How Working in the UK Impacts Your US Expat Taxes
American citizens are obligated to file US expat taxes with the federal government each year. In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts. While the US is one of the few governments that taxes the international income of its citizens and permanent residents, it does have provisions to protect us from double taxation. These include the Foreign Earned Income Exclusion, Foreign Tax Credit, and Foreign Housing Exclusion.
If you are an American living in the UK, you need to know how this will impact your US expat taxes. This short video will provide you with a glimpse of how being an American living in the UK will impact your expatriate tax returns. More detailed information can also be found in our Country-Specific Guide to the UK; click here to read it.
US Expat Taxes in the UK
Do I need to file taxes if I’m living in the UK?
YES! US citizens are required to file and pay US expat taxes on worldwide income. It does not matter if you’ve already paid UK taxes to HRMC. You still must file US expat taxes.
First, let’s start with your UK filing requirements.
What tax rates can I expect in the UK as a resident?
Taxable income in GBP Tax Rate
0-2,560 Starting rate for savings: 10%
0-35,000 Basic rate: 20%
35,001-150,000 Higher rate: 40%
Over 150,000 Additional rate: 50%
Who is a Resident of the UK?
- If you are in the UK and do not intend to stay for more than two years, you are a resident if you are present for more than 183 days in a given tax year.
- If, over the last four tax years, you have spent 91 days or more on average in the UK, you are considered a resident.
- If you plan on coming to the UK for two years or more, you are considered a resident as soon as you arrive.
What does “ordinarily” and “non-ordinarily” resident mean?
- Resident and ordinarily resident — when you come to the UK and expect to stay for three years or more. This can be proven by purchasing or leasing property available for three years or more.
- Resident and not ordinarily resident — when you have been outside the UK and intend to come to the UK for at least two years, but less than three years.
Is foreign income taxed in the UK? … Are you a resident?
If you are a resident or domiciled in the UK, you are going to be taxed on worldwide income.
Non-residents must only report UK-sourced income.
UK Tax Year and Due Date
- UK tax year: April 6-April 5
- UK tax due date: File your return by January 31 if e-filing. The HRMC does not offer extensions. Payments are due by July 31.
Remember – you must match your UK income and tax year to the tax year on your US expat taxes!
UK Social Security
The US and UK have a totalization agreement. If you pay UK social security, you do not pay US social security. The same is true for UK citizens living and working in America.
Self-employed individuals can choose which social security they pay into. Generally, it’s the country in which you are a resident.
Other Taxes in the UK
- Capital gains (worldwide if resident) are taxed, including the sale of a main residence, life insurance policies, corporate bonds, or gifts and assets to charity.
- Estate taxes – you will pay inheritance taxes if domiciled in the UK or a resident for 17 of the last 20 years.
Now, let’s move on to your US filing requirements!
US expat tax year and due dates
Tax year – January 1 through December 31
- April 17, 2012 – although expats get an automatic extension until June 15, if you owe any taxes, interest accrues starting April 17.
- June 15, 2012 – the US expat tax due date. Unless you’ve filed for an extension, you must file your expat taxes by this date.
- June 30, 2012 – FBAR (Foreign Bank Account Reporting) form due to the US Department of Treasury.
- October 15, 2012 – last due date for US expat taxes (if you filed for an extension).
US expat tax obligations
The US requires you to report your worldwide income on your tax return. All income is subject to taxation. However, the US has a number of provisions to help prevent double taxation. These include:
- The Foreign Earned Income Exclusion, which allows you to exclude up to $92,900 of foreign-earned income from your US taxes,
- The Foreign Tax Credit, which allows you to offset the taxes you paid to the UK with your US expat taxes, dollar-for-dollar, and
- The Foreign Housing Exclusion, which allows you to exclude certain household expenses that occur as a result of your living abroad.
Understanding your UK and US tax obligations is important.
Do you have questions? Contact an expert!
Greenback Expat Tax Services
We offer resources and services to help you:
- Learn more about how your US expat taxes are impacted when you live and work in the UK by reading our Country-Specific Guide to the UK.
- Discover more ideas on how to limit your tax liability by following Expatriate Tax Return Savings Tips on our website or by talking to one of our expat tax experts.
- File amended tax returns and forms easily, accurately, and in a timely manner.
If you have any more questions about your US expat taxes and their implications in the UK, or if you’d like to enlist our help in completing your returns, please contact us.