A Complete Guide to Filing U.S. Taxes from the UK

Do I have to file a US tax return if I live in the UK?

Yes, if you are a US citizen or green card holder and your income is above the filing threshold. The United States taxes its citizens on worldwide income wherever they live, so moving to the UK and paying HMRC does not end the US filing requirement.

The threshold is broadly the standard deduction for your filing status. It is far lower if you are married filing separately, which is common when a spouse is not American, and it is $400 of net earnings if you are self-employed. Many people who owe no US tax at all still have to file.

What are the US deadlines for Americans living abroad?

The return is due on 15 April, but Americans living abroad get an automatic extension to 15 June. You can extend again to 15 October by filing Form 4868. The extension is for filing, not for paying: interest on any tax owed runs from 15 April.

• 15 April: any US tax owed is due, and the FBAR is due.
• 15 June: automatic filing date for taxpayers living outside the US.
• 15 October: extended filing date with Form 4868, and the automatic extended date for the FBAR.

The UK tax year runs from 6 April to 5 April, while the US uses the calendar year. Income has to be re-cut to the calendar year for the US return, which is why UK payslips and P60s rarely match the figures on a Form 1040.

Which forms does an American in the UK usually file?

Most people file Form 1040 with either Form 1116 or Form 2555, plus an FBAR. The rest depend on what you own.

• Form 1040: the income tax return itself.
• Form 1116: the foreign tax credit, which sets UK tax paid against the US tax on the same income.
• Form 2555: the Foreign Earned Income Exclusion, an alternative to the credit for earned income.
• FBAR (FinCEN Form 114): required when the combined balance of your non-US accounts exceeds $10,000 at any point in the year.
• Form 8938: the FATCA statement of foreign financial assets. For a single filer living abroad it applies above $200,000 at year end or $300,000 at any time in the year, and above $400,000 or $600,000 for a joint return.
• Form 8621: one for each passive foreign investment company, which includes most UK funds and investment trusts.
• Form 8833: discloses a position taken under the US-UK tax treaty.
• Forms 3520 and 3520-A: for foreign trusts and large gifts from non-US persons.

Should I use the Foreign Earned Income Exclusion or the foreign tax credit?

For most people working in the UK, the foreign tax credit gives the better result, because UK income tax is usually higher than the US tax on the same income. The credit can reduce the US bill to nil and leaves unused credits to carry forward.

The exclusion removes earned income up to a limit that is indexed each year, but it does not cover investment income or pensions, and revoking it locks you out of using it again for five years without IRS consent. The choice should be made on your own figures, not left to a software default.

Are UK pensions and ISAs taxed by the US?

UK pensions are generally protected by the treaty while they grow, but they still have to be reported. ISAs are different: the UK treats them as tax free and the US does not, so interest, dividends and gains inside an ISA go on the US return each year.

Funds held inside a stocks and shares ISA are usually passive foreign investment companies, which adds a Form 8621 per fund. It is one of the most common surprises for Americans investing through UK platforms.

What if I have not filed for several years?

The IRS Streamlined Foreign Offshore Procedures exist for this. You file the last three years of returns and six years of FBARs, and certify that the failure was not wilful. For people who meet the non-residency requirement there is no penalty.

The route is only open until the IRS contacts you first, and UK banks already report accounts held by US persons under FATCA. Coming forward voluntarily is considerably better than being asked.

What do I need to gather before filing?

1. Prior US and UK returns, if any were filed.
2. P60s, P45s and payslips, or business accounts if you are self-employed.
3. Year-end statements for every bank, savings, investment and pension account, with the highest balance in the year.
4. Details of UK tax paid and when it was paid.
5. Dates of any moves between the two countries, and of any property or investment sales.

We prepare the US return and the UK Self Assessment from the same file, so the credit claimed on one matches the tax shown on the other.