US Expat Taxes in the United Kingdom

Who Has to File: Your US Obligations from the UK

If you are a US citizen or green card holder living anywhere in the UK, you file a US return every year you cross the filing threshold. For 2026 that is $16,100 of gross income if single, $32,200 if married filing jointly, $400 of net self-employment income, or just $5 if you are married to a non-American and file separately. Income counts before the Foreign Earned Income Exclusion, so a London salary always crosses the line.

The return itself is only part of the job. Most Americans in the UK also owe:

• FinCEN Form 114 (FBAR) if all your non-US accounts together exceeded $10,000 at any point in the year. Current accounts, ISAs, workplace pensions, SIPPs and NS&I Premium Bonds all count.
• Form 8938 if your foreign financial assets exceed $200,000 at year end or $300,000 at any time ($400,000 and $600,000 for joint filers living abroad).
• Form 2555 or Form 1116, depending on whether you exclude earned income or credit UK tax against US tax.
• Form 8621 for every UK fund you hold outside a pension, including inside a Stocks & Shares ISA.
• Form 8833 whenever you rely on the US-UK treaty, for example to exclude employer pension contributions.
• Form 5471 if you own 10% or more of a UK limited company, and Form 3520 for some UK trusts and certain pension arrangements.

Do not forget your last US state. California, Virginia, New Mexico and South Carolina in particular keep taxing former residents who leave a driver's licence, a home or a voter registration behind. Breaking state residency cleanly before you move is worth more than most treaty planning.

How UK Income Tax, PAYE and National Insurance Work in 2026

The UK tax year runs from April 6 to April 5. Employment income is taxed through PAYE, where your employer withholds income tax and National Insurance using a tax code (1257L for most people, reflecting the £12,570 personal allowance). If PAYE is your only income, you may never file a UK return. Add a US brokerage account, a rental, self-employment or income above £150,000 and you are in Self Assessment.

England, Wales and Northern Ireland rates for 2026/27, with thresholds frozen until April 2031:

• £0 to £12,570: 0% personal allowance
• £12,571 to £50,270: 20% basic rate
• £50,271 to £125,140: 40% higher rate
• Above £125,140: 45% additional rate
• Between £100,000 and £125,140 the personal allowance is withdrawn at £1 for every £2 earned, giving an effective 60% marginal rate in that band

Scotland sets its own rates on non-savings income, with six bands from a 19% starter rate to a 48% top rate above £125,140. The higher-rate threshold is far lower than England's (£43,663 in 2025/26), so an Edinburgh salary pays 42% on income that Manchester taxes at 20%. Scottish rates do not apply to dividends, interest or capital gains.

On top of income tax, employees pay National Insurance at 8% between £12,570 and £50,270 and 2% above that. Investment income has its own rules: a savings allowance of £1,000 (basic rate) or £500 (higher rate), a £500 dividend allowance, and from April 6, 2026 dividend tax rates of 10.75%, 35.75% and 39.35%. Capital gains are taxed at 18% and 24% above the £3,000 annual exempt amount.

Two traps catch Americans on dollar-denominated pay. Child Benefit is clawed back through the High Income Child Benefit Charge once one parent's adjusted net income passes £60,000, disappearing entirely at £80,000. And a US salary converted at today's exchange rate usually lands higher in sterling than people expect, pushing them into the 60% band or the tapered pension annual allowance.

Statutory Residence Test (SRT): Determining UK Tax Residence

Since April 6, 2013, UK tax residence is determined by the Statutory Residence Test (SRT), replacing the old and often unclear 'ordinary residence' concept. The SRT is set out in Schedule 45 of the Finance Act 2013 and applies mechanically through a series of tests.

Part 1 — Automatic Overseas Tests (if any apply, you are NOT UK resident):

• Test 1: You were UK resident in none of the previous three tax years AND spend fewer than 46 days in the UK
• Test 2: You were UK resident in one or more of the previous three tax years AND spend fewer than 16 days in the UK
• Test 3: You leave the UK to work full-time overseas, spending fewer than 91 days in the UK and fewer than 31 days working in the UK

Part 2 — Automatic UK Tests (if any apply, you ARE UK resident):

• Test 1: You spend 183 or more days in the UK in the tax year
• Test 2: Your only home is in the UK for at least 91 consecutive days (at least 30 in the tax year)
• Test 3: You work full-time in the UK for any period of 365 days with at least 75% of working days in the UK

Part 3 — Sufficient Ties Test (if neither automatic test is conclusive):

Five connecting factors (ties) are evaluated: (1) Family tie — spouse/civil partner or minor child resident in the UK; (2) Accommodation tie — a place to stay in the UK available for 91+ consecutive days; (3) Work tie — working in the UK for 40+ days; (4) 90-day tie — spending 90+ days in the UK in either of the two preceding tax years; (5) Country tie (only for leavers) — spending more days in the UK than any other single country. The number of ties needed for UK residence depends on days spent in the UK and whether you were UK resident in any of the prior three years.

