Filing US Taxes in the UK: A Complete Expat Tax Guide (2024)

Whether you prefer the cosmopolitan vibe of London, a seaside getaway like Whitby, or the quaint countryside, there’s a great place to live in the UK for just about everybody. What’s more, there’s easy access to nearby European countries and universal healthcare throughout the country.

As excited as you might be to move to the UK,¹ it’s also important to plan for the not-so-glamorous aspect of US expat life: taxes. Because of the US’s citizenship-based taxation rule, US expats must file an annual return if they meet the IRS’s minimum filing thresholds.

Although taxes can be an annual headache for expats, it’s worth it to experience the adventure of living abroad. Read on to learn everything you need to know about your UK tax obligations, filing US taxes from the UK, and more.

Snapshot of UK taxes

• Primary tax forms: Self Assessment tax return/SA100
• Tax deadline: October 31 for paper returns, January 31 for online returns
• Reporting website: HM Revenue & Customs
• Administrative language(s): English, Welsh available
• Tax treaty: Yes
• Totalization agreement: Yes

Diving in: UK taxes for US expats

Whether or not Americans living in the UK have to pay taxes depends on whether or not they meet the UK’s definition of a tax resident and what type of visa they have.

Who qualifies as a tax resident in the UK?

The UK government defines tax residents as those who meet at least one of the following criteria:

• Have spent 183 days or more in the UK across an entire tax year (from April 6th of one year to April 5th of the next)
• Have spent 91 days or more per year in the UK over the last four years
• Went to the UK with the intention of living there for more than two years (in which case, you’d be considered a tax resident upon your first day of arrival)

If you’re still not sure if you’re a UK tax resident, check out the government’s Statutory Residence Test (SRT).²

UK visas & tax obligations

In order to stay in the UK for longer than six months, you’ll need a visa.³ There are a few different common types of visas, each with different tax obligations:

Work Visa

Work visas include the following visa types:

• Skilled Worker Visa
• Temporary Worker Visa
• Global Business Mobility Visa
• Youth Mobility Scheme Visa
• Graduate Visa

Among others, these visas tend to require their holders to pay UK taxes.

Student Visas

Student visas⁴ typically do not require holders to pay taxes, as long as foreign income or gains are used for things like food, rent, bills, and study materials.

Family Visas

Because family visas⁵ are typically granted to those planning to stay in the UK for the long term⁶, they do bring with them the obligation to pay UK taxes.

Do US expats living in the UK also have to file US taxes?

Yes, due to the US’s citizenship-based taxation system, all US citizens and permanent residents must report their worldwide income. And ever since the introduction of the Foreign Account Tax Compliance Act (FATCA) in 2010, UK banks have been obligated to report the financial activities of US expats in their country to the IRS, making it even easier for the US government to hold them accountable.

What’s the tax-governing authority in the UK?

In the UK, the government agency responsible for collecting and enforcing taxation is His Majesty’s Revenue & Customs (HMRC).⁷ HMRC also provides welfare, sets the minimum wage, and issues national insurance numbers.

Tax brackets in the UK

Before we get into tax rates, it’s worth mentioning the UK’s employee personal allowance: the amount of income that UK residents do not need to pay taxes on. For the 2023-2024 tax year —

which starts on April 6th, 2023 and ends on April 5th, 2024 — the employee personal allowance is:

• £242 per week
• £1,048 per month
• £12,570 per year

Anything above those thresholds is subject to Pay as You Earn (PAYE).⁸ These tax rates fluctuate based on how much you make, as well as where you live.

UK PAYE Tax Rates and Thresholds, 2023-2024

Property taxes in the UK

Those who own property in England and Northern Ireland pay the Stamp Duty Land Tax (SDLT).⁹ Tax rates differ depending on the value of the property:

Stamp Duty Land Tax Rates, 2023-2024

• 0% on properties worth up to £250,000
• 5% on the next £675,000 (the portion from £250,001 to £925,000)
• 10% on the next £575,000 (the portion from £925,001 to £1.5 million)
• 12% on the remaining amount (the portion above £1.5 million)

If you’re buying your first home, however, you benefit from a reduced tax rate on properties worth £625,000 or less:

• 0% on properties worth up to £425,000
• 5% on the next £200,000 (the portion from £425,001 to £625,000)

Rates may vary if you buy a new residential leasehold property, already own property, or are not a UK resident, among other circ*mstances — consult the SDLT calculator¹⁰ for help.

