Tax Tips for American Expats Living in the UK 

Our list below contains essential tax tips for American expats in the UK. From rates to dates, the essentials can get a bit confusing when you’re moving overseas. Americans in the UK often still have to pay taxes—are you ready for the upcoming tax season? Use our tax tips for American expats in the UK to learn more right now.

When is the UK tax year? 

The tax year starts April 6th and ends on April 5th. 

When is the deadline for filing? 

Tax returns must be filed with HMRC (Her Majesty’s Revenue and Customs) before October 31st of the tax year, if being paper filed. If e-filing, the deadline is January 31st of the year following the tax year. 

Can I file for an extension? 

Unfortunately, no extensions are available. 

When are non-wage income payments that don’t have withholding due?

The UK has a withholding system – PAYE (pay as you earn) through your employer’s payroll. For non-wage income that does not have withholding, payments will be due on January 31st following the end of the tax year. If the amount owed is in excess of £1,000, then you may also have to make payments on account, which are due January 31st and July 31st.

Who Needs to File?

If your income was under £100,000, typically you won’t need to file a return as your requirement will have been met by the PAYE (pay as you earn) system. This includes both salary and benefits received. However, there are lots of exceptions to that, including: 

• Earning income from investments that exceeds £10,000
• Self-employment income greater than £1,000
• If you’ve received a letter from the HMRC requesting that you file 
• If you are the director of a company unless the company is a non-profit and you receive no salary or benefits for your work 
• If you or your partner’s income was in excess of £50,000, and one of you claimed the Child Benefit
• Earning income from abroad that you had to pay tax on

Please note: if you are terminating self-employment, you must notify the HMRC and send the Self-Assessment before the deadline. Also, if this is your first time filing a Self-Assessment, you must register before doing so.

If you’re still unsure about your filing requirement, you can use the HMRC’s tool to help you check.

To begin your Self-Assessment, you will need a Unique Taxpayer Reference (UTR), which is a 10-digit reference number issued by Her Majesty’s Revenue & Customs (HMRC). If you do not already have one, you can apply using HMRC Form SA1. Plus, you will need details of any income and gains you’ve made during the tax year. If you’re not domiciled in the UK, you may also need to provide details of which countries you’ve spent time in during the tax year.

UK Income Tax Rates

For the 2022/2023 tax year, the national income tax rates are:

Earnings in GBP                            Rate Application to Income Level (%)

Up to £12,570                                            0%

£12,571 - £50,270      Basic Rate 20%     

£50,271 -150,000                       Hight Rate 40%

Over 150,000               Additional rate: 45%

Tax-Free Interest Allowances

Basic rate (20%) taxpayers: You will be able to earn £1,000 interest with no tax. 

Higher rate (40%) taxpayers: You will be able to earn £500 interest with no tax.

Additional rate (45%) taxpayers: Unfortunately, there are no tax-free interest allowances.

UK Residence: Guidelines 

The guidelines for determining UK residency are issued by HMRC. Typically, your residency will be determined by two factors: 

1. Your long-term intentions; and 

2. How many days you are physically present in the country. Each day is counted at midnight.

Keep these specifics in mind: 

• If you are in the UK and do not intend to stay for more than two years, you are considered a resident for tax purposes if 183 or more days are spent in the UK. Spent fewer than 183 days? You will not be considered a resident for tax purposes. 
• If you have spent 91 days or more on average per year over the last four years in the UK, you’ll be considered a resident. You would be considered a resident from the date you arrived, if you intended to spend more than 91 days, on average per year, in the UK.
• If you come to the UK and expect to stay for two or more years, you will be considered a tax resident from the first day you arrive.

Further, there are two types of residents in the UK: ordinarily and not ordinarily.  

• Resident and ordinarily resident – This means you come to the UK and expect to stay for three or more years and is proven by purchasing or leasing property available for three years or more.
• Resident and not ordinarily resident – This means you’ve been outside the UK and intend to come to the UK for at least two, but less than three years.

Residency status is important because it affects whether or not you will pay UK tax on any foreign-sourced income. Non-residents pay tax only on UK-sourced income, while residents will typically pay UK tax on worldwide income. However, special rules apply based on where your domicile or permanent home is.

Decoding Domicile

Understanding how domicile is defined is a fundamental issue in determining how your worldwide income will affect your UK taxes. Domicile is decided by UK law and defined as where a person has their long-term, permanent home. It does not represent nationality, citizenship, or residence. There is no well-established American equivalent of this idea.

The basic idea is this: your domicile is the same as your father’s at the time of your birth, and if he changes his at any point while you’re a dependent, yours will also change. Otherwise, you’ll maintain your domicile of origin unless you intentionally acquire a different domicile. To do this, you must cut links with your former domicile, move to a new jurisdiction, and have a permanent home in the jurisdiction.

The rules were altered in 2017 when the UK developed a new category called “Deemed Domiciled.” This will occur when someone has been a resident of the UK for 15 of the last 20 years. From the 16th year forward, they will be considered UK domiciled.

Non-domiciled residents whose permanent home is outside of the UK may not be subject to income tax and most American expats in the UK are considered non-UK domiciled. However, changes are frequently made to UK residence and domicile regulations by HMRC, so we recommend getting in touch with an expert concerning your domicile status while living in the UK.

Taxation of Foreign Income in the UK

As previously mentioned, taxes paid on worldwide income will depend on residency and domicile status of American expats in the UK. 

• If you are considered a UK resident and domicile, you will be taxed on all investment income, no matter where it originates. This will be the same income reported on your US expat taxes. 
• If you are resident but not domiciled in the UK, you will be able to file using the remittance basis for both foreign income and capital gains, if you wish. 

