U.S. expat taxes in the United Kingdom
As a U.S. citizen or green card holder working in the U.K., taking care of your U.S. taxes can feel like a complicated task. Knowing which tax rules affect you and understanding your options is a lot to stay on top of.
With H&R Block, you can rest easy knowing you’ve found the right expertise for your U.S. expat taxes in the U.K. Our seasoned tax pros make filing simple and secure. Whether you need expat tax guidance on filing from abroad or information on FATCA and FBAR rules, we’re here to help.
What U.S. citizens living or working in the U.K. should know
For starters, Americans and U.S. green card holders living in the U.K. should continue to file a U.S. tax return each year. However, filing while abroad comes with new considerations and questions. “Do I have additional information to report to the IRS? How do my U.K. financial accounts affect my filing? What options do I have to reduce my tax bill?”
We’ve outlined a few considerations for U.S. citizens working in the U.K., so you know what affects the tax you pay and which forms you need to file. Of course, tax rules for U.S. expats go beyond what we’ve listed below.
Need help? Our experienced tax advisors have seen it all and are here for you when you’re ready to tackle your taxes.
U.S. Expat Tax Filing Considerations
Working as an American in the U.K. can affect your taxes even if you don’t stay for very long. For example, if you earn income while on a short-term assignment, you’ll need to report that income on your U.S. taxes. As you establish deeper financial roots in the United Kingdom, you’ll have more considerations for your American tax filing.
You may need to report your U.K. financial accounts and assets. Generally, U.S. taxpayers with more than $10,000 in foreign bank or financial accounts are subject to FBAR filing and reporting requirements. You may also be subject to FATCA reporting requirements if you have foreign assets valued at $200,000 and higher.
You can lower your U.S. bill and avoid dual taxation with certain tax strategies. Expats may take advantage of one of two options, detailed below, to lower their taxes.
- The foreign earned income exclusion allows you to exclude your wages from your U.S. taxes. This option is available to those who meet certain time-based residency requirements.
- The foreign tax credit lets you claim a credit for income taxes paid to a foreign government.
Due to higher tax rates in the U.K. (see below), it’s generally more favorable for U.S. citizens working in the U.K. to claim the foreign tax credit. Your H&R Block tax advisor can confirm the best path for you.
Your U.K. tax-free investments are not tax-free in the United States. Americans living in the U.K. may consider investing in an Individual Savings Account (ISA). However, you should know that these accounts are not tax-free as far as your U.S. taxes are concerned — regardless if these investments are made up of cash or stocks and shares.
Your U.K. retirement investments can get special treatment. Thanks to the United States - United Kingdom tax treaty, you can deduct your contributions to a qualified U.K. pension scheme on your U.S. taxes. Plus, your account is treated similarly to a 401(k) or IRA, letting your retirement investments grow tax free.
In most cases, your U.K. pension is subject to FBAR reporting and, depending on the amount in the account, it may be subject to FATCA reporting as well.
Note for self-invested pension plans (SIPPs) participants: If your SIPP is wrapped into a U.K. pension plan, you can choose to claim tax treaty protection. Thus, if you do not claim the protection, the tax-free treatment will not apply. Additionally, you’ll need to report your SIPP as a foreign grantor trust, which will require additional filing.
U.K. Tax Filing Considerations
Your U.K. income taxes are based on your residency and domicile status. Where U.K. taxes are concerned, your domicile is generally where you have your permanent home and your residency is where you spend your most of your time. You can be a resident in more than one country, but you can only have one domicile.
- Residents who are domiciled pay taxes on all their income and capital gains, regardless of where they’re earned.
- Residents who are not domiciled pay taxes on UK source income and a remittance basis — meaning you’re only taxed on foreign income or gains brought to the U.K.
- Nonresidents are taxed on U.K.-sourced income but not on capital gains in most cases.
So, how do you know if you’re a resident? You can determine your U.K. residency as an expat if you pass one of the four Automatic Residence Tests or the Sufficient Ties Test.
The income tax rates range from 0% to 45%. Similar to taxes in the U.S., the percentage of tax that you pay increases as your income increases into different bands (known as brackets in the U.S.). Due to the wide ranges of the U.K.’s top bands, many Americans would pay higher income tax rates than at home.
2019 tax rates
|Band||Tax Rates||Taxable income|
|Additional rate||45%||$150,000 and up|
The tax year is different than in the United States. The U.K. tax year starts on April 6 each year and ends the next year on April 5. If you file your U.K. taxes by paper, they are due by October 31. If you file electronically, you’ll have until January 31.
As your U.S. tax documentation and reporting generally follows a calendar year, you may need to combine your P60s with pay stubs and other payment records as an American working in the UK to reflect a full tax year.
How H&R Block can help Americans working in the U.K.
Our highly trained experts have helped thousands of Americans as they file their U.S. expat taxes in the U.K. You can trust our expertise and guidance to help you determine the best tax strategies for you.
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