For US citizens: SRT residence determines your UK tax obligations, but has zero effect on your US obligations. The US taxes based on citizenship, not residence. Even if the SRT makes you non-UK-resident, you remain a US taxpayer on worldwide income. The SRT matters for: (a) whether you must file UK Self Assessment, (b) whether the UK taxes your worldwide income or only UK-source income, (c) whether split-year treatment is available, and (d) your eligibility for the FIG regime.

Split-Year Treatment and the April-to-April Mismatch

UK residence normally applies to a whole tax year, but eight split-year cases let you treat part of the year as non-resident. The common ones for Americans are starting to have your only home in the UK, starting full-time work in the UK, and, on the way out, leaving to work full-time overseas or ceasing to have a UK home. If a case applies you are taxed by the UK only on income arising after arrival (or before departure), which matters a great deal in a move year when you are still receiving US wages, bonuses or stock vesting.

Nothing in the UK's April-to-April year lines up with the US calendar year. Your P60 shows income and tax from April 6 to April 5, but Form 1040 and Form 1116 need January to December figures. In practice that means:

• Keep every monthly payslip. You cannot split a P60 without them.
• Convert income at the IRS yearly average exchange rate, and FBAR balances at the Treasury December 31 rate.
• Decide whether to claim UK tax on Form 1116 on the paid basis (the default) or the accrued basis. Accrued matches UK tax to the year it relates to and is usually cleaner, but once elected it is binding for all future years.
• In your first year abroad, you may not yet meet the 330-day Physical Presence Test by the US filing deadline. File Form 2350 to extend until you do, rather than filing without the FEIE and amending.

The FIG regime and split-year treatment interact. Your four FIG years count from your first year of UK residence, including a split year, so arriving on April 1 instead of April 10 can cost you almost a full year of the regime.

The US-UK Tax Treaty and Its Limits

The US-UK Convention was signed on July 24, 2001 and has applied since 2003. It is one of the more generous US treaties, but it protects UK residents from US tax far less than most people assume, because Article 1(4), the savings clause, lets the US tax its citizens as if the treaty did not exist. Only a short list of provisions in Article 1(5) survives the savings clause, and those are where the real value sits for Americans in the UK.

What the treaty does do:

• Article 4 breaks a tie if you are resident in both countries under domestic law, using permanent home, centre of vital interests and habitual abode in that order.
• Article 10 caps withholding on dividends at 15%, and at 0% for dividends paid to pension schemes. Articles 11 and 12 cut withholding on interest and royalties to zero.
• Article 17 deals with pensions. Periodic pensions are taxable only in the country of residence (the US still taxes its citizens, with credit for UK tax). Article 17(2) says a lump sum from a UK scheme paid to a US resident is taxable only in the UK, but that paragraph is overridden by the savings clause for US citizens. Article 17(1)(b), the mirror rule that exempts in the residence state any pension amount that would be exempt in the source state, and Article 17(3) on social security are among the provisions that survive the savings clause. See our US-UK tax treaty guide for the article-by-article detail.
• Article 18 lets a US citizen working in the UK exclude employer contributions to a UK pension scheme from US income, and treat their own contributions as deductible, within limits. This is claimed each year on Form 8833.
• Article 24 is the relief-from-double-taxation article. It is the basis for the US Foreign Tax Credit and for UK credit on US-source income.

What the treaty does not do:

• It does not cover Net Investment Income Tax. No foreign tax credit offsets the 3.8% NIIT. Two lower-court decisions (Christensen, under the French treaty, and Bruyea, under the Canadian treaty) had allowed a treaty-based credit, but the Federal Circuit reversed both on August 31, 2026, holding that treaty credit articles are subject to the limits in the Code. Unless the Supreme Court takes the question up, the Article 24 argument is closed and UK tax cannot be credited against NIIT.
• It does not recognise ISAs, Lifetime ISAs, Premium Bond prizes or the 25% tax-free pension lump sum as tax-free for US purposes.
• It does not exempt you from FBAR, Form 8938 or PFIC reporting.