Note that if you buy property in Scotland or Wales, you won’t be subject to SDLT. In Scotland, you’ll pay the Land & Buildings Transaction Tax (LBTT)¹¹ to Revenue Scotland; in Wales, you’ll pay the Land Transaction Tax (LTT)¹² to the Welsh Revenue Authority.

Council Tax

Besides the property taxes mentioned above, you may also need to pay local-level property taxes, called council taxes. Council taxes vary based on the value of your home, your local council tax rate¹³, and whether you’re eligible for a discount or exemption.

Capital gains tax in the UK

Capital gains taxes kick in when you sell certain assets, and vary based on how much you earn.

Capital gains tax for higher tax bracket

If you fall in the higher tax bracket, the rates are pretty straightforward:

• 28% on gains from selling residential property*
• 20% on gains from other chargeable assets

This rate also applies to trustees and personal representatives of someone who’s died.

Capital gains tax for basic tax bracket

If you fall in the basic tax bracket, however, things are a bit more complicated. You’ll first need to:

• Calculate taxable income (total income minus personal allowance and any income tax relief¹⁴ you can claim)
• Calculate your total taxable gains¹⁵
• Subtract your tax-free allowance¹⁶ from your total taxable gains
• Add this to your taxable income

If this income is within the basic tax band, you’ll pay:

• 18% on gains from selling residential property*
• 10% on gains from other chargeable assets

If it’s above the basic income tax band, you’ll pay the same rate as someone in the higher tax bracket:

• 28% on gains from selling residential property*
• 20% on gains from other chargeable assets

* Note: Primary homes tend to be exempt from capital gains taxation

Payroll Tax in the UK

Anyone employed by a UK employer will have their income tax withheld from their paycheck according to their bracket. Those who are self-employed, however, don’t have an employer to withhold taxes from their paycheck and therefore have to make their payments separately.

Do I have to pay social security in the UK?

US expats working in the UK typically have to contribute to the UK’s National Insurance, which funds the UK’s healthcare system, welfare, and other social benefits. However, they may not necessarily have to pay taxes to the US Social Security system as well, thanks to the Totalization Agreement¹⁷ that exists between the US and the UK.

Value-Added Tax (VAT)

The VAT is the UK’s equivalent of a sales tax, placed on certain goods and services. The standard rate is 20% and applies to most goods and services; the reduced rate is 5% and applies only to some goods and services, like children’s car seats and home energy; and there’s a 0% rate for certain items like food and children’s clothing.

VAT is charged by businesses, so it’s not something you have to pay separately — often, it’s already included in the price, particularly for in-store goods.

What are the filing deadlines in the UK?

The UK tax year begins on April 6th of a given year and ends on April 5th of the following year. If you’re filing your UK taxes on paper (non-electronically), you must file your tax return before October 31st. The deadline for e-filing is three months later, on January 31st.

Does the UK have a tax treaty with the US?

Yes, the UK does have a tax treaty with the US that, in theory, prevents double taxation. And thanks to Article 17, US expats can make tax-deferred contributions to UK pension plans, as well as avoid double taxation when receiving UK pension payouts in retirement. This is great, since typically, if you’re a US citizen living abroad, a tax exemption is not offered on foreign pension contributions.

However, a tricky clause called the savings clause allows the US to tax its residents as if no treaty existed, so you may want to claim one (or more) of the tax exemptions we mention further below.

How do I file taxes in the UK as an American?

Common tax deductions available for expats in the UK

You might be wondering: If I’m on the hook for both US and UK taxes, will I be taxed twice? Good news: that’s rarely the case. This is thanks to tax breaks that the IRS offers Americans abroad, the most common of which are outlined below.

Foreign Tax Credit (FTC)

The FTC allows US expats in the UK to offset what they’ve paid in UK income taxes from what they owe the US government. Because UK tax rates are often higher than US tax rates, those who leverage the FTC often have zero US tax liability or may even get excess credits that can carry over to future tax years.

