US UK Tax Treaty and Expat Taxes: What Americans Owe

Author: Randall Brody, Enrolled Agent | Licensed by the U.S. Department of the Treasury | Last Reviewed: October 2026

The United States and the United Kingdom have an income tax treaty, but it does less for Americans living in Britain than most people expect. A saving clause lets the United States tax its citizens as if the treaty did not exist, so Americans in the UK still file a US return every year and report their UK accounts. What the treaty does protect is narrower and valuable: the US tax deferral on most UK pensions, and the rules on where Social Security and the UK State Pension are taxed. Because UK tax rates are high, the foreign tax credit usually covers the US tax on a UK salary. The traps are the UK accounts that are tax free at home and fully taxable in the US.

Is There a US-UK Tax Treaty?

Yes. The United States and the United Kingdom signed their current income tax treaty in 2001, and it has applied to most income since 2004. It sets which country has the first right to tax each type of income, lowers withholding on dividends, interest, and royalties paid between the two countries, and includes a tie breaker for anyone both countries treat as a resident.

For Americans, the treaty’s reach is limited by the saving clause in Article 1. The United States keeps the right to tax its citizens and green card holders as if the treaty had never been signed, except for a short list of provisions the clause carves out. That is why an American employed in London cannot use the treaty to exempt a UK salary from US tax. The salary goes on the US return, and double taxation is relieved through the foreign tax credit or the foreign earned income exclusion instead.

The carve-outs are where the treaty matters for Americans: pensions, Social Security, and the article on relief from double taxation. Each is covered below. Taking a treaty-based position on your return can require Form 8833.

Working With a US Tax Advisor in the UK

Tax Samaritan prepares US tax returns for Americans living in the United Kingdom. Randall Brody is an Enrolled Agent, a federal credential that allows representation before the IRS from any country, so there is no need for an advisor based in the UK.

The situations where advice pays for itself in the UK are specific. ISAs and UK funds, because the PFIC rules turn a tax-free UK account into an expensive US filing. Pension lump sums and transfers, because the treaty treatment is not obvious and the amounts are large. A UK limited company, because owning one adds Form 5471 and can create US tax on profits you have not drawn. The sale of a UK home. And several unfiled years, because catching up through the IRS streamlined procedures has to be done in the right order, and the wrong order creates penalties that the right one avoids.

Planning to retire in the UK? Our guide to retiring abroad covers Social Security, US retirement accounts, and state tax after you move. Guides for other countries are in our country tax guides.

How Does the UK Tax Americans Who Live There?

The UK tax year runs from April 6 to April 5. Residence is decided by the Statutory Residence Test, which looks at the days you spend in the UK, whether you have a UK home, whether you work full time in the UK, and your ties to the country. Spending 183 days or more in the UK in a tax year makes you resident.

UK residents pay income tax on their worldwide income. In England, Wales, and Northern Ireland the rates are 20, 40, and 45 percent above a personal allowance of £12,570; Scotland sets its own rates and bands. National Insurance is charged on earnings on top of income tax. Employees pay through PAYE withholding. Anyone with self-employment, rental, or untaxed investment income files a Self Assessment return, due online by January 31 after the tax year ends.

Since April 6, 2025, the UK no longer offers the remittance basis to long-term residents. Non-domicile status was abolished and replaced with a residence-based regime: people arriving after ten years of non-residence can claim relief on foreign income and gains for their first four years of UK residence, after which worldwide income is taxed in full. Inheritance tax now also follows long-term residence rather than domicile.

UK rates on most income are equal to or higher than US rates, so UK tax usually produces enough foreign tax credit to cover the US tax on the same income. The exceptions are income the UK taxes lightly or not at all, and that is where Americans in the UK get caught.

US-UK Totalization Agreement and Social Security

Yes. The United States and the United Kingdom have a totalization agreement, in force since 1985. It decides which country’s social security system you pay into, so that you do not pay US Social Security tax and UK National Insurance on the same earnings.

The general rule is that you pay into the system of the country where you work. An American hired by a UK employer pays National Insurance, not US Social Security. An American sent to the UK by a US employer for five years or less can stay in the US system with a certificate of coverage and pay no National Insurance on those wages. Self-employed Americans who live in the UK generally pay into the UK system only, which removes the US self-employment tax that would otherwise apply even when no US income tax is due.

The agreement also lets you combine work credits from both countries to qualify for benefits. Where the benefits are taxed is a treaty question: under Article 17(3) of the income-tax treaty (which applies to US citizens because it is excepted from the saving clause), US Social Security paid to a UK resident is taxable only in the United Kingdom, and the UK State Pension paid to a US resident is taxable only in the United States.