Every treaty-based return position needs Form 8833. Leaving it off does not just risk the position; it carries a $1,000 penalty per omission.

FEIE vs Foreign Tax Credit: For the UK It Is Usually the Credit

Americans in the UK have two tools to stop double taxation and they are not interchangeable. The Foreign Earned Income Exclusion (Form 2555) removes up to $132,900 of 2026 wages or self-employment income from US tax, plus a housing amount above the $21,264 base. The Foreign Tax Credit (Form 1116) leaves the income in but credits UK income tax against the US tax on it, dollar for dollar, up to the US tax attributable to foreign income.

For most people in the UK, the credit wins:

• UK rates of 40% and 45% exceed every US bracket until $640,600, so UK tax normally wipes out the US tax on the same income and leaves excess credit that carries forward for ten years. That carryforward later shelters a bonus, a large RSU vest, or a year with US-source income.
• The FEIE does not touch investment income, rental profit, pensions or capital gains. You need Form 1116 for those anyway.
• Excluded income cannot support an IRA or Roth contribution, and the refundable part of the Child Tax Credit is not available in a year you file Form 2555.
• Revoking the FEIE once claimed locks you out of it for five years without IRS consent.

The FEIE still earns its place in three situations: a low-income year where UK tax is small (a first year under split-year treatment, part-time work, or a year on maternity leave), a taxpayer in the FIG regime whose non-UK employment duties escape UK tax, and anyone whose UK tax is disproportionately low because of Scottish or Welsh reliefs. Some clients use both: the FEIE on the first $132,900 and Form 1116 on the rest, though the credit is then reduced in proportion.

Form 1116 keeps income in baskets. UK tax on salary goes in the general basket; UK tax on interest, dividends and rent goes in the passive basket. UK tax paid on ISA income is zero, so US tax on ISA interest and dividends is never offset. National Insurance is not an income tax and never goes on Form 1116.

FIG Regime: The End of Non-Dom and What Replaces It

On April 6, 2025, the UK abolished its centuries-old non-domicile (non-dom) tax regime, one of the most significant changes to UK taxation in decades. The remittance basis — which allowed UK residents who were not UK-domiciled to avoid UK tax on foreign income and gains unless they brought (remitted) the money to the UK — was replaced by the Foreign Income and Gains (FIG) regime.

How FIG Works:

FIG is available to individuals who become UK tax resident after having been non-UK resident for at least 10 consecutive tax years immediately before the year of arrival. Eligible individuals can elect FIG treatment for up to four tax years. During the FIG period:

• Foreign income (interest, dividends, rental income, employment income from non-UK duties) is not subject to UK tax
• Foreign capital gains (gains on non-UK assets) are not subject to UK tax
• There is no requirement to remit or not remit income — the exclusion applies regardless
• However, electing FIG means you lose the UK personal allowance (£12,570) and the annual capital gains exempt amount (£3,000) for that year
• UK-source income remains fully taxable under normal rules

Temporary Repatriation Facility (TRF):

For individuals who previously used the remittance basis and have accumulated unremitted foreign income and gains, the TRF allows them to designate those amounts for UK tax at a reduced rate of 12% for designations made in the 2025/26 and 2026/27 tax years, rising to 15% for 2027/28, after which the facility closes. This is a transitional measure to encourage capital flows into the UK.

Inheritance Tax Changes:

The non-dom regime also affected inheritance tax (IHT). From April 6, 2025, IHT is no longer based on domicile but on a 10-year residence test. If you have been UK resident for at least 10 of the last 20 tax years, your worldwide estate is subject to UK IHT. There is a 'tail' period of 3–10 years after leaving the UK during which worldwide IHT exposure continues.

Impact on US Citizens:

Most US citizens arriving in the UK will qualify for FIG in their first four years because they will have been non-UK-resident for the prior 10 years. The election can be valuable for those with significant US-source investment income. However, the US continues to tax worldwide income under the savings clause, so FIG reduces your UK tax but not your US tax. The practical consequence: during FIG years, you have less UK tax to credit on Form 1116, potentially increasing your net US tax. A full cross-border analysis is essential before electing FIG.

