Reporting UK taxes as a US citizen comes with specific tax filing requirements, deductions, and US expat tax forms. This guide offers straightforward advice on how to navigate your UK tax obligations as a US citizen.

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UK Resident vs Non-Resident Stats in UK Tax System

The UK uses the Statutory Residence Test (SRT) to establish whether you are a resident for tax purposes. This test considers factors like the number of days spent in the UK, your ties to the country, and employment status. If you are classified as a non-resident, you are generally only taxed on income earned within the UK, while residents are subject to tax on their global income.

How Residency Status Impacts Filing Obligations

Residency status affects your filing obligations and entitlements. Treat this area with caution to avoid errors. Below are the tests for determining residency status, its impact on taxable income, and relevant tax forms.

The Non-Resident

Taxable Income: Only taxed on UK-sourced income, not on global income.

Exemptions: Income earned outside the UK is not subject to UK taxes.

Reporting: Must report UK-sourced income but do not need to declare worldwide income.

Capital Gains: Generally not subject to UK Capital Gains Tax unless on UK property.

Work Income: Only income earned from UK employment or business activities is taxed in the UK.

Time Limits: Spending fewer than 16 days (or 46 if previously non-resident) helps maintain non-resident status.

The UK Resident

Taxable Income: Subject to UK tax on worldwide income, including income from investments, employment, and pensions.

Personal Allowance: Eligible for the UK Personal Allowance, which reduces the taxable income.

Capital Gains: Liable to UK Capital Gains Tax on worldwide assets, including property and investments.

Reporting: Must declare all global income and gains on a UK Self-Assessment tax return.

Double Taxation: May need to use the US-UK tax treaty and foreign tax credits to avoid double taxation on worldwide income.

Sufficient Ties: Various personal and economic connections to the UK increase the likelihood of being classified as a resident.

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Split-Year Treatment for Part-Year UK Residency

Split-year treatment allows your tax year to be divided into a UK resident and a non-resident period if you move to or leave the UK within the tax year.

Eligibility for Split-Year Treatment

You may be eligible for split-year treatment if your UK residency status changes during the tax year. Below are common instances the apply to our clients claiming split year treatment:

Started working halfway through the tax year.

The individual was employed in the UK, earning less than £100K, and began working midway through the tax year.

Stopped working abroad

The individual's overseas job ends, and they become a UK resident partway through the year.

Getting a home in the UK

The individual relocates to the UK and establishes it as their primary residence for the remainder of the year, or they cease using their previous home.

Leaving the UK

The individual moves abroad part way through the year and the UK home no longer acts as main residence.

UK Tax Year and Filing Deadlines for UK Residents and Non-Residents

The UK Tax Year Period runs from 6 April to 5 April of the following year. Follow our fee UK tax year calendar and never miss a date.

5th
October

Both residents and non-residents who need to file a tax return for the first time, must register by the 5th October.

31st
October

Residents and non-residents choosing to file a paper tax return must ensure HMRC receives it by 31st October. However, online filing is recommended for quicker processing.

31st
January

All online tax returns must be submitted and tax paid by midnight on 31st January following the end of the tax year. Amendments to previous year returns must also be made by this deadline.

What is Regarded as Taxable Income in the UK?

In the UK, taxable income includes various sources of income, both from within the UK and, for residents, worldwide. Here's a detailed breakdown of what is considered taxable income:

Employment Income

Salaries and Wages: Any income from employment, including bonuses, overtime pay, and commissions.
Benefits in Kind: Non-cash benefits provided by an employer, such as a company car, private medical insurance, and housing. These are usually valued and taxed as part of your income.
Expense Reimbursements: Any expenses paid by your employer that are not exclusively for business purposes may be taxable.

Self-Employment and Business Income

Profits from Self-Employment: Income from freelance work, sole proprietorships, and business activities after allowable expenses are deducted.
Partnership Income: Non-cash benefits provided by an employer, such as a company car, private medical insurance, and housing. These are usually valued and taxed as part of your income.
Expense Reimbursements: Profits from a partnership are shared among partners and taxed as personal income

Investment Income

Interest: Interest earned on savings accounts, fixed deposits, bonds, and other financial instruments.
Dividends: Income from shares and other equity investments. The first £1,000 of dividend income (as of 2023/24) is tax-free, with the remainder taxed at specific rates depending on your income level.
Rental Income: Income from renting out property, minus allowable expenses (e.g., maintenance, letting fees, mortgage interest for some properties).
Income from Trusts: Payments or distributions received from trusts can also be taxable.

Pension Income

State Pension: Payments from the UK state pension are taxable as income.
Private and Occupational Pensions: Withdrawals from private, workplace, or personal pension schemes are taxable.
Overseas Pensions: Income from foreign pension schemes is also taxable if you are a UK resident.

Capital Gains

While not strictly “income,” capital gains from the sale of assets (e.g., property, shares) are subject to Capital Gains Tax. The gain is calculated as the difference between the sale price and the original cost, minus any allowable deductions.
Annual Exemption: The first £6,000 (as of 2023/24) of gains is exempt from tax. Gains above this amount are taxed at specific rates depending on the asset type and your income level.

