The UK Tax Guide for US Expats

This is a complete country tax guide for filing US taxes from the UK.

This guide breaks down everything you need to know, from building a tax strategy to handling complicated areas like lump sum pension withdrawals and SIPPs, which are unique to the UK.

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Who needs to file US taxes from the UK?

You must file a US federal tax return (Form 1040) if you are a US citizen or Green Card holder living in the UK and your worldwide income meets the minimum thresholds for 2025:

Single (under age 65): US$15,000
Head of Household (under age 65): US$22,500
Married Filing Jointly: US$30,000
Married Filing Separately: US$5 (yes, just US$5)

💡 Important! Even if you owe nothing, you’re still required to file if you meet these thresholds.

What if I’m self-employed?

If you’re self-employed, you will need to file a US tax return if your worldwide net earnings are over US$400, even if you’re under the standard threshold above.

Head of Household vs Married Filing Separately

Not sure whether you qualify as Head of Household or Married Filing Separately? Here’s how to tell:

Step 1: Are you legally separated, or did you live apart from your spouse for the last 6 months of the year?

No → You must file as Married Filing Separately (MFS).

Yes → Go to Step 2.

Step 2: Did you pay more than half the cost of keeping up a home (rent, utilities, groceries, etc.) during the year?

No → You do not qualify for HoH. (If unmarried, file as Single; if married, file as MFS).

Yes → Go to Step 3.

Step 3: Did a qualifying child or dependent live with you for over half a year?

No → You do not qualify for HoH. (If unmarried, file as Single; if married, file as MFS).

Yes → You qualify for Head of Household (HoH) status.

At the end of the day, the Head of Household status is a better option because it offers extra tax benefits and higher deductions.

Is there a tax treaty between the US and the UK?

Yes, there is an existing US-UK tax treaty that could help a lot of US expats in the UK. It outlines which country has the right to tax you on different types of income.

What benefits does the US-UK tax treaty provide?

You may qualify for:

Foreign Tax Credit (FTC): A dollar-for-dollar credit for UK income tax paid.
Foreign Earned Income Exclusion (FEIE): Exclude up to US$126,500 of foreign earned income if you qualify.
Reduced or exempted tax on certain income types (e.g., pensions, dividends, royalties).
Tax residency guidance to determine your primary tax home.

What can I benefit from the totalization agreement?

The US-UK totalization agreement ensures that you:

Don’t pay both US Social Security and UK National Insurance on the same income.
Only contribute to the social security system of one country, depending on where you work.

This applies to employees, business owners, and those who are self-employed in the UK.

Which is better: FTC or FEIE?

For most US expats living in the UK, the Foreign Tax Credit (FTC) is generally better than the FEIE because UK income tax rates (up to 45%) are higher than US rates for most filers, so the FTC can often offset your entire US tax liability.

If you want to asses your choices, here are the main differences between the two:

FTC

Best for high-tax countries
There is no limit on the credits
Can claim alongside ACTC
Cannot be combined with housing exclusion

FEIE

Best for low-tax countries
Can exclude up to US$126,500
Cannot claim alongside ACTC
Can be combined with housing exclusion

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Additional Child Tax Credit: Your Gateway to Paying Less Taxes

Good news for expat parents! In 2025, you can refund up to US$2,200 per child under the Additional Child Tax Credit (ACTC).

If your US tax dues are low enough, this can become an actual refund, saving you real money in your pocket.

How does the ACTC refund work?

If your US tax liability is less than the full credit amount, you can still receive the difference as a refund.

For example:

Credit amount: US$2,200 per child
Your tax liability: US$1,000
Refund received: US$1,000 (the unused portion)

Is the refund from the Child Tax Credit really money you can use?

Yes. If other deductions or credits reduce your US tax bill to zero, the remaining balance of the ACTC is paid to you by the IRS, and real money is deposited into your account.

The biggest mistake Americans make when moving to the UK

Many Americans assume they no longer need to file US tax returns once they move abroad or start paying UK taxes.