The ISA PFIC Trap: Why US Citizens Must Avoid Stocks & Shares ISAs

Individual Savings Accounts (ISAs) are the UK's most popular tax-advantaged savings vehicle, with over £750 billion held in ISAs across the UK. For UK tax purposes, all income and gains within an ISA are completely tax-free — no income tax, no capital gains tax, no reporting. The annual ISA allowance is £20,000 across all ISA types combined.

For US citizens, ISAs are a tax trap. The IRS does not recognize the ISA's tax-free status under any provision of the Internal Revenue Code or the US-UK tax treaty. This means:

Cash ISAs: Interest earned in a Cash ISA is taxable on your US return as ordinary income. While this is straightforward, most Americans do not realize they owe US tax on their 'tax-free' savings.

Stocks & Shares ISAs: This is where the real damage occurs. If your Stocks & Shares ISA holds UK-domiciled funds — unit trusts, OEICs (Open-Ended Investment Companies), or investment trusts — each fund is a Passive Foreign Investment Company (PFIC) under IRC Section 1297. PFIC taxation under the default Section 1291 regime is deliberately punitive:

• Gains on sale are taxed at the highest ordinary income rate (37% for 2026) regardless of your actual bracket
• An interest charge is added, calculated as if the gain accrued ratably over each year you held the fund
• No long-term capital gains rate (currently 20%) applies
• Each PFIC requires a separate Form 8621 filed with your US return — if you hold 10 funds, that is 10 forms
• Compliance costs for Form 8621 preparation typically run $200-500 per form per year

Two elections can mitigate PFIC treatment: the Qualified Electing Fund (QEF) election and the Mark-to-Market election. The QEF election requires the fund to provide a PFIC Annual Information Statement, which UK funds almost never provide. The Mark-to-Market election requires the fund to be traded on a 'qualified exchange' — the London Stock Exchange qualifies, so investment trusts listed on the LSE may be eligible, but unit trusts and OEICs are not exchange-traded and do not qualify.

The solution: US citizens in the UK should avoid Stocks & Shares ISAs entirely. If you already hold one, consider liquidating the fund holdings and investing instead through US-listed ETFs (iShares, Vanguard, Schwab) held in a standard UK brokerage account. US-listed ETFs are not PFICs because they are organized under US law. Some UK platforms (Interactive Brokers UK, Saxo Markets) allow purchase of US-listed ETFs for professional/elective professional investors. Cash ISAs are lower risk — the interest is still US-taxable, but there is no PFIC issue. Lifetime ISAs carry additional complexity due to the 25% government bonus (taxable as income for US purposes) and the 25% withdrawal penalty if used for non-qualifying purposes.

UK Pensions and US Tax: State Pension, Workplace Pension and SIPP

The UK pension system has three pillars, each with distinct US tax implications under the 2001 treaty.

1. State Pension:

The UK State Pension is based on National Insurance contribution years. You need 35 qualifying years for the full new State Pension of £241.30 per week (about £12,548 per year) for 2026/27, after the 4.8% triple-lock increase. The minimum qualifying period is 10 years. The State Pension is increased annually by the 'triple lock' — the highest of inflation (CPI), average earnings growth, or 2.5%. US tax treatment: The State Pension is taxable as ordinary income on your US return (similar to Social Security, but without the 85% inclusion cap — 100% is taxable). Under Article 17 of the treaty, if you live in the UK, both countries tax it with a Foreign Tax Credit to prevent double taxation. If you move to the US, only the US taxes it. The US-UK Totalization Agreement allows you to combine US and UK contribution years to meet the 10-year minimum.