UK Pensions, ISAs, and Investments on Your US Return

UK pensions

The treaty is what keeps a UK workplace or personal pension (including a SIPP) from being taxed in the US every year. Under Article 18, growth inside a qualifying UK pension scheme is generally not taxed in the US until you take benefits, and contributions can qualify for US relief within limits for US citizens working in the UK.

The 25 percent tax-free lump sum is where practitioners disagree. The UK does not tax it. Whether the US does depends on how the treaty is read: some treat the pension commencement lump sum as exempt under Article 17(1)(b), while others treat it as fully taxable US ordinary income because Article 17(2) is not excepted from the saving clause. If you are planning a lump sum or a pension transfer, get advice before you take it, not after.

UK pensions count toward the FBAR and Form 8938 thresholds. Our guide to the US tax treatment of foreign pensions covers distributions in more detail.

ISAs

An ISA is tax free in the UK and fully taxable in the US. The treaty does not cover ISAs. Interest, dividends, and gains inside a cash ISA or a stocks and shares ISA go on your US return every year, and because the UK charges no tax on them, there is no UK tax to credit against the US tax.

A stocks and shares ISA that holds UK unit trusts, OEICs, or other UK funds has a second problem. Those funds are almost always passive foreign investment companies (PFICs) for US purposes, reported on Form 8621 and taxed under rules designed to discourage Americans from holding them.

UK funds and shares

UK funds are PFICs wherever they are held, not only inside an ISA. Shares in individual UK companies are not, and their dividends can qualify for the lower US rate on qualified dividends because UK companies are eligible for treaty benefits.

Selling your UK home

The UK does not tax the gain on your main home. The US does, after an exclusion of up to $250,000, or $500,000 for a married couple filing jointly, if you owned and lived in the home for two of the last five years. Exchange rate movement between purchase and sale counts toward the gain, and paying off a pound mortgage can create a separate taxable currency gain. Plan a sale with both systems in view.

What US Taxes You Still Owe While Living in the UK

US citizens and green card holders file a US tax return on worldwide income every year, wherever they live. Americans abroad get an automatic extension of the filing deadline to June 15, and can extend to October 15 on request. Tax owed is still due April 15, and interest runs from that date.

Two tools prevent double taxation, and in the UK the choice between them matters.

The foreign tax credit gives a dollar-for-dollar credit for UK income tax paid on the same income, claimed on Form 1116. Because UK rates are high, it often eliminates the US tax on a UK salary entirely, and unused credits carry forward for ten years. It also covers investment income, which the exclusion cannot.

The foreign earned income exclusion removes up to $132,900 of foreign earnings from US tax in 2026, claimed on Form 2555, if you meet the physical presence test or the bona fide residence test. It is simpler, but in the UK it is usually the weaker choice. It does not reach investment income, it pushes any income above the exclusion into a higher US bracket, and an American who claims it cannot claim the refundable part of the Child Tax Credit. Once revoked, it cannot be claimed again for five years without IRS consent.

Reporting UK Bank Accounts

If the combined highest balance across your foreign financial accounts exceeds $10,000 at any point during the year, you file a Foreign Bank Account Report (FBAR). The threshold is measured on all accounts together, not per account, and on the highest balance during the year rather than the year-end balance. The FBAR goes to FinCEN, not the IRS, separately from your tax return. It is due April 15 with an automatic extension to October 15.

A second, separate requirement covers foreign financial assets more broadly and is filed with your tax return on Form 8938. For taxpayers living abroad the thresholds are:

• Single or married filing separately: more than $200,000 on the last day of the year or more than $300,000 at any time during the year
• Married filing jointly: more than $400,000 on the last day of the year or more than $600,000 at any time during the year

UK current accounts, savings accounts, ISAs, pensions, and investment platform accounts can all count toward both thresholds. A joint account with a UK spouse is reported at its full value.

Forms Americans in the UK Usually File

Most Americans in the UK file a predictable set of forms each year. The list below is the common case, not an exhaustive one. Owning a UK company, a trust, or rental property can add more.

Frequently Asked Questions

Request A Tax Preparation Quote

Tax Samaritan prepares US tax returns for Americans in the United Kingdom, including the pension, ISA, and fund reporting covered above. Request a free quote and an enrolled agent will review your situation and tell you exactly what needs to be filed, or request a free 30-minute tax consultation.