Expat tax · United Kingdom
For Americans filing US expat taxes, UK income tax cancels what the US would charge on most UK salaries.
The US taxes citizens and green card holders on worldwide income, even after a move to the UK. UK income tax is at least 40% on income above £50,270, while the same pay mostly falls in the 22% and 24% US brackets. The foreign tax credit lets that UK tax offset the US tax. ISA interest and gains, which the UK leaves untaxed, get no credit.
Updated · Sources
For Americans in the UK
- 60%
- is the effective UK rate on each extra pound of pay from £100,000 to £125,140, as the Personal Allowance is withdrawn.
- £20,000
- can go into ISAs in the 2026 to 2027 tax year, and their income stays taxable in the US.
- 1985
- is when the US-UK Social Security agreement took effect, so you generally pay into only one country’s system.
UK rates here are for England, Wales and Northern Ireland. Scotland sets its own.
Which parts of your UK life reach your US return?
The US taxes an American living in the UK by citizenship and the UK by residence, so both can tax the same pay.
You hold US citizenship or a green card
You file a Form 1040 for each year your gross income reaches the IRS filing threshold, even as a dual US-UK citizen. From the UK, your Form 1040 gets an automatic extension to June 15, with interest on any tax due from April 15.
The UK treats you as resident
UK residence decides how much UK tax you pay, and so how much you can credit on your US return. Under the statutory residence test, 183 days or more in a UK tax year makes you resident. Below 16 days you are non-resident, or below 46 if you were not resident in any of the 3 prior tax years. Cases in between turn on your ties to the UK and further tests.
UK tax on your pay tops the US tax
You claim the UK income tax on your wages as a credit on Form 1116. The credit stops at the US tax on the same pay. Any UK tax left over carries back 1 year, then forward up to 10 years.
You work for yourself
Under the US-UK Social Security agreement, a self-employed person pays into the system of the country they live in. Living in the UK, you pay UK National Insurance and no US self-employment tax. A certificate of coverage proves it, and a copy goes with every US return you file.
You pay into a UK workplace pension
As a US citizen paid by a UK employer, you can keep pension contributions out of US income under treaty Article 18(5). The contributions must qualify for UK tax relief, and the scheme must generally correspond to a US plan. The relief stops at what that US plan would allow. A pension you fund on your own while self-employed, such as a SIPP, may not lower your US tax.
On a £100,000 salary, UK income tax and National Insurance take £31,443, and the IRS takes nothing.
UK income tax
£27,432
Nothing on the first £12,570, 20% on the next £37,700 and 40% on the last £49,730.
National Insurance
£4,011
Employees pay 8% of pay between £242 and £967 a week, and 2% of pay above that.
US income tax after the credit
$0
UK income tax is 27.4% of the salary, more than the US would charge, so no US tax is left.
Take-home pay
£68,557
What is left of the salary after UK income tax and National Insurance.
UK figures use 2026 to 2027 rates for England, with National Insurance rounded. The US side uses the 2026 brackets and standard deduction for a single filer. On those, US income tax stays under 27.4% of salary until pay passes about $487,000. For any US tax to remain, £100,000 would have to be worth more than $487,000 at the exchange rate.
How do the UK’s rules differ from the US rules you still file under?
The UK column shows UK taxes for a US citizen living there in 2026 to 2027. The US column uses the 2026 US tax year.
| UK | US | |
|---|---|---|
| Tax year | 6 April to 5 April | January to December So each US return spans two UK tax years |
| Tax-free allowance | £12,570 Personal Allowance, which starts to shrink at £100,000 | $16,100 Standard deduction for a single filer |
| ISA interest, dividends and gains | Tax-free | Taxed No ISA exemption, and no treaty article covers ISAs |
| Growth in a UK pension scheme | Not taxed | Not taxed until paid out Treaty Article 18(1), citizens included |
| US Social Security you receive | Taxed | Not taxed Treaty Article 17(3) protects citizens too |
If you draw the UK State Pension while living in the UK, the UK taxes it. IRS Publication 915 treats foreign social security as taxable unless a treaty exempts it. The treaty’s Article 17(3) does not reach this case, so the US may tax it too, with a credit for the UK tax.
Which US rules surprise Americans who have settled in the UK?
Funds inside a stocks and shares ISA
The funds in a stocks and shares ISA usually count as PFICs, short for passive foreign investment companies. Without an election, a gain on one is spread over the years you held it. The share for earlier years is taxed at the top US rate, plus interest. Each fund can also need its own Form 8621 every year. Funds inside a qualifying UK pension scheme are exempt from that form, but the exemption does not reach ISAs.
Choosing the exclusion by default
In the UK, the credit usually saves more, because UK tax on pay you exclude can never be credited. Once claimed on Form 2555, the exclusion carries into every later year unless you revoke it. Revoking it bars you from claiming it again for 5 tax years without IRS approval.