2. Workplace Pension (Auto-Enrollment):

Since 2012, all UK employers must automatically enroll eligible workers into a workplace pension scheme. Minimum contributions are 8% of qualifying earnings (3% employer, 5% employee including tax relief). Common schemes include NEST (National Employment Savings Trust), NOW: Pensions, and employer-sponsored group personal pensions. US tax treatment: Employee contributions receive UK tax relief at your marginal rate (20%, 40%, or 45%) — effectively paid from pre-tax income. However, the US does not automatically recognize this exclusion. Employer contributions are not included in your UK taxable pay but may be included in your US gross income unless you file Form 8833 claiming a treaty-based exclusion under Article 18 (paragraph 1(b)). Distributions are taxed as ordinary income by both countries with FTC relief. The 25% tax-free lump sum available under UK rules (Pension Commencement Lump Sum, up to 25% of the pension pot or £268,275, whichever is lower) is NOT tax-free for US purposes if you are UK resident when you take it — it is fully taxable as a pension distribution on your US return. For a US resident taking a UK lump sum, Article 17(1)(b), which exempts in the residence state any pension amount that would be exempt in the source state, supports a disclosed Form 8833 position that the 25% is tax-free in the US too. The IRS does not accept it and it carries audit risk, so take advice before you crystallise a pension in either country.

3. SIPP (Self-Invested Personal Pension):

A SIPP is a personal pension wrapper giving you control over investment choices. Contributions receive UK tax relief (the provider claims 20% basic rate automatically; higher-rate relief is claimed via Self Assessment). Annual allowance: £60,000 for 2025/26 (reduced to a minimum of £10,000 for high earners above £260,000 adjusted income via the tapered annual allowance). US tax treatment: SIPP contributions are NOT deductible on your US return. Investment growth inside the SIPP is taxable annually for US purposes under the domestic rules for foreign employee trusts unless you claim Article 18(1) of the treaty on Form 8833, which defers US tax until distribution; without that claim, what the SIPP holds decides how bad it is — if it holds UK funds (unit trusts, OEICs), those are PFICs with Form 8621 reporting. If it holds individual stocks, bonds, or US-listed ETFs, the growth is generally not taxed until distribution. Strategy: US citizens with SIPPs should hold individual UK/US equities, bonds, or US-listed ETFs to avoid PFIC complications.

National Insurance, Totalization and the Social Security Overlap

National Insurance contributions (NICs) fund the UK's state benefits including the State Pension, statutory sick pay, maternity pay, and the NHS (partially). For US citizens working in the UK, NICs interact directly with US Social Security obligations under the US-UK Totalization Agreement.

NIC Classes and Rates (2025/26):

• Class 1 (employees): 8% on earnings between the Primary Threshold (£12,570) and Upper Earnings Limit (£50,270); 2% on earnings above the UEL. Employer NICs: 15% on all earnings above the Secondary Threshold (£5,000 from April 2025, when the rate rose from 13.8%).
• Class 2 (self-employed): Flat rate of £3.50 per week on profits above £12,570. From 2024/25 this became voluntary for most self-employed but is still needed to build State Pension entitlement.
• Class 4 (self-employed): 6% on profits between £12,570 and £50,270; 2% on profits above £50,270.
• Class 3 (voluntary): £17.75 per week to fill gaps in your NI record for State Pension purposes.

Totalization Agreement (effective January 1, 1985):

The US-UK Totalization Agreement prevents double social security taxation. If you are employed in the UK by a UK employer, you pay UK NICs only — no US FICA (Social Security + Medicare) taxes. If your US employer sends you to work in the UK temporarily (up to 5 years), your employer can request a Certificate of Coverage (Form USA/UK 1) from the Social Security Administration, keeping you in the US system and exempting you from UK NICs. Self-employed individuals pay into the system of their country of residence.

Combining Credits for Benefits:

If you do not have enough quarters in either country alone to qualify for benefits, the agreement lets you totalize (combine) your US and UK coverage periods. You need a minimum of 6 US quarters to invoke totalization. Each country pays its own benefit based on its own formula and your combined work history. For example, if you have 30 US quarters and 5 UK qualifying years, the US will use the combined credits to determine eligibility but pay a benefit based only on your US earnings record.

Important: National Insurance contributions are NOT creditable as foreign income taxes on your US return. They are social security taxes, not income taxes, and cannot be claimed on Form 1116. This is a common mistake. The NICs you pay reduce your take-home pay but do not generate Foreign Tax Credits.

Self-Employment in the UK: Sole Trader, Limited Company and Your US Return

Freelancers and contractors are the fastest-growing group of Americans in the UK, and the US rules differ sharply between a sole trader and a limited company.

Sole traders report UK profits on Schedule C and pay UK Class 2 and Class 4 National Insurance. Because the Totalization Agreement assigns self-employed workers to the country where they live, you are exempt from US self-employment tax. Attach a statement to your return citing the agreement and keep a certificate of coverage from HMRC on file; without it the IRS will assess 15.3% SE tax on your profit. From April 2026, sole traders and landlords with gross income above £50,000 must keep digital records and send quarterly updates to HMRC under Making Tax Digital.

