Form 1116 for UK Tax: What Counts, When and at What Rate
Not everything taken from a UK payslip belongs on Form 1116. Here is a charge-by-charge guide to what counts, how the 6 April tax year fits a calendar-year return, and a worked example on a £90,000 salary.
Sorting UK charges into income taxes and everything else is the first job when you claim the foreign tax credit.
Written by the US UK Tax Experts team, cross-border tax specialists
Form 1116 for UK tax: an introduction
You use Form 1116 for UK tax to claim a US foreign tax credit for UK income tax and capital gains tax on the same income. Most Americans on a UK salary pay more to HMRC than they would owe the IRS. The credit can therefore remove most or all of the US income tax on that salary. However, only some UK charges qualify. Payslip totals are the wrong starting point, and the UK tax year adds a timing wrinkle.
This article supports our guide to the US-UK double taxation treaty. That guide explains how credits and treaty articles work together. Here, we go through the form from the viewpoint of a person with UK paperwork.
What Form 1116 for UK tax actually does
The foreign tax credit is a dollar-for-dollar reduction of US income tax for qualifying foreign income taxes. It is not a deduction from income. The IRS page for the form links the current version and instructions. The form has four parts: your foreign income, the foreign tax, the limit and the credit you can take.
When you may not need the form
There is a simple exception. According to Publication 514, you can skip the form if your only foreign income is passive and your creditable taxes are no more than $300, or $600 on a joint return. Other conditions apply, and you lose any carryover for that year. Few people with a UK salary qualify, since wages are general category income.
Which UK charges count on Form 1116?
UK income tax and capital gains tax normally count. Most other deductions and bills do not. We use the following charge-by-charge test on every payslip and tax statement.
Income tax under PAYE or Self Assessment: yes
PAYE income tax and Self Assessment income tax on the same income qualify. Use the figure on your P60 or your SA302 calculation rather than your monthly payslips, since they can differ. The rates for 2026 to 2027 run from 20% to 45% in England, Wales and Northern Ireland. Scottish income tax is also an income tax, although the rates differ.
National Insurance: no
Publication 514 says no credit or deduction is allowed for social security taxes paid to a country with which the US has a social security agreement. The UK is one such country, as the totalization programme explains. So employee National Insurance stays off the form. This is the most common error we see on self-prepared returns. It can overstate foreign tax by thousands of dollars.
Student loan repayments: no
A student loan repayment comes through PAYE, but it repays a debt. It is not a tax on income. It therefore does not belong in Part II, however it looks on the payslip. The same logic applies to pension contributions deducted from pay.
Council Tax, Stamp Duty and VAT: no
Council Tax is a local charge on a property, while VAT and Stamp Duty Land Tax are transaction charges. None is a tax on income. The credit covers foreign taxes on income, war profits or excess profits, plus taxes in lieu of them. Consequently, these charges never reach the form.
Capital gains and dividend tax: yes, in the right category
UK tax on share gains and dividends qualifies. However, it usually belongs in the passive category, separately from your wages. If the foreign tax on passive income exceeds the highest US rate on it, the high-tax rule moves it into general. Additionally, qualified dividends and long-term gains may need a rate adjustment before they enter the limit calculation. The form instructions set out those multipliers.
The High Income Child Benefit Charge: unsettled
The charge is collected through Self Assessment and calculated by reference to income. One view treats it as an income tax, available for credit. The other sees it as a clawback of a benefit. No primary source we have found settles the point. Therefore, we record the reasoning on the file and take the cautious view unless the facts support more. Our article on UK Child Benefit and US tax covers the wider picture.
How does the UK tax year fit a calendar-year form?
The answer depends on whether you claim foreign taxes when paid or when accrued. The UK year runs from 6 April to 5 April, whereas your US year runs to 31 December. Your choice of method therefore decides which UK figure belongs on which return.
The cash method
Most individuals claim Form 1116 for UK tax on a paid basis. For PAYE, you add up the tax actually withheld in the calendar year, using your December payslip and January to March figures across two P60s. For Self Assessment, a payment made on 31 January belongs to that calendar year, even though it relates to an earlier UK year. As a result, a large balancing payment can land in a year with lower income, which may strand credit.
The accrual election
You can elect to claim taxes as they accrue. Under Regulation 1.905-1, foreign tax on a foreign year's income generally becomes fixed at the close of that year. So UK tax for 2025 to 2026 generally accrues on 5 April 2026, and falls on your 2026 Form 1116. Notably, that means income from April to December 2025 is matched with tax in the following US year. The election is made on a timely original return, by ticking the box, and it is irrevocable for later credit years. Think carefully before choosing it for Form 1116 for UK tax.
Which exchange rate you use
On the paid basis, the instructions say to use the rate on the date you paid the tax. For PAYE withheld monthly, that means a rate for each pay date. On an accrual basis, you generally use the yearly average rate, with exceptions. The IRS publishes yearly average rates for this kind of conversion. Once you pick a sensible method, apply it consistently.
How is the credit limit worked out?
Your credit cannot exceed the US tax on your foreign income. Publication 514 expresses this as your total US tax multiplied by a fraction: foreign-source taxable income over total taxable income. You apply it separately to each category.
US workdays can cut the limit
Wages are sourced on a time basis, as the instructions explain. If you spent 20 of your 240 working days in New York, about 8% of your salary is US-source. That shrinks the fraction, even though HMRC taxed the whole amount. The US-UK treaty has its own relief rules, including for US-source income of US citizens living in the UK. Therefore, keep a log of US workdays and check how the rules interact.
