{"id":299,"date":"2022-10-26T17:22:19","date_gmt":"2022-10-26T17:22:19","guid":{"rendered":"https:\/\/www.hrblock.com\/expat-tax-preparation\/resource-center\/?p=299"},"modified":"2024-02-06T14:32:30","modified_gmt":"2024-02-06T18:32:30","slug":"5-things-to-know-about-u-s-u-k-dual-citizenship-taxes","status":"publish","type":"post","link":"https:\/\/www.hrblock.com\/expat-tax-preparation\/resource-center\/country\/united-kingdom\/5-things-to-know-about-u-s-u-k-dual-citizenship-taxes\/","title":{"rendered":"5 Things to Know About U.S.\/U.K. Dual Citizenship Taxes"},"content":{"rendered":"\n

U.S. taxes can be confusing when you hold more than one passport, and chances are you have a few questions. For example, if you were born in the U.S. but have lived your whole life in the U.K., do you have a U.S. tax obligation? What if you live in the U.S. and have U.K. dual citizenship through a parent? What if\u2014as was the case with Boris Johnson\u2014you\u2019re an Accidental American?<\/p>\n\n\n\n

To make it easier on you, we\u2019ve addressed the common questions and concerns about dual citizenship taxes for U.S. citizens living in the U.K. and distilled them into five things you should know.<\/p>\n\n\n\n

Not a dual citizen but live and work in the U.K.? Learn more about U.S. expat taxes in the U.K.<\/a> Ready to file your U.S. tax return? Get started now.<\/a><\/em><\/p>\n\n\n\n

File on my own<\/a><\/div>
File with an advisor<\/a><\/div><\/div>\n\n\n\n

1. Yes, U.S.\/U.K. dual citizens have to file U.S. taxes<\/h2>\n\n\n\n

The most common question we hear is, “do dual citizens in the U.K. have to file U.S. taxes?”<\/p>\n\n\n\n

Yes, if you are a citizen or resident alien of the United States, you must file U.S. taxes, even if you\u2019re a dual citizen of the U.S. and U.K.<\/strong><\/p>\n\n\n\n

The U.S. is one of two countries in the world that taxes based on citizenship, not place of residency. That means it doesn\u2019t matter where you live\u2014if you\u2019re a U.S. citizen, you pay taxes. This is true even if you earn no income in the U.S.<\/p>\n\n\n\n

You should know the U.K. tax year is different than the U.S. tax year. The U.S. tax year starts January 1 and ends December 31. In the U.K., the tax year starts on April 6 and ends April 5 of the following year. If you choose to file your U.K. taxes by paper and mail, they\u2019re due on October 31. If you file online, you have until January 31.<\/p>\n\n\n\n

If you\u2019re a dual U.S. citizen living in the U.K., taxes go both ways \u2014 so you may end up having to file not only U.S. taxes but also U.K. taxes. Where you fall in the U.K. and U.S. tax brackets can influence decisions on how to file your U.S. taxes, so it\u2019s important to understand the U.K. tax bands and taxation rates. The table below contains the U.K. tax bands for 2022\/2023*, as well as the taxation rate for each band.<\/p>\n\n\n\n

Tax band<\/td>Taxable income<\/td>Rate<\/td><\/tr>
Personal allowance<\/td>up to \u00a312,570<\/td>0%<\/td><\/tr>
Basic rate<\/td>\u00a312,571 to \u00a350,270<\/td>20%<\/td><\/tr>
Higher rate<\/td>\u00a350,271 to \u00a3125,140<\/td>40%<\/td><\/tr>
Additional rate<\/td>over \u00a3125,140<\/td>45%<\/td><\/tr>
*Note: These rates do not apply to Scotland<\/em><\/td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

2. Most dual citizens of the U.S. and U.K. do not owe U.S. taxes <\/h2>\n\n\n\n

Now, just because you have a U.S. tax obligation doesn\u2019t mean you\u2019ll end up owing anything\u2014there are a few tools the U.S. provides to ease the tax burden on dual citizens, including the U.S.\/U.K. tax treaty, the foreign tax credit, and the foreign earned income exclusion.<\/p>\n\n\n\n

The U.K.\/U.S. tax treaty explained<\/h3>\n\n\n\n

The U.S. has entered into tax treaties<\/a> with more than 50 countries around the world. Among other things, they serve to clarify what income is taxable and therefore affect whether or not you can take a tax credit, tax exemption, or qualify for a reduced tax rate.<\/p>\n\n\n\n