A UK limited company is a foreign corporation to the IRS. If you own 10% or more you file Form 5471 every year, and if US persons own more than half the company it is a controlled foreign corporation. Its undistributed profit is then taxed to you currently as net CFC tested income (the rules previously known as GILTI, revised for 2026). The high-tax exception generally applies where the company pays UK corporation tax at 25%; at the 19% small-profits rate it barely clears the 18.9% threshold and needs checking every year. Salary and dividends from your own company are ordinary UK planning, but on the US side dividends from a UK company are qualified dividends only if the holding-period rules are met, and the Section 962 election is often worth modelling. A missed Form 5471 carries a $10,000 penalty per year.

Contractors caught by the off-payroll (IR35) rules are treated as employees for UK tax, which simplifies the US side: the deemed salary is ordinary wages for Form 1116.

Whatever the structure, the UK cash basis is now the default for sole traders, while the IRS expects Schedule C on the same method you use consistently. Choose one and document it.

Stamp Duty Land Tax, Council Tax and UK Property for US Citizens

Buying property in the UK involves significant transaction taxes and ongoing costs that US citizens must understand for both UK and US tax planning.

Stamp Duty Land Tax (SDLT) — England and Northern Ireland:

SDLT is a one-time tax paid on property purchases. Standard residential rates (from April 1, 2025, when the temporary £250,000 nil-rate band ended): 0% up to £125,000; 2% on £125,001–£250,000; 5% on £250,001–£925,000; 10% on £925,001–£1,500,000; 12% above £1,500,000. Two surcharges apply to most US citizen buyers:

• Non-resident surcharge: 2% added to all bands if the buyer is not UK resident (present in the UK for fewer than 183 days in the 12 months before purchase). This can be reclaimed if you become UK resident within 12 months of purchase.
• Higher rates for additional dwellings: 5% added to all bands if you own any residential property anywhere in the world (including your US home). This means a US citizen buying a £500,000 flat in London while still owning a home in the US pays: £2,500 (2% on £125,001–£250,000) + £12,500 (5% on the next £250,000) + £35,000 (7% combined surcharges on the full £500,000) = £50,000 total SDLT.

Scotland: Land and Buildings Transaction Tax (LBTT) with different bands and an Additional Dwelling Supplement of 8% (increased from 6% in December 2024).

Wales: Land Transaction Tax (LTT) with its own rate structure.

Council Tax:

Council Tax is an annual charge based on property valuation bands (A through H in England, A through I in Wales). Amounts vary dramatically by local authority — from approximately £1,200 to £4,500+ per year for a Band D property. Council Tax is NOT a creditable foreign tax for US purposes because it is not levied on income. You cannot claim it on Form 1116.

Council Tax and the Foreign Housing Exclusion:

Council Tax does count as a qualifying housing expense for the Foreign Housing Exclusion or Deduction on Form 2555. IRS Publication 54 lists occupancy taxes that are not deductible under Section 164 among qualifying expenses, and Council Tax is exactly that. So if you claim the FEIE, add your Council Tax to rent, utilities (excluding telephone), contents insurance and furniture rental when you total housing expenses above the base amount ($21,264 for 2026, which is 16% of the $132,900 exclusion). London has one of the highest IRS housing caps in the world, so this is worth doing. If you claim the Foreign Tax Credit instead of the FEIE, Council Tax gives you nothing on either form.

US Tax Implications of UK Property:

SDLT is a transaction cost added to your cost basis for US tax purposes. UK rental income is reported on Schedule E with MACRS depreciation over 30 years (40 years for property placed in service before 2018) for the building component. Capital gains on sale of UK property are subject to UK CGT (18%/24% for residential property) and US federal capital gains tax (0%/15%/20% depending on income), with the UK tax creditable on Form 1116. The principal private residence relief (PRR) exempts gains on your main home from UK CGT, but the US Section 121 exclusion ($250,000 single / $500,000 married) has its own tests — you must have lived in the property for 2 of the last 5 years.

Making Tax Digital and UK Self Assessment for US Citizens

Making Tax Digital (MTD) is HMRC's multi-year program to move tax administration online. MTD for VAT has been mandatory since 2019. MTD for Income Tax Self Assessment (MTD for ITSA) is the next phase and directly affects US citizens with UK self-employment or rental income.