That’s the biggest mistake.

The truth is:

If you’re a US citizen or a Green Card holder, you still have to file a US tax return every year, no matter where you live.

As a result, many US expats fall behind on their filings, leading to late fees, interest, and IRS penalties.

But there is good news! You can get back on track without facing hefty penalties with the IRS by using the Streamlined Tax Amnesty Program

💡 Important! To qualify for the program, your missed tax filings must have been non-willful. This means that you didn’t know or misunderstood the rules, rather than intentionally trying to avoid paying taxes.

Should you include your non-US spouse in your US tax filings?

Generally, filing separately can already bring opportunities for tax planning, and you get to leave your foreign spouse out of the US tax system COMPLETELY.

Benefits: Higher standard deduction and eligibility for tax credits like the Child Tax Credit.
Downside: You must report your spouse’s worldwide income, and they need to apply for an ITIN.

Sometimes, getting them involved means that the US also has the right to tax them and that could do more harm than good

Can you switch filing methods later?

In some cases, yes–but there are restrictions. Switching between joint and separate status has restrictions. Once you elect to treat your spouse as a US resident, it applies for all future years unless revoked with IRS approval.

Do I need to report my UK pension to the IRS?

Yes. If you have a UK pension, the reporting depends on how it’s funded:

Type of pension	Who contributes more?	IRS treatment	Forms required
Employer Pension	Employer	Report on FBAR & Form 8938	● FBAR ● Form 8938
Self-Funded / SIPP	You (or 100% self-employed)	Foreign Grantor Trust	● Form 3520 ● Form 3520-A

Can I avoid reporting my UK pension as a foreign trust?

Yes, you don’t have to file your UK pension as a foreign trust if your employer contributes more than you do. In these cases, if applicable, you only need to report the balance on your FBAR and Form 8938.

Is the UK’s 25% tax-free pension lump sum taxed by the IRS?

Yes. Even though the UK allows a 25% pension withdrawal tax-free, the IRS treats it as fully taxable income.

Do I need to report a SIPP to the IRS as a US expat?

Yes. The IRS treats a UK SIPP (Self-Invested Personal Pension) as a foreign grantor trust for US tax purposes. This means:

You’re considered the owner of the trust’s assets.
You must report the SIPP’s income on your personal US tax return.
You’re required to file Form 3520 and Form 3520-A

Should I report my UK pension if I’m self-employed?

Yes. If you’re self-employed, there are no employer contributions, so the pension is entirely funded by you.

This means:

It’s automatically treated as a foreign grantor trust
You must file Forms 3520 and 3520-A

Do I need to file an FBAR if I live in the UK?

Yes, if the combined value of all your foreign accounts exceeded US$10,000 at any time during the year. (even if none of the individual accounts reach US$10K.)

This includes:

UK checking/savings accounts
UK pensions
Foreign investment or joint accounts

Filing an FBAR is separate from your US tax return, but it is equally important.

💡 Important! Look closely at whether you should file one or not, because failing to do so could cost you an upfront penalty of more than US$10,000.

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What’s a common mistake regarding FBAR filing?

Many US expats in the UK underestimate what counts toward the US$10,000 FBAR threshold. They often assume only traditional bank accounts apply, but that’s not the case.

Here’s a quick example:

Barclays current account: US$2,000
Nationwide savings account: US$6,000
UK workplace pension (e.g., Nest or Aviva): US$20,000

Some people wrongly think only Barclays and Nationwide will be counted, so the total of US$8,000 will not trigger an FBAR filing.

But the UK pension also counts, making your total US$30,000, which absolutely requires FBAR reporting foreign income on US taxes from the UK.

Filing Form 8938

This form lets you report any income from foreign accounts (like dividends or interests) in your US tax return.

This is different from FBAR.

Form 8938 is under FATCA, a law that requires specific institutions like your UK bank to report your financial data to the IRS.

Is it mandatory to file Form 8938?

Not necessarily. Form 8938 has a set of thresholds related to your residency and filing status to determine if you will need to include this on your US tax return.