The U.K.\/U.S. tax treaty is no different, and offers benefits for dual citizens as well as U.S. citizens who are currently living in the U.K. In fact, it covers more than other treaties. Take your retirement investments, for example. The current treaty states that money you put in your U.K. pension scheme<\/a> can be deducted from your U.S. income, too\u2014just like a domestic IRA or 401(k) contribution<\/a>. Not all U.S. expats around the globe get that additional advantage.<\/p>\n\n\n\n

This pension provision of the tax treaty doesn\u2019t apply to all your U.K. investments, however. For example, some U.S.\/U.K. dual citizens have invested in an Individual Savings Account (ISA). These types of investments are not tax-free in the U.S., regardless what assets they hold.<\/p>\n\n\n\n

The Foreign Earned Income Exclusion for U.S.\/U.K. dual citizens<\/h3>\n\n\n\n

The\u00a0Foreign Earned Income Exclusion<\/a>\u00a0(FEIE) is the most commonly used tool to lower U.S.\/U.K. dual citizen taxes. What it does is exclude your foreign earned income on your tax return, therefore lowering (or completely eliminating) your U.S. tax obligation. If you qualify, you\u2019re able to exclude up to $120,000 of foreign earned income in 2023. You qualify if you live and work outside the U.S. and pass either the\u00a0Bona Fide Residency<\/a>\u00a0test or the\u00a0Physical Presence Test<\/a>.<\/p>\n\n\n\n

For example, say you\u2019re a dual citizen who was born in the U.S., now lives and works in London, and has a total U.K. income of $105,000. You would be able to exclude all that income from your U.S. taxes, lowing your U.S. tax obligation to $0.<\/p>\n\n\n\n

The Foreign Tax Credit for U.S. citizens living in the U.K.<\/h3>\n\n\n\n

Another important tool for lowering your U.S. tax obligation is the Foreign Tax Credit (FTC)<\/a>. The FTC gives you a dollar-for-dollar credit on taxes already paid to the British version of the IRS, Her Majesty’s Revenue and Customs (HMRC). Because U.K. taxes are generally higher than U.S. taxes, we recommend you explore this option when doing your U.S. taxes.<\/p>\n\n\n\n

3. If you were born in the U.S. or have a U.S. parent, you may be an Accidental American and have U.S. tax obligations<\/h2>\n\n\n\n

In some cases, Brits will find out that they\u2019re “Accidental Americans.” These dual citizens aren\u2019t aware they have a U.S. tax obligation because they\u2019ve lived and worked in the U.K. their entire lives. They may have been born in the U.S. while their U.K. parents were employed there, or they may have one U.S. parent. It\u2019s important to understand that if you were born in the U.S. or have a U.S. parent, you may be considered a dual citizen of the U.K. and U.S.<\/strong><\/p>\n\n\n\n

Boris Johnson is one example out of thousands of Accidental Americans. Johnson was born in New York while his parents were working there and moved back to the U.K. when he was five years old. He didn\u2019t know he had a tax obligation until many years later, when the IRS requested that he pay a capital gains tax on the profit of selling his North London home.<\/p>\n\n\n\n

To avoid a similar situation, make sure you\u2019re either caught up on your U.S. taxes or verify you don\u2019t have a tax obligation. If you find out you do in fact have a tax liability and you haven\u2019t been paying, you\u2019re in luck. Which brings us to\u2026<\/p>\n\n\n\n

4. U.S.\/U.K. dual citizens can catch up on U.S. taxes with Offshore Streamlined Compliance Procedures<\/h2>\n\n\n\n

If you\u2019ve never filed U.S. taxes while living in the U.K. and just found out you need to, don\u2019t panic.<\/strong> While getting caught up on U.S. taxes can seem daunting, there\u2019s good news: The IRS is pretty understanding when it comes to not filing because you honestly didn\u2019t know you had to, and they have a program to help you get caught up\u2014Streamlined Foreign Offshore Procedures<\/a>.<\/p>\n\n\n\n

Streamlined Foreign Offshore Procedures helps U.S. dual citizens in the U.K. (as well as elsewhere in the world) get compliant with prior year filings while helping reduce penalties. To qualify, you must:<\/p>\n\n\n\n