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US Expat Tax Services

The tax obligations for US expats living in the UK can be complex, confusing and time-consuming.

If you remain a citizen or permanent resident of the United States while living in the UK, you have to file a US tax return on your worldwide income with the federal government.

The US is the only major country that requires its expatriates to do this, and it means you may well need to file taxes both in the US and the United Kingdom.

Failure to file correctly either in the US or the UK could result in huge fines and penalties. While getting it right could save you thousands of dollars.

UK Tax Requirements for US Expats

Anyone who earns an income in the UK is liable for paying UK income tax. If you are an American living in the country, you will need to declare your tax residency status to HMRC (Her Majesty’s Revenue and Customs).
This is the UK equivalent of the IRS.

Anyone who earns an income in the UK is liable for paying UK income tax. If you are an American living in the country, you will need to declare your tax residency status to HMRC (Her Majesty’s Revenue and Customs).
This is the UK equivalent of the IRS.

  • You spend 183 or more days in the UK a year.
  • You have spent 91 days or more per year for the last four tax years.

If you’re considered a tax resident of the UK, you will need to report your worldwide income to the HRMC.
This includes wages, pension income, investment and savings interests and rental income on foreign property.

You are considered a non-resident if:

  • You spent less than 16 days in the UK in the tax year.
  • You spent fewer than 46 days in the tax year and haven’t been classed a UK resident during the previous three years.

If you are a non-resident, you only pay tax on your UK income.

If you are working as an employee of a company, your UK tax will be paid under the PAYE (pay as you earn scheme).

However, if you meet any of the following criteria, you will need to complete a Self Assessment tax return.

  • You are self-employed or the director of a company.
  • You receive an income of over £100,000.
  • You receive foreign income liable to UK tax.

Calculating Your UK Income Tax

Calculating Your UK Income Tax

The amount of UK income tax you pay depends on how much you earn above your personal allowance (the amount of income you can receive without paying tax) and into which band your income falls.

The current tax rates are:

  • 0%Up to £12,500
    an individual's personal tax-free allowance
  • 20%£12,501 to £50,000
    basic rate income tax
  • 40%£50,001 to £150,000
    higher rate income tax
  • 45%Over £150,000
    additional rate income tax

The UK Tax Due Date

  • The tax due date in the UK is different from the US. A tax year in the UK runs from 6 April to the following 5 April.
  • Paper tax returns have to be filed by midnight of 31 October following the end of the tax year. There are strict penalties for late returns, which increase the longer you leave it.
  • The deadline for online tax returns is midnight of 31 January following the end of the tax year.
  • The deadline for paying your tax bill is usually 31 January for any tax you owe for the previous tax year.

Avoiding Double Taxation

The United States has a tax treaty with the United Kingdom to prevent the dual taxation of its citizens. Under this treaty, your tax burden can be reduced with exemptions, tax credits and exclusions. These can minimise and, in some cases, eliminate the tax due to the IRS. However, if not managed correctly, you could end up paying twice on the same income.

The Foreign Earned Income Exclusion (FEIE)

This allows you to exclude some of your foreign earned income from US tax. Currently, the maximum exclusion amount per person is $107,600.

What this means is that if, for example, you earned $120,000, you can subtract $107,600 from that, leaving $12,400 as taxable by the IRS. Be aware that the taxable amount of $12,400 is taxable at the rate applying to what you originally earned. This is known as the stacking rule.

Note that this exclusion applies to foreign earned income. It does not include the following:

  • Pay received from the US military or while being a civilian employee of the US government or its agencies.
  • Pay for services conducted in international waters or airspace (these are not deemed a foreign country).
  • Pay excludable from income such as lodging and the value of meals.
  • Pension or annuity payments.

To be eligible for FEIE, you must meet specific criteria:

  • The income must be foreign earned (other than the above exclusions). US-sourced income cannot be excluded from the FEIE.
  • You must have been a tax resident in the UK, uninterrupted for an entire year.
  • You have been physically present in the UK for at least 330 days during 12 consecutive months.

A Foreign Tax Credit

If your income is taxed by the HMRC, you can subtract this tax from your US tax bill.

A Foreign Housing Exclusion

This additional exclusion is for specific amounts paid for household expenses. It does not include the cost of buying property or improvements that increase its value or its lifespan.

Even if you know you don’t owe any taxes to the IRS, you will still have to file a US tax return.

Social Security in the United Kingdom

Many expats living in the UK often forget about social security payments. US expatriates must pay into the UK’s National Insurance as per the US-UK Social Security Agreement. This covers health insurance, unemployment insurance, pension plans, welfare and other social programmes and benefits. To avoid double taxation, the IRS has measures in place to help US citizens living overseas.

Under the Social Security Totalization Agreement, individuals sent to the UK on a contract or who do not intend to stay overseas for more than three to five years continue to pay social insurance in the United States. For longer-term contracts or if there are no plans to return to the US, individuals pay into the UK’s social insurance system.

How We Can Help

At St Matthew, our accountants and tax specialists have extensive experience in both the US and the UK tax systems. We’ll provide you with sound and practical advice to ensure you meet your obligations and that your tax affairs in both countries are up to date. This includes guidance on tax-efficient structures to reduce double taxation and minimise your exposure to UK and US tax.

Our bespoke tax service for US expats living in the UK include:

  • Preparing and filing of US federal and state taxes.
  • Completion of your UK Self Assessment tax return.
  • Analysis of UK/US double tax agreements.
  • Advising on your UK residency and non-dom status.
  • Dealing with HMRC on your behalf.
  • Claims for foreign tax credits.
  • Claims for foreign housing exclusion.

Book a Consultation

If you would like to speak to one of our experienced US expat tax specialists, please book a consultation through our website.

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