Assuming that you meet the criteria to claim the remittance basis, you are allowed to pay UK tax only on the worldwide income that you remit or bring in to the UK. This does not apply to self-employed individuals or to employment income that is earned while you are in the UK or any UK earned monies. You should be aware of the restrictions of the remittance basis and the implications, such as losing your personal and capital gains allowances.

Other Taxes in the UK

In addition to income tax, be aware of the following forms of taxation in the UK: 

Non-cash compensation – This is taxable and includes housing stipends, relocation expenses, meal and clothing allowances, commuting costs, club memberships, education reimbursement, and home leave payments. While there are certain exceptions, expats should expect to pay taxes and national insurance on non-cash compensation in the UK.

Capital gains – You can be taxed on the sale of your residence (if you have ever rented it out), life insurance policies, corporate bonds, motor cars, gifts of assets to charity, sales of shares, and UK government bonds. If you’re a resident and domiciled in the UK, this would include worldwide capital gains. If you aren’t domiciled, this would only include capital gains earned in the UK, allowing for election by a remittance for overseas gains. 

Estate taxes – You will pay inheritance tax on worldwide assets if you’re domiciled in the UK. You are deemed responsible by HMRC for inheritance taxes if you have been a UK resident for 17 or more of the last 20 years. Beginning in 2017, this will shift to 15 out of the last 20 years under the aforementioned new deemed domicile rules. If you are domiciled in the US, you will only be responsible for the inheritance of assets located inside the UK.

US – UK Social Security & Tax Treaty 

American expats in the UK will typically be required to pay into the UK’s National Insurance once they become employed or are self-employed. This requirement covers health insurance, welfare, pension plans, workers compensation and unemployment insurance, in addition to any other social programs operated by the UK.

Fortunately, there is a totalization agreement in place between the US and the UK to avoid paying into two systems and receiving only one benefit. The US – UK Social Security Agreement states that you’ll be required to pay Social Security to the country in which you’re working. However, if your employer sends you to the UK for five or fewer years, you’ll pay into the US Social Security system and be exempt from UK coverage and payments. Self-employed expats pay to the country in which they reside.

Further, a US – UK Tax Treaty is in place, which defines the terms of which country your taxes should be paid. The country where you pay taxes is typically determined by your resident status in each country. This treaty not only helps prevent double taxation but also is a helpful tool to explain other unclear tax issues between the two countries.

Qualifying Recognized Overseas Pension scheme (QROPS)

A Qualifying Recognized Overseas Pension Scheme is a popular choice for overseas pension schemes because it offers UK citizens flexibility with investments and the transfer of funds to beneficiaries. However, there are some serious expatriate tax implications for expats interested in this specific pension scheme.

It’s important to note that the IRS doesn’t recognize QROPS plans as qualified pension accounts, which means transfers in and out of the account are considered taxable events – and must be reported on your expat tax return.

 One of the most attractive assets of a pension plan is the benefit of tax deferral– the ability to deposit money before it’s taxed – but this does not happen when you opt out of a UK qualified employer pension. Any gains on this type of account would be taxed at your highest US tax rate each year – even if you don’t withdraw any funds.

Further, most QROPS are considered to be Private Foreign Investment Companies (PFICs) by the IRS. PFICs require extensive record keeping and reporting to stay compliant with the IRS, and so often the time and expense negates the tax benefits of investing in a QROPS account. Lastly, you will need to determine whether a QROPS will trigger a FATCA filing requirement for you, utilizing the thresholds we expound upon later on.

US Expat Tax Deadlines 

Federal Tax Returns For US Expats in UK

If you’re an expat living abroad on Tax Day (typically April 15th unless this date falls on a weekend – April 18th in 2023), you receive an automatic two-month extension to file your federal expatriate taxes, changing the due date to June 15th (unless this date falls on a weekend). However, you may file an extension on top of that, postponing your tax due date until October 15th (unless this date falls on a weekend). Please note that any taxes owed are technically due on Tax Day and you are accruing interest on any amount owed until the IRS receives payment.



State Tax Returns For US Expats in UK

You may also have to file a state tax return if you lived or worked in the state at any point during the prior tax year, depending on from which state you moved. Most state deadlines follow the federal deadline, but there are some with their own due date requirements.

US Expat Tax Exclusions and Credits (Tax Advice For US-UK Expats)

The US is one of few countries that taxes the international income of its citizens and permanent residents who are living overseas. However, there are a number of ways American expats in the UK are protected from double taxation, including: 

• Foreign Earned Income Exclusion (FEIE) – This decreases your taxable income on your expat taxes for a portion of foreign earned income (the first $107,600 for 2020 and $108,700 for 2021). 
• Foreign Tax Credit – This lowers your tax bill on any remaining income (less the FEIE excluded amount) by certain amounts paid to a foreign government.
• Foreign Housing Exclusion – This allows for an additional exclusion from income for certain amounts paid for household expenses occurring from living abroad.

FBAR & FATCA (Form 8938) 

FBAR

Foreign Bank Account Reporting (FBAR) was introduced by the Bank Secrecy Act of 1970 with the intention of discouraging and preventing tax evasion. The FBAR is reported to FinCEN rather than the IRS.FinCEN is the Treasury Department’s Financial Crimes Enforcement Network, and it is the organization that enforces FBAR compliance. FinCEN Form 114 is another name for the FBAR! You will need to file FBAR if the total amount of all of your foreign bank accounts exceeds $10,000.

What is Form 8938?

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the HIRE Act, which includes legislation requiring US persons to report their foreign financial accounts and assets. US taxpayers use Form 8938 to satisfy their FATCA reporting obligations by submitting the form with their annual federal income tax return. You will need to file Form 8938 if the total value of assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year for expats who are filing single. Married individuals will need to file if the total value of assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the year.

Need to File Your US Tax Return?