Are you an American living in the UK? If the answer to this is a yes, this blog may serve you well. Here, we’ve listed some of the important US UK tax essentials which will help you going forward. That said, if you are not comfortable doing that yourself, we have a remedy for that as well. But before that, let’s jump into the essentials - explaining what are the taxes for US citizens living abroad, the different specifics pertaining to it, and how a US UK Tax Accountant can be of help.
The US UK tax treaty can be quite confusing to expats, especially if this is your first time filing tax returns. That’s why we've taken it upon ourselves to enlighten US expats living in the UK on their tax obligations, and everything there is to know about tax return for US citizen living abroad.
For those who want to understand the US UK tax treaty, you first need to know how the tax residency status works.
When it comes to the United States, every American citizen or permanent resident whose minimum income meets the criterion known as the minimum reporting threshold, is subject to US income tax. Wondering whether US taxes apply to US citizens living abroad? Do American expats in the UK have to pay living abroad US taxes? The answer to this is a resounding yes!
The rule applies to all American citizens living abroad, including American permanent residents. You might be wondering if this means being taxed twice - once by the US and then again by the UK? Fortunately, this is not the case! This is where the UK and US double tax treaty comes into play and saves you from the unnecessary trouble.
As for tax residency in the UK. The rule is a little bit more complex. As per the UK laws, people are considered a UK resident and applicable for UK taxes if they meet any one of the below mentioned conditions.
Having worked in the UK for a minimum 365 daysAlso, here are a few conditions which will automatically make you a non-resident in the UK.
As you now know, every US citizen is supposed to file taxes, and this includes US citizens living in the UK. So, if you don’t know how to go about it, we’d recommend connecting with a tax accountant who understands or specializes in US citizen living in UK taxes.
The US government levies taxes on its citizens on their worldwide income. This includes people’s rental income, their UK salary, investments, and even their UK state benefits. However, this is just a rough idea of something that’s quite vast – which explains why people prefer connecting with accountants to handle the process; a right move by all means
To give you a rough idea, the US UK tax treaty states as to which country has primary taxing rights. Usually, you pay taxes where you live most of the tax year, but there is a lot more! There are specific rules pertaining to different income types, including pensions and dividends.
That said, as per the Foreign Earned Income Exclusion or FEIE, US expats can exclude a certain portion of their foreign earnings from tax return for US citizen living abroad. The exclusion was $126,500 in 2024, and it will increase to $130,000 for 2025 (to be filed in 2026).
As for Foreign Tax Credit or FTC, it provides a dollar-for-dollar credit for the amount of UK taxes paid. How does this help? Simply put, the UK tax rates are usually higher than that in the US, and so, it often eliminates any and all US tax liability. For more info on this, you should connect with a professional accountant who has experience in filing taxes for US citizens living abroad.
As you might have guessed, the goal of the US UK double tax treaty is to make taxation easier for people who are subject to taxes in both the countries. To put it simply, the treaty defines tax residency, tiebreaker rules, and which country has the first taxing rights in which situations.
So, how can an American living in the UK benefit from the double tax treaty when going for living abroad US taxes? Here’s how it benefits you.
To know more about the tax treaty, how to file tax return for US citizen living abroad, and the savings clause, we’d request you to connect with a US UK tax accountant, who has experience in handling the nuances of the job.
Key Takeaway
Knowing everything on taxes for US citizens living abroad is easier said than done. There are different tax rules and guidelines for people depending on their income. Moreover, there are high chances that you aren’t quite aware about the rules that apply to high net worth investors, or people who haven’t quite filed their taxes for years. Working with an accountant who specialises in ‘living abroad US taxes’, gets you peace of mind. He or she will help you fill out the right forms that you might have otherwise missed, and guide you in submitting your FBARs. They will also make sure that you fill out the right paperwork and there are no penalties down the line.
In short, tax return for US citizen living abroad can be a hassle, and may cause you sleepless nights, but it doesn’t have to be so. For more insights on expat taxes, visit our blog regularly or contact us for personalized guidance.
For your FREE consultation on any tax related matters, please contact us via the phone number or email listed below or request a call back using the forum.