Leaving UK accounts off your reports
Your UK accounts, ISAs included, go on your FBAR once their combined highest balances top $10,000. Form 8938 is also due above $200,000 at year end, or $300,000 at any time, for a single filer abroad. A joint return doubles both figures. A UK workplace or personal pension counts toward the Form 8938 threshold, but the UK State Pension does not.
Treating the treaty as an end to US tax
For a US citizen, the saving clause in Article 1(4) keeps your US tax as it would be without the treaty. Only the exceptions listed in Article 1(5)(a) still help, such as Article 24’s credit for UK tax and pension growth under Article 18(1). The treaty’s lower US rates on dividends and interest do not apply to you. A green card holder living in the UK is treated differently and should get advice before relying on the treaty.
You get tax advice for US citizens living in the UK from the CPA who files your return.
Valim’s CPAs prepare US returns and FBARs for Americans living in the UK. For the UK half of a US-UK tax question, we work alongside your UK accountant.
- We prepare Form 1116 to credit the UK income tax on your salary, carrying unused UK tax forward.
- We report the income and gains in your ISAs, and file your FBAR and any Form 8938. Each foreign account and fund, and any foreign company in which you own more than 20%, adds to your instant quote.
- We run both the credit and the exclusion on your UK pay before you elect either.
- We set estimated tax on your ISA dividends and gains together.
- We answer IRS or state questions about a return we prepared, such as the UK tax credited on it, within the fee you were quoted.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
Americans in the UK often ask about the 60% trap and the 5 year rule.
Do US expats in the UK need to pay US taxes?
Yes, a US citizen living in the UK files a US tax return once gross income reaches the filing threshold. Little or no US tax is due on most salaries, though. UK income tax on pay runs higher, and the foreign tax credit clears the US tax on it. US tax can remain on income the UK taxes lightly or not at all, such as ISA interest and gains.
How to avoid the 60% tax trap in the UK?
You avoid the 60% tax trap by keeping your adjusted net income at £100,000 or less. Above that, your £12,570 Personal Allowance shrinks by £1 for every £2 of income, reaching zero at £125,140. Each extra £1 in that band costs 40p of tax, plus 20p on the 50p of allowance it removes. Your UK accountant can say which payments lower adjusted net income. On your US return, the extra UK income tax counts toward the foreign tax credit.
What is the UK expat 5 year rule?
The UK expat 5 year rule is HMRC’s temporary non-residence rule. It covers you if you had sole UK residence in 4 or more of the 7 tax years before leaving. Return within 5 years, and the UK may tax certain income and gains from your time away in your first year back. Staying away more than 5 years, even by a day, keeps you outside it. Your US return reports your worldwide income every year either way, though UK tax the rule triggers may count toward your foreign tax credit.
How much is $100,000 after tax in the UK?
A £100,000 salary in England leaves about £68,557 for 2026 to 2027, after income tax and National Insurance and before any reliefs. What a $100,000 salary leaves depends on the exchange rate, since UK tax is charged in pounds. Of the £100,000, income tax takes £27,432, and employee National Insurance about £4,011. An American on that salary owes no US tax on it, because the UK income tax is credited.
Do Americans pay US tax on an ISA?
Yes, the US taxes the interest, dividends and gains in an ISA. The UK exemption does not carry over to your US return. No treaty article covers ISAs, and the IRS has published nothing that names them. Funds inside a stocks and shares ISA are usually PFICs, which can mean a Form 8621 for each fund. Americans in Canada face the same gap with their TFSAs.
Should Americans in the UK claim the credit or the exclusion?
The foreign tax credit usually works better for Americans earning a salary in the UK. Above the basic rate band, UK tax on pay tops the US rate, so the credit clears the US tax. Under the exclusion, UK tax on the excluded pay cannot be credited. The exclusion is also hard to undo: once revoked, it cannot be claimed again for 5 tax years unless the IRS agrees. Americans in Germany tend to land on the credit too, since German tax on pay also tops the US rate.
Sources
- IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- US-UK income tax convention (2001)
- Treasury, 2002 protocol to the US-UK income tax convention
- Treasury, technical explanation of the US-UK convention and 2002 protocol
- Social Security Administration, US-UK social security agreement
- GOV.UK, Income Tax rates and Personal Allowances
- GOV.UK, National Insurance: how much you pay
- GOV.UK, Individual Savings Accounts
- HMRC, RDR3: guidance note for the statutory residence test
- 26 U.S.C. § 904, Limitation on credit
- 26 U.S.C. § 911, Citizens or residents of the United States living abroad
- FinCEN, FBAR line item filing instructions
- IRS, Instructions for Form 8938
- 26 U.S.C. § 1291, Interest on tax deferral
- 26 U.S.C. § 1297, Passive foreign investment company
- 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting requirements for United States persons that are shareholders of a passive foreign investment company
Reviewed and updated September 2026. General information, not advice for your situation.