Other Forms of Income

Foreign Income: If you are a UK resident, your global income, including foreign salaries, investments, and pensions, is taxable.
Social Security Benefits: Some UK benefits, such as Jobseeker’s Allowance, are taxable.
Benefits from Employment: Company benefits like accommodation, loans, and healthcare may be taxed based on their market value.
Income from Trusts and Estates: Distributions from trusts and inheritance income (if not covered by inheritance tax) can be taxable.

Miscellaneous Income

Gambling Winnings: Normally, gambling winnings are not taxed. However, other forms of prize money (e.g., from competitions) can be taxable.
Income from Selling Goods or Services: If you regularly sell goods or services (e.g., through an online marketplace), this income could be regarded as taxable trading income.

What is Not Taxable?

Some forms of income are typically not subject to tax, such as:

1. Certain State Benefits

Child Benefit, Disability Living Allowance, and Personal Independence Payments.

2. Lottery Winnings:

These are usually exempt from tax.

3. Gifts and Inheritances

Inheritance may be subject to Inheritance Tax, but gifts are generally not taxable unless they generate income.

How to Determine your Income Tax Rate and Band in the UK

The UK uses a progressive income tax system with different rates and bands. Your income tax rate depends on your total taxable income for the tax year (6 April to 5 April). Here's how to determine your tax rate and band:

Here is a step-by-step breakdown of the process:

Calculate your Total Taxable Income

This means your overall income for the year from all income streams including: employed, self-employed etc.

Apply your personal allowance

Deduct any expenditure and approved allowances from your total taxable income

Determine your tax band

Determine you tax band for the relevant tax year by finding where your income falls in the HMRCs income tax band list

Take into account extra considerations

For example, your national insurance contributions and student loan payments

Calculate your taxable income

Given this information you should be able to gain a general calculation of what tax you may owe for the given tax year.

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Personal Allowance and Restrictions for High Earners

In the UK, the standard Personal Allowance for the 2023/24 tax year is £12,570. However, if your income exceeds £100,000, your allowance is reduced by £1 for every £2 earned over this threshold. Once your income reaches £125,140, the Personal Allowance is fully eliminated

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Navigating National Insurance Contributions (NICs) for US Citizens in the UK

NICs are mandatory contributions for individuals working in the UK. They go towards funding state benefits, including the National Health Service (NHS) and the State Pension. The amount you pay varies depending on your income and whether you are employed or self-employed.

US citizens with UK financial ties should be aware that while NICs are not considered a foreign tax for US purposes. While NICs do not qualify for the US Foreign Tax Credit, they can influence the Foreign Earned Income Exclusion (FEIE) and other tax considerations.

Under the UK-US Totalization Agreement, those in the UK for less than 52 weeks and contributing to US Social Security may be exempt from UK NICs.

NICs for Employed vs. Self-Employed Individuals

Employed

US citizens employed in the UK pay Class 1 NICs through the Pay-As-You-Earn (PAYE) system:
12% on weekly earnings between £242 and £967.
2% on earnings above £967 per week.

Married Filing Jointly

If self-employed, US citizens are liable for:
Class 2 NICs: A flat rate of £3.45 per week if annual profits exceed £12,570.
Class 4 NICs: 9% on annual profits between £12,570 and £50,270, and 2% on profits over £50,270.

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UK Capital Gains Tax (CGT) for US Citizens

US citizens, whether living in the UK or holding UK investments and property from abroad, are subject to UK CGT on certain asset sales.

Taxable Capital GAins

Property: CGT is due on gains from selling a second home, rental property, or land. Main residences are typically exempt.

Investments/Shares: Applies to gains from selling shares, bonds, or investments not in tax-advantaged accounts.

Other Assets: Personal items worth over £6,000 (excluding cars) may also be taxable.

Getting a home in the UK

The individual relocates to the UK and establishes it as their primary residence for the remainder of the year, or they cease using their previous home.

Annual Exempt Amount

The UK offers an annual CGT allowance of £6,000 for the 2023/24 tax year, meaning only gains above this are taxable. However, the US does not have a similar exemption, so all gains must be reported to the IRS.

Reporting and Paying CGT

In the UK: Report gains within 60 days of selling UK property or through the Self Assessment tax return for other assets. CGT rates are 18% or 28% for residential property and 10% or 20% for other assets, depending on your taxable income.

In the US: Report all gains to the IRS. Use the Foreign Tax Credit to offset some double taxation, though differences in rules require careful planning.

Inheritance Tax (IHT) for US Citizens with UK Ties

For US citizens with assets in the UK, whether you are a UK resident or have UK-based property, IHT can affect how your estate is taxed upon your death.

Inheritance Tax Rates and Thresholds

Each filing status has a different income threshold. For example, single filers usually have a lower threshold than those filing as a Head of Household or Married filing jointly.

How will age influence your threshold?