MTD for ITSA Timeline:

• April 2026: Mandatory for self-employed individuals and landlords with gross income above £50,000
• April 2027: Extended to those with gross income above £30,000
• April 2028 (planned): Extended to those with gross income above £20,000

What MTD Requires:

• Digital record-keeping using HMRC-compatible software (spreadsheets are acceptable if linked to compatible bridging software)
• Quarterly updates submitted to HMRC for the quarters ending April 5, July 5, October 5 and January 5, each due one month and two days later (May 7, August 7, November 7, February 7)
• A Final Declaration by January 31 following the tax year, replacing the current Self Assessment return

UK Self Assessment — Current System:

Until MTD applies to you, the Self Assessment system requires an annual return filed online by January 31 (or paper by October 31) following the end of the tax year. Registration is via form SA1, due by October 5 following the end of the first tax year where filing is required.

P60 and P45:

Your P60 is the annual certificate of pay and tax from your employer — the UK equivalent of a W-2. It is issued by May 31 after each tax year end. A P45 is issued when you leave employment and shows pay and tax for that job. Both documents are essential for preparing your US return, as the gross pay and tax deducted figures are used on Form 1040 (converted to dollars) and Form 1116 (Foreign Tax Credit). Keep P60s and P45s for at least 7 years (the longer of the US and UK retention requirements).

For US citizens: You file UK Self Assessment (or MTD returns) for your UK tax obligations AND Form 1040 with all required international information returns for your US obligations. The UK and US deadlines do not align — UK Self Assessment is due January 31 while your US return (with expat extension) is due June 15 or October 15. This means your UK return is typically filed first, and the UK tax figures flow into your US return's FTC calculation.

UK Inheritance Tax and US Estate Tax: Cross-Border Exposure

US citizens with UK assets face potential exposure to both UK Inheritance Tax (IHT) and US estate/gift tax. Understanding the interaction is critical for estate planning.

UK Inheritance Tax (IHT):

IHT is charged at 40% on the taxable value of an estate above the nil-rate band. Key thresholds:

• Nil-rate band: £325,000 (frozen at this level since 2009 and currently legislated to remain until at least April 2030)
• Residence nil-rate band: Additional £175,000 if a qualifying residence is passed to direct descendants (children, grandchildren), giving an effective threshold of £500,000
• Transferable nil-rate band: Any unused nil-rate band can be transferred to a surviving spouse, potentially doubling the threshold to £1,000,000 for a married couple
• Gifts made within 7 years of death are included in the estate (taper relief applies for gifts between 3 and 7 years before death)

From April 6, 2025, IHT scope is based on a 10-year residence test (replacing the old domicile test). If you have been UK resident for at least 10 of the last 20 tax years, your worldwide estate is subject to UK IHT. Non-long-term residents only pay IHT on UK-situated assets (UK property, UK bank accounts, UK shares).

US Estate and Gift Tax:

The US taxes its citizens on worldwide estates regardless of residence. The 2026 federal estate and gift tax exemption is $15 million per person ($30 million for a married couple), made permanent and indexed for inflation from 2027 by the One Big Beautiful Bill Act of July 2025. The scheduled drop to roughly $7 million never happened. Estates above the exemption are taxed at 40%.

US-UK Estate Tax Treaty:

The US-UK estate tax treaty (separate from the income tax treaty) provides a unified credit mechanism to prevent double taxation on estates subject to both IHT and US estate tax. The treaty allocates primary taxing rights based on domicile and provides credits for taxes paid to the other country. However, the treaty does not eliminate exposure — it ensures you do not pay 40% to both countries on the same assets.

Planning Considerations for US Citizens in the UK:

• UK property is subject to IHT regardless of the owner's residence status
• Life insurance payable to UK beneficiaries may be subject to IHT if not placed in trust
• US retirement accounts (401(k), IRA) are generally excluded from UK IHT as they are not UK-situated assets
• UK pensions are currently outside IHT, but from April 6, 2027 unused pension funds and death benefits come into the IHT estate. Anyone relying on a SIPP as an IHT shelter needs a new plan before then
• Consider a cross-border will covering UK assets separately from US assets
• The spousal exemption is unlimited in both countries for transfers to a spouse who is a citizen of that country, but transfers to a non-citizen spouse are limited ($194,000 annual exclusion in the US for 2026)

Behind on US Taxes? The Streamlined Path Back

A large share of Americans in the UK first learn about US filing when their bank sends a FATCA letter. UK banks report US account holders to HMRC, which passes the data to the IRS under the 2012 intergovernmental agreement, so the IRS usually already knows the account exists.

