US citizens in the UK

Two tax systems, one life

The US taxes by citizenship. As a US citizen you are taxed on your worldwide income wherever you live, and the rules for income, estate and gift tax returns are essentially the same abroad as at home. The same goes for green card holders: a lawful permanent resident is resident for US federal tax and taxed like a citizen. That stays so until you give up the status in writing or it is ended administratively or by a court. Moving to London alone is not enough.

The UK does not ask about your passport but about your presence. Whether you are resident is decided by the statutory residence test, explained in UK tax residence. As a UK resident you normally pay UK tax on foreign income too, including income from the US.

For a US return filed from abroad there is an automatic extension to 15 June. But you only get reliefs such as the foreign earned income exclusion or the foreign tax credit if you actually file the US return.

The treaty and its saving clause

The double taxation convention between the UK and the US has been in force since 31 March 2003. For US citizens it contains a sentence that puts much into perspective: under Article 1(4), the saving clause, each state may tax its residents, and the US may also tax its citizens, as if the convention had not come into effect.

Still, the treaty is not toothless. Article 1(5) carves certain rules out of the saving clause, so they apply to US citizens too. Among them: the rules for eliminating double taxation (Article 24), the rule that income in a UK pension scheme is taxed only on payment (Article 18(1)), and the rule for social security pensions: US Social Security paid to a UK resident is taxable only in the UK (Article 17(3)).

For contributions to UK retirement saving there is a special rule for US citizens: if you work for a UK employer as a UK resident, contributions to a UK pension scheme may also be deductible on your US return (Article 18(5)). One condition is that the US authority has recognised the UK plan as corresponding to a US plan. The US side checks that for your specific plan.

Credit has an order: the UK does not have to give credit for US tax on income that is not US-source under UK law. On US-source income the UK credits only the tax the US could charge a non-citizen; the US credits the UK tax against the rest (Article 24(6)).

Foreign tax credit or foreign earned income exclusion

For earnings in the UK you have two routes on the US side. With the foreign earned income exclusion (FEIE) you take up to $132,900 of earned income per person out of US tax for 2026, if you are a bona fide resident abroad or spend 330 full days abroad within twelve months. Alternatively the foreign tax credit sets UK tax against US tax. You cannot use both on the same income: there is no credit on excluded income. Which route pays depends on your income and your other income; that belongs with the US side.

The FIG regime: UK relief, American tax

If you move to the UK after at least ten tax years without UK residence, you can use the FIG regime in your first four years and exempt foreign income and gains from UK tax. For an American that sounds doubly good at first. It has two catches.

First, the claim costs you the UK personal allowance and the capital gains tax exemption. Second, the FIG regime removes only UK tax. The US keeps taxing your worldwide income, and where the UK charges nothing there is nothing to credit in the US either. Only a calculation across both countries tells you whether the claim pays.

ISAs and UK funds: the PFIC trap

The ISA is Britain's favourite savings wrapper, and its tax exemption is a UK rule. The treaty does not know it: the list of pension schemes in the exchange of notes to the treaty names UK occupational and personal pension schemes, but no ISA. So do not count on the UK exemption travelling into your US return.

Funds are where it gets expensive. Under US law a foreign corporation is a passive foreign investment company (PFIC) if 75 percent or more of its gross income is passive or at least 50 percent of its assets produce passive income. That describes fairly exactly what an investment fund does. Whether a particular UK fund counts as a corporation for US purposes is checked fund by fund on the US side.

Without special elections (qualified electing fund or mark-to-market) it gets unpleasant: the whole gain on sale counts as an excess distribution, is spread over the holding period and charged at a separate tax plus an interest charge. Every PFIC holding is reported on Form 8621. Mount Bonnell explains the US side in its piece on PFICs and European funds.

Estate and gift tax on both sides

US citizens stay within US estate and gift tax in the UK too; the filing rules apply abroad as at home. In the UK, inheritance tax has followed long-term UK residence since April 2025: anyone UK resident in 10 of the last 20 tax years can fall under UK inheritance tax with their foreign assets too. The rate is 40 percent above the £325,000 nil-rate band.

For the overlap there is a separate UK-US estate and gift tax convention, in force since 11 November 1979. It follows the usual pattern: the country of (fiscal) domicile may tax everything, the other only certain assets such as land in its territory; otherwise credit is given. Since 6 April 2025 a long-term UK resident counts as UK-domiciled for it. Before HMRC gives up a taxing right, it requires confirmation from the US authorities that the assets have been declared and taxed there.

The US side belongs in American hands

We look after the UK half: residence, the FIG regime, UK pension, ISA, property and inheritance tax. The US return, FBAR, Form 8938, PFIC calculations and the choice between FEIE and foreign tax credit are explained by Mount Bonnell, our sister firm for US tax. An overview of every obligation of US citizens abroad is there under US taxes for Americans living in Europe.

Sources: GOV.UK: USA tax treaties; GOV.UK: 2001 UK-USA Double Taxation Convention as amended by the 2002 protocol; IRS: U.S. citizens and resident aliens abroad; IRS: U.S. tax residency, green card test; IRS: Figuring the foreign earned income exclusion; IRS: Foreign earned income exclusion; IRS: Foreign tax credit; IRS: Instructions for Form 8621 (PFIC); FinCEN: Report Foreign Bank and Financial Accounts; IRS: Report of Foreign Bank and Financial Accounts (FBAR); IRS: Do I need to file Form 8938; HMRC: HS266 Foreign income and gains (FIG) regime (2026); GOV.UK: Inheritance Tax Double Taxation Relief; HMRC Inheritance Tax Manual IHTM27177 (USA); HM Treasury: Budget 2026