To qualify, your taxes must be legal, based on income, made out to you specifically, and paid.

Foreign Earned Income Exclusion (FEIE)

Another common US expat tax break is the FEIE, which allows you to exclude a certain amount of earned foreign income from taxation. How much foreign income is tax-free in the US under the FEIE? For the 2022 tax year — i.e. the taxes you’ll pay in 2023 — that number is $112,000.

To qualify, you must meet one of two tests:

Physical Presence Test

With this test, you must prove to the IRS that you physically spent at least 330 days (out of a consecutive 365-day period) outside the US.

Bona Fide Residence Test

This test requires you to show your long-term residency of more than a calendar year abroad through official documents like residency cards, rental contracts, utility bills, etc.

Child Tax Credit (CTC)

US expat parents can claim the CTC just as they would in the States, which can give them a credit of up to $2,000 per qualifying child/dependent (as of the 2022 tax year).

Tax implications of renting out your US residence while in the UK

Many people who own homes in the US choose to rent them out while living in the UK. If you decide to do this, note that you’ll have to report the income and expenses associated with doing so on IRS Form 1040.

Rental income while living in the UK

Because rental income is unearned income, it won’t be subject to Social Security or Medicare taxes, but you also won’t be able to exclude it using the FEIE.

If I own a rental property in the US or outside of the UK, do I have to report it to the UK?

Tax residents of the UK must report all income, including foreign rental income, to HM Revenue & Customs, but there are certain circ*mstances in which they don’t have to pay taxes on it¹⁸ — for example, if their official domicile is overseas or if they earn less than £2,000 per year in foreign income.

Which country do I pay taxes to on my rental property income?

Technically, you’re liable for taxes on rental income in both the US and UK. But by using one of the tax breaks mentioned above, you can often avoid double taxation.

How to know if you need to file an FBAR while living in the UK

US expats with $10,000 or more in foreign bank accounts — such as bank accounts, brokerage accounts, pensions, etc. — at any point in the calendar year must file the Report of Foreign Bank and Financial Accounts (FBAR) using FinCEN Report 114.

I’m a US expat who’s lived in the UK for years. Do I owe past US tax returns?

Yes, US expats are required to be filing US taxes in the UK. Even if you weren’t aware that you were required to file while abroad, you are obliged to get and remain tax compliant. In some cases, you may have accrued hefty financial penalties due to interest, but fear not, in some cases these penalties can be alleviated.

Getting caught up on your US taxes with the Streamlined Procedure

If you’ve fallen behind on filing your taxes while abroad or were unaware of your filing requirement in the first place: the IRS offers a special, voluntary amnesty program called the Streamlined Procedure. This procedure allows US expats who weren’t aware of their tax obligations to get caught up on prior years’ taxes without penalties or fines. Under this program, you’ll need to file your last three tax returns and six FBARs (if you met the criteria), pay any back taxes owed, and certify that your previous non-compliance was unintentional.

Let Bright!Tax take care of your British tax return

Navigating UK taxes as a US expat can be stressful. Bright!Tax brings a wealth of firsthand experience to the US expat tax filing process – many of our CPAs are US expats themselves! Additionally, we understand that navigating filing in two countries is both stressful and time-consuming. That said: We’re pleased to be able to offer US expats living in the UK the option to file both US and UK tax returns when they choose to work with us.

References:

1. Moving to the UK Checklist (Expatica)
2. Statutory Residence Test
3. UK Work Visas
4. UK Student Visa
5. Family Visas
6. Long term UK visas
7. HM Revenue & Customs Office
8. Pay As You Earn (PAYE)
9. Stamp Duty Land Tax (SDLT)
10. SDLT Calculator
11. Land & Buildings Transaction Tax (LBTT) – Scotland
12. Land Transaction Tax (LTT) – Wales
13. Local Council Tax Rate
14. UK Income Tax Relief
15. Capital Gain Calculation
16. Capital Gains Tax Allowances
17. US-UK Totalization Agreement
18. Foreign Income Tax on Non-Domiciled Residents