How Taxes Work for U.S. Citizens Living in the United Kingdom

For most Americans working in the U.K., U.S. taxes can seem a bit overwhelming. Not only do you have to worry about how to file your U.S. taxes (logistically), but you probably also have a whole host of new considerations to take into account. For example, how do your U.K. financial accounts affect your filing? What options you have to reduce your tax bill? How do taxes work if you’re a dual citizen of the U.S./U.K.?

Don’t worry, H&R Block has your back. Below, we’ll dive into the basics of what you should know about U.S. expat taxes in the U.K., and help you get started filing. Whether you’re an American in the U.K. filing taxes for the first time or a seasoned Brit with years of U.S. expat taxes under your belt, we’ve got a solution for you. Get started with our made-for-expats online expat tax services today!

What U.S. citizens working in the U.K. should know about U.S. taxes

Do U.S. citizens working abroad pay taxes? Do I have to pay both U.K. and U.S. taxes? How much do I pay? Here’s what you need to know if you’re an American filing taxes from the U.K.:

To start, U.S. taxes are based on citizenship, not place of residency. The U.S. has tax rules for U.S. expats that state you have a U.S. tax filing obligation no matter when or where you lived or worked in the U.K. Even if you’re only there a short time, working as an American in the U.K. can still affect your U.S. taxes. For example, if you earn income while on a short-term assignment, you’ll need to report that income on your U.S. taxes. The deeper your financial roots in the United Kingdom, the more tax considerations you’ll have.

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.

One thing to understand is that it’s tricky when giving general U.S tax advice for U.K. residents because so much depends on your personal situation. When you file with an Advisor, they 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.

I’m retiring to the U.K. What do I need to know about U.S. taxes?

If retiring abroad in the countryside is your long-term goal, you should first understand how taxes work when retiring abroad:

• Even if you retire abroad you still may have to file a U.S. tax return
• You’ll still have to report money in any foreign financial accounts on your FBAR if you meet the requirements
• Your U.K. retirement investments can get special treatment. Thanks to the U.S./U.K. tax treaty (see below), 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.

The U.S./U.K. tax treaty

There is a U.S./U.K. tax treaty in place that offers benefits and provisions to Americans working in the U.K. This tax treaty has provisions around everything from personal pensions to corporate taxation, and even has a clause that allows the U.S. and the U.K. to exchange tax information on individuals within their borders.

While you typically don’t need to file additional forms to claim most of the perks from the U.S./U.K. tax treaty, there are cases where you’ll need to get familiar with Form 8833.

Learn more about taxes for expats in the U.K.

Want to know more about U.S. taxes for expats in the U.K.? Check out these resources:

Basics of U.K. taxes for American expats

If you’re a U.S. citizen living in the U.K. you should also get a basic understanding of U.K. taxes — you may have to pay them, and they may affect your U.S. taxes (especially if you want to use the Foreign Tax Credit). Here at H&R Block, we dedicate our expertise to U.S. taxes. If you have questions specific to your U.K. tax return, it’s best to speak to an expert on local U.K. taxes.

Your U.K. income taxes are based on your residency and domicile status. Where U.K. taxes for expats are concerned, your domicile is generally where you have your permanent home and typically follows the residency of one’s father. 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 U.K. 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.

Who qualifies as a U.K. resident?

How do you know if you qualify as a U.K. resident? We recommend you speak with a U.K. residency expert, but generally, you may be considered a resident if you pass either the Automatic Residence Tests or the Sufficient Ties Test (Statutory Residence Test, or SRT).

There are other factors that go into being considered a U.K. resident, so always talk to a professional before you make any decisions regarding U.S. or U.K. taxes.

U.K. income tax rates for U.S. expats

U.S. expats in U.K. cities have set income tax rates, ranging 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. It’s worth noting that tax rates are different for expats in Scotland.

2022/2023 U.K. tax rates

Band	Tax Rates	Taxable income
Personal allowance	0%	£0-£12,570
Basic rate	20%	£12,571-£50,270
Higher rate	40%	£50,271 to £125,140
Additional rate	45%	over £125,140 and up

The British 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 to reflect a full tax year.

How to file U.S. taxes from the U.K.

It’s simple to file U.S. taxes in the U.K. with H&R Block’s Expat Tax Services. Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, we’re here to help. Here’s how to file your U.S. expat taxes online:

1. Head on over to our Ways to File page
2. Pick your journey—in the driver’s seat with our online DIY tool or letting a Tax Advisor take the wheel.
3. Once you’re through your chosen journey, you review your return and pay
4. We file your return with the IRS
5. You sit back knowing your taxes were done right

How H&R Block can help U.S. citizens living in the U.K. with taxes

If you’re a U.S. citizen living in the U.K., tax returns likely aren’t at the forefront of your mind until it’s time to file. Luckily for you, our highly trained experts have helped thousands of Americans as they file their U.S. expat taxes in the U.K. Get started with our made-for-expats online expat tax services today!