How do gifts and inheritances work on a US tax return?

Gifts and inheritances are not treated as taxable income, so you don’t report them on your personal income tax return.

However, reporting rules differ depending on the source of the gift or inheritance:

If the gift is from a US person:

The giver is responsible for filing US gift tax forms.
They may not owe tax due to the Lifetime Gift Tax Exemption

If the gift is from a non-resident alien (foreign person):

You must file Form 3520 if the total value of all gifts and inheritances from that person exceeds US$100,000 in a calendar year.
This is an informational filing; no tax is owed, but penalties apply if you don’t report it.

For example, if a US citizen receives US$120,000 in gifts from a British parent, they must file Form 3520. The total value of the gift doesn’t matter, whether it’s cash, property, or stocks.

Do I have to pay capital gains tax when selling UK property?

Yes. The UK charges Capital Gains Tax (CGT) on the sale of property, even if you’re a non-resident.

In addition, the US also taxes your capital gain, but you may be able to exclude up to US$250,000 (or US$500,000 if married filing jointly) under the Section 121 exclusion, if:

The home was your primary residence, and
You owned and lived in it for at least 2 of the last 5 years before selling.

Capital gains on stocks and shares

Any capital gains from stocks or shares must be reported on your US tax return.

For example, if you made a £50,000 profit from selling stocks while living in the UK, this gain is taxable in the US. As a UK resident, you can claim a US foreign tax credit for the taxes paid to the UK on these gains.

How does the IRS tax dividends in the UK?

UK dividends are subject to preferential US tax rates due to the tax treaty between the two countries.

These “qualified dividends” are taxed at a rate of 0-20%, which is lower than the regular tax rate.

Holding local funds in the UK

If you’re a US citizen in the UK and invest in local funds like ISAs or mutual funds, here’s a problem you might encounter.

The IRS treats these funds as PFICs (Passive Foreign Investment Companies). They can cause nasty US tax problems like:

Being taxed at the highest possible rate on gains
Owing interest charges, even if you haven’t sold or withdrawn anything

Are Stocks and Shares ISAs tax-free in the US?

No, Stocks and Shares ISAs are not considered tax-free under US tax law. The IRS does not recognize ISAs as tax-free. Most investments held inside a Stocks and Shares ISA are classified as PFICs (Passive Foreign Investment Companies) under US tax law.

Why is this a problem?

You may owe US tax on gains, even if they’re unrealized.
You need to file Form 8621 for each PFIC
This could trigger interest charges and the highest tax rate penalties

💡 Tip! Cash ISAs are a safer option for US expats in the UK.

Owning a UK company

If you are self-employed and own a UK limited company, the IRS considers it a foreign corporation. You will need to file Form 5471 with your US tax return.

What is Form 5471?

Form 5471 is an information return required by the IRS. It reports ownership and financial activity in foreign corporations.

You must file Form 5471 if you are a shareholder, officer, or director of a foreign corporation, including a UK limited company you fully own.

How does the GILTI tax affect US small business owners in the UK?

GILTI (Global Intangible Low-Taxed Income) requires US shareholders of foreign corporations (like a UK limited company) to report and pay tax on the company’s undistributed profits.

If you own more than 50% of a UK company (making it a Controlled Foreign Corporation or CFC), you may be required to:

File Form 8992 annually
Report retained earnings as personal income
Pay additional US tax, even if you didn’t receive any distribution

Can you avoid the GILTI tax?

Yes, you may qualify for the high-tax exemption under certain circumstances, which allows you to avoid GILTI taxation.

The UK’s current corporate tax rate (typically 25%) qualifies for this exemption.

💡 Important! The GILTI exemption is not automatic; you must file it properly and consistently each year.

Getting ready to file your US taxes from the UK?

There’s a lot to consider, but don’t worry! We’ve got you covered.

Download our FREE US Tax Guide for Americans in the UK: A more in-depth guide to taxes for US expats in the UK. This will help you understand what to file, when, and how to stay compliant with the IRS.

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