In the UK, IHT is charged at a rate of 40% on the value of an estate exceeding the £325,000 threshold (the "nil-rate band"). If your estate is passed to a spouse or charity, it is typically exempt from IHT. Additionally, the threshold can increase if the estate includes a family home left to children or grandchildren

Treatment of Worldwide Assets for UK-Domiciled Individuals

If you are considered UK-domiciled, the UK will tax your worldwide assets, not just those located in the UK. Domicile is based on various factors, such as where you intend to reside long-term. For US citizens who have become UK-domiciled or are considered "deemed domiciled" (after living in the UK for at least 15 of the last 20 years), this can mean that all global assets may be subject to UK IHT.

Example: Self-employment incomuk-obligationse has a low threshold. If you earned $1,000 in 2023, you must file if $400 or more came from self-employment.

Implications for US Citizens with Assets in the UK

For US citizens with UK property or financial assets, IHT can apply regardless of their residency status. The UK and the US have a double taxation treaty that includes provisions for estate taxes, helping prevent double taxation. However, there are differences in how each country treats assets and exemptions.

Consult a US tax expert to determine your best filing status Go Back to contents index

Value Added Tax (VAT) For US Citizens in the UK

Value Added Tax (VAT) is a consumption tax applied to most goods and services in the UK. US citizens living in the UK, especially those running businesses or involved in cross-border transactions, need to understand VAT rules and obligations.

VAT Basics and Applicable Rates

VAT is charged on the sale of goods and services, with the standard rate in the UK being 20%. There are also reduced rates of 5% for specific goods like home energy and a 0% rate for essentials like most food, books, and children's clothing. Some services and goods are exempt from VAT, such as health services and insurance.

VAT Registration for Businesses

If you operate a business in the UK and your VAT-taxable turnover exceeds the £85,000 threshold in a 12-month period, you must register for VAT.

Cross-Border Transactions and VAT

For businesses dealing with international transactions, VAT treatment varies:

Goods Exported Outside the UK: Generally, exports to non-UK countries are zero-rated, meaning you charge 0% VAT on sales.

Goods Imported to the UK: You usually pay import VAT, which can be reclaimed if you’re VAT-registered.

Services: VAT on cross-border services depends on the nature of the service and whether the customer is a business or a consumer.

Triangular VAT

Triangular VAT applies to transactions between three businesses in three different countries. For example, if a US citizen living in the UK operates a business that buys goods from an EU supplier and sells them to an EU customer, but the goods are shipped directly from the supplier to the customer, triangular VAT rules can simplify the VAT accounting process.

Under the triangular VAT rules

The intermediary (the UK-based business in this case) does not need to register for VAT in the customer's country.
Instead, the VAT responsibility is shifted to the final customer, using a “reverse charge” mechanism.

When is it Relevant

Triangular VAT is relevant if:

Your business if VAT-registered in the UK
You are involved in cross-border trade between different EU countries.
You act as an intermediary between an EU supplier and an EU customer.

While this situation has become less common for UK businesses post-Brexit, it is still important for US citizens in the UK engaged in EU trade to understand these rules to ensure VAT compliance and avoid unnecessary registrations in multiple countries.

UK Tax Obligations as a US Citizen

UK Resident vs Non-Resident Stats in UK Tax System

How Residency Status Impacts Filing Obligations

The Non-Resident

The UK Resident

Split-Year Treatment for Part-Year UK Residency

Eligibility for Split-Year Treatment

Started working halfway through the tax year.

Stopped working abroad

Getting a home in the UK

Leaving the UK

UK Tax Year and Filing Deadlines for UK Residents and Non-Residents

5th October

31st October

31st January

What is Regarded as Taxable Income in the UK?

Employment Income

Self-Employment and Business Income

Investment Income

Pension Income

Capital Gains

Other Forms of Income

Miscellaneous Income

What is Not Taxable?

1. Certain State Benefits

2. Lottery Winnings:

3. Gifts and Inheritances

How to Determine your Income Tax Rate and Band in the UK

Calculate your Total Taxable Income

Apply your personal allowance

Determine your tax band

Take into account extra considerations

Calculate your taxable income

Personal Allowance and Restrictions for High Earners

Navigating National Insurance Contributions (NICs) for US Citizens in the UK

NICs for Employed vs. Self-Employed Individuals

Employed

Married Filing Jointly

UK Capital Gains Tax (CGT) for US Citizens

Taxable Capital GAins

Getting a home in the UK

Annual Exempt Amount

Reporting and Paying CGT

Inheritance Tax (IHT) for US Citizens with UK Ties

Inheritance Tax Rates and Thresholds

How will age influence your threshold?

Treatment of Worldwide Assets for UK-Domiciled Individuals

Implications for US Citizens with Assets in the UK

Value Added Tax (VAT) For US Citizens in the UK

VAT Basics and Applicable Rates

VAT Registration for Businesses

Cross-Border Transactions and VAT

Triangular VAT

When is it Relevant

Bambridge | Accountants

5th
October

31st
October

31st
January