If you have missed years, the Streamlined Foreign Offshore Procedures are the route back. You file the last three years of US returns, the last six years of FBARs, and Form 14653 certifying that the failure was non-wilful. There are no failure-to-file, failure-to-pay or FBAR penalties, only tax and interest on anything actually owed. Most UK-based filers owe nothing once UK tax is credited.

You qualify if, in at least one of the three years, you had no US abode and were physically outside the US for 330 full days. Green card holders and citizens qualify on the same terms. If you filed returns but missed FBARs, the Delinquent FBAR Submission Procedures are simpler still.

Accidental Americans, born in the US or to a US parent and never living there as adults, have a further option: the Relief Procedures for Certain Former Citizens allow renunciation without back tax for those with under $2 million in net worth and modest historic tax, provided the failure was non-wilful. Renouncing costs $450 at the US Embassy in London since October 2025 and triggers the exit tax rules only for covered expatriates, so it deserves a proper calculation before the appointment.

Key Deadlines for Americans in the UK

Two tax years, two calendars. Put these in the diary for a typical year:

• January 31: UK Self Assessment online return, balancing payment for the prior tax year, and first payment on account for the current one.
• February 7: MTD quarterly update for the quarter to January 5 (from April 2026 for those in scope).
• April 5: UK tax year ends. ISA and pension allowances reset the next day.
• April 15: US tax is due, even though your return is not. Interest runs from here. FBAR is also due, with an automatic extension to October 15.
• May 7: MTD quarterly update for the quarter to April 5.
• May 31: Employers must issue your P60.
• June 15: Automatic two-month US filing extension for taxpayers living abroad. File Form 4868 by now for more time.
• July 6: P11D benefits-in-kind statements are due from employers.
• July 31: Second UK payment on account.
• August 7: MTD quarterly update for the quarter to July 5.
• October 5: Deadline to register for Self Assessment for the tax year that ended in April.
• October 15: Extended US return and FBAR deadline.
• October 31: UK paper return deadline.
• November 7: MTD quarterly update for the quarter to October 5.
• December 15: Final discretionary US extension, available by letter to the IRS for taxpayers abroad.

Because the UK return is due before the US one, prepare it first. The UK tax figures then flow straight into Form 1116.

A Worked Example: A Software Engineer in Manchester

Marcus is a single US citizen working as a software engineer in Manchester on a £95,000 salary, paid through PAYE, with a workplace pension and £20,000 in a Stocks & Shares ISA. Assume £1 = $1.30 for the year.

UK side: his personal allowance is £12,570. Income tax is £7,540 at the basic rate on the next £37,700 and £17,892 at 40% on the remaining £44,730, a total of £25,432. National Insurance adds £3,911. Nothing to file with HMRC unless he has other income.

US side: his salary is $123,500. Under the FEIE he could exclude all of it, since it is under $132,900, and owe nothing. Under the Foreign Tax Credit, his taxable income after the $16,100 standard deduction is $107,400, giving US tax of roughly $18,400 at 2026 rates. His UK income tax of about $33,000 is more than enough to credit against it, so he again owes nothing, and carries roughly $14,600 of unused credit forward for ten years.

Both routes give a zero bill this year. The credit route is still the better one: it keeps him eligible to fund a Roth IRA, preserves the child tax credit if he has children later, and banks a carryforward that will shelter an RSU vest or a US-source consulting fee in a later year.

What the salary calculation misses is where his real exposure sits. The ISA holds a UK equity OEIC, which is a PFIC; he needs Form 8621 and the fund's gains are taxed at 37% plus an interest charge when he sells. His employer's 3% pension contribution (£2,850) is excluded from US income only if he claims Article 18 on Form 8833. His current account, ISA, pension and any SIPP together exceed $10,000, so he files an FBAR. His assets are well under $200,000, so no Form 8938 this year. Selling the OEIC, moving the money to US-listed ETFs in a general investment account, and claiming the treaty on his pension would remove every one of those problems.