a comparable US plan would allow.
- Article 24 — relief from double taxation: includes rules on which country gives credit when both tax the same income.
Claiming a treaty position that overrides US tax law is generally disclosed on Form 8833.
National Insurance, Social Security and the US–UK totalization agreement
The income tax treaty does not cover social security taxes; a separate US–UK totalization agreement, in force since 1985, does. It stops you paying into both systems on the same earnings:
- Working for a UK employer: you pay UK National Insurance, not US Social Security.
- Sent to the UK temporarily by a US employer (generally for five years or less): you can stay in US Social Security and Medicare and be exempt from NI.
- Self-employed and living in the UK: you pay self-employed National Insurance in the UK and are exempt from US self-employment tax — but you need a UK certificate of coverage from HMRC to prove it on your US return. Without one, expect the IRS to assess US self-employment tax, even if the FEIE removes your income tax.
The agreement can also combine UK and US contribution records to help you qualify for benefits in either country. Your UK State Pension builds from qualifying NI years.
ISAs, UK funds and PFICs
ISAs are not tax-free for US purposes
An ISA shelters up to £20,000 a year from UK income tax and capital gains tax. The US does not recognise it. For your US return, a cash ISA is an ordinary interest-bearing account and a stocks and shares ISA is an ordinary investment account — interest, dividends and gains are all reportable, with no UK tax to credit. ISAs also count toward your FBAR and Form 8938.
UK funds, unit trusts and ETFs are usually PFICs
Almost any non-US pooled investment — UK unit trusts, OEICs, investment trusts, UK- or Ireland-domiciled ETFs, and the ready-made portfolios sold by UK platforms and robo-advisers — is a Passive Foreign Investment Company (PFIC) for US tax. That is true whether it sits in an ISA, a Junior ISA or a general account.
- Each PFIC generally needs its own Form 8621 each year.
- Without an election, gains and large distributions are spread back over your holding period, taxed at the highest US rate for each year, plus an interest charge — no capital gains rates.
- A mark-to-market election (for listed funds) or a QEF election (where the fund provides the information) limits the damage, but has to be made correctly and ideally from the first year.
Example: James and his stocks and shares ISA
James, a dual US/UK citizen in Manchester, has put £40,000 over several years into a stocks and shares ISA holding a UK-domiciled global index fund. It is now worth £55,000 — about $72,500 at the 2025 average rate.
- In the UK: no tax on the growth or on a future sale.
- In the US: the fund is a PFIC. If he sells without having made an election, the gain is allocated across the years he held it, taxed at the top US rate for each of those years, and charged interest — potentially more tax than a British neighbour would ever pay on the same investment.
- What helps: reporting the fund on Form 8621 now, considering a mark-to-market election, and putting new ISA money into individual shares rather than funds. UK platforms generally do not offer US-domiciled ETFs to UK retail investors, so the usual workaround for fund investing is a US brokerage account that accepts UK residents.
Premium Bonds and other NS&I products
Premium Bond prizes are tax-free in the UK but are taxable income on your US return. NS&I holdings are generally treated as foreign financial accounts for the FBAR and Form 8938.
UK pensions and SIPPs for US citizens
UK pensions are where the treaty genuinely helps — but they are also where cases differ, so treat this as a map rather than advice.
| UK pension | US treatment (in brief) |
|---|---|
| Workplace pension (defined contribution or defined benefit) through a UK employer | Under Article 18(5), your contributions can be deductible and employer contributions excluded on the US return, up to US-plan limits; growth is generally treated as tax-deferred |
| SIPP or personal pension | Growth is commonly treated as tax-deferred like other UK registered schemes, but contributions made outside UK employment may get no US deduction. UK funds held inside raise their own questions |
| 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)) |
The 25% lump sum
The treaty’s lump-sum provision (Article 17(2)) is not among the saving-clause exceptions, and the provision that exempts UK-tax-free pension income (Article 17(1)(b)) helps residents of the US rather than a US citizen living in Britain. As a result, the UK’s tax-free lump sum is generally taxable by the US for a US citizen in the UK. Practitioners differ on some cases, and timing, excess credits and where you live when you draw the pension all affect the outcome — plan it before you take it.
UK pensions are also generally reportable on the FBAR and, where the thresholds are met, Form 8938.
Selling a UK home: Private Residence Relief vs the US §121 exclusion
In the UK, Private Residence Relief usually makes the gain on your main home entirely free of capital gains tax. The US is less generous:
- The §121 exclusion removes up to $250,000 of gain ($500,000 if married filing jointly) if you owned the home and used it as your main home for at least two of the five years before sale. Anything above that is taxable in the US, with no UK tax to credit.
- The gain is measured in dollars. The purchase price and sale price are each converted at the rate on the day, so a home that barely moved in pounds can show a US gain if the pound strengthened in between — or a smaller one if it weakened.
- The mortgage has its own currency gain. If you borrowed in pounds and the pound has fallen against the dollar by the time you repay, the difference is a taxable exchange gain in the US, even though you repaid exactly what you borrowed. An exchange loss on a personal mortgage is not deductible.
A long-held London home, where a rise in value combines with a currency swing, is the classic case of a sale that is tax-free in the UK producing a US bill.
FBAR, Form 8938 and UK FATCA reporting
FBAR (FinCEN Form 114): if the combined highest balances of all your non-US accounts exceeded $10,000 at any point in 2025, you file an FBAR. That includes current and savings accounts, ISAs, NS&I products and many pensions, plus accounts you can sign on but do not own. It is filed with FinCEN, separately from your return, and is due 15 April with an automatic extension to 15 October. See our FBAR guide or let us file it for you.
Form 8938 (FATCA): filed with your 1040 when your foreign financial assets exceed the thresholds for filers living abroad:
| Filing status | File if foreign assets exceed… |
|---|---|
| Single or married filing separately | $200,000 on the last day of the year, or $300,000 at any time |
| Married filing jointly | $400,000 on the last day of the year, or $600,000 at any time |
Your UK bank already reports you. Under the US–UK FATCA agreement, UK banks, platforms and pension providers identify US account holders — which is why they ask for your US tax number — and report their accounts to HMRC, which passes the information to the IRS.
State tax: breaking residency in your last US state
Moving to the UK does not automatically end your state tax residency. States such as California, New York and Virginia can continue to treat you as a resident if you keep a home, driver’s licence, voter registration or other ties — and California does not allow the FEIE. Our state tax guide for expats covers how to leave cleanly.
Behind on US filing? The Streamlined Foreign Offshore Procedures
Many Americans in the UK — particularly dual citizens and accidental Americans — learn about the US filing requirement years late, often when their bank asks for a US tax number. If the failure was non-willful, the Streamlined Foreign Offshore Procedures let you catch up by filing the last three years of tax returns and six years of FBARs with a signed certification (Form 14653). If you meet the non-residency requirement there is no penalty; you pay any tax and interest due, which for many UK residents is little or nothing. Read our Streamlined guide or see our Streamlined package (from $1,500).
What a US return from the UK costs with TaxSQR
Our Expat return is $599 and covers Form 1040 with the FEIE or foreign tax credit, the FBAR and Form 8938 — the right fit for most UK employees. UK funds, including those held in ISAs, need Form 8621, which is included in our Premier return ($999) along with equity compensation such as RSUs. An additional state return is $75. See full pricing or get in touch.