Deductions reduce foreign income too
The numerator is net of deductions allocated to the foreign income. Your standard deduction generally reduces it proportionately. Thus, a person with only UK income still has a fraction of 100%, but someone with US dividends will not.
What does a worked example show?
The numbers below show why National Insurance and student loans matter. Consider a typical case, with invented figures and a flat assumed rate of $1.30 to the pound for simplicity.
The facts
Priya is a US citizen in Manchester on a salary of £90,000, with no other income and no US workdays. She pays employee National Insurance and has a student loan on PAYE. For this example, we use 2026 to 2027 UK rates as if they applied to one full calendar year.
The UK figures
After the £12,570 personal allowance, £37,700 is taxed at 20%, costing £7,540. The remaining £39,730 is taxed at 40%, costing £15,892. Her creditable UK income tax is therefore £23,432, or about $30,462. National Insurance and student loan repayments are excluded, even though they reduce her take-home pay.
The US figures
Her salary is $117,000. Suppose her US tax before credits comes to $16,500; this figure is an assumption, as her real tax depends on filing status. All her income is foreign, so the fraction is 100% and her limit is $16,500. She claims $16,500 and owes no US income tax. The unused $13,962 becomes a general category carryover.
What the carryover does
The excess can go back one year and forward ten, and you track it on Schedule B. Publication 514 notes that carryovers are worked out separately per category. In practice, a long-term UK resident may never use it all. That is not an error. Yet it is valuable in a year with US workdays or a lower UK charge, so keep the schedule complete.
How do you complete and keep the form right?
Use a fixed order so that Form 1116 for UK tax agrees with your UK papers. This five-step process is the one we follow for a typical employee.
Steps one to three: gather and sort
First, collect your P60s, P11Ds and SA302s for each UK year touching the US year. Second, sort each charge using the test above. Third, split your income into categories: wages into general, savings and investments into passive.
Steps four and five: convert and reconcile
Fourth, convert income and tax at consistent rates, and record the source of each rate. Fifth, reconcile your Part II total to your UK documents and keep the working. If you ever need to defend the credit, that sheet is the evidence.
When HMRC refunds or adjusts tax
A later refund is a foreign tax redetermination. The instructions say that if it changes your US tax, you must generally file Form 1040-X. Where it does not, you may attach Schedule C of Form 1116 instead. Publication 514 also says you get no credit for tax that you could reasonably claim back. A wrong PAYE code that you could correct is therefore not fully creditable until corrected.
Fixing a past mistake
You can claim a credit, or switch from a deduction to a credit, within ten years of the return's regular due date, according to Publication 514. So a missed credit may still be recoverable. In contrast, if you claimed National Insurance in error, the fix runs the other way and needs a correction. Our treaty relief service covers both.
What about income the UK does not tax?
No UK tax means no credit on that income. The two systems tax different things, so a tidy Form 1116 for UK tax still has to deal with these gaps.
ISAs and tax-free savings
The UK exempts income inside an ISA, whereas the US generally taxes it. The interest or gain is passive category income, and you have no UK tax to set against it. Passive carryovers may help, if you have any. However, excess credit from your salary sits in the general category, so it cannot normally cover this income. Our article on ISA US tax reporting explains the wider position.
Benefits in kind and salary sacrifice
A P11D benefit or a salary sacrifice arrangement can change UK taxable pay without matching the US figure. Your foreign income on Form 1116 for UK tax should use the US measure, while the tax figure comes from your UK documents. Consequently, the income on the form rarely equals your P60 pay, and a reconciliation helps. The same is true of pension contributions, where the treaty can change the US treatment.
A self-assessment payment on account
Payments on account are paid in January and July ahead of the final bill. On the paid basis, each one is creditable when paid, subject to the rule against tax you could reclaim. A large first-year payment can therefore bunch credits into one calendar year. Check this before you file, since it is an easy place to double-count.
Self-employed income
Sole traders report trading profit on Form 1116 for UK tax as general category income, usually net of business costs. Class 4 National Insurance stays out for the same reason as employee contributions. Consequently, the tax figure comes only from the income tax part of your SA302. Our article on self-employed Americans in the UK covers the other forms you may need.
How US UK Tax Experts can help
US UK Tax Experts prepares your US and UK returns from one file, so the two agree. We prepare Form 1116 for UK tax from your actual HMRC documents and track your carryover across years. Our US federal return service handles the form with the rest of your filing, and we can model the paid and accrual methods both ways before you commit.
Conclusion
The form rewards careful sorting. Claim UK income tax and capital gains tax, leave out National Insurance, student loans and Council Tax, and treat the child benefit charge with caution. Choose the paid or accrued basis deliberately, because the accrual election cannot be undone. Finally, keep the carryover schedule, since Form 1116 for UK tax can matter years later.
Contact us
If you would like your credit worked out from your UK documents, email hello@usuktaxexperts.com or use our contact page. We reply within one working day.
Frequently asked questions
No, you cannot claim employee National Insurance on the form. Publication 514 bars a credit or deduction for social security taxes paid to a country with a US social security agreement, and the UK has one. Only UK income taxes and similar taxes count.
They are not creditable, because they repay a debt rather than a tax on income. They come through PAYE, so they can look like tax on a payslip. Leave them out of Part II.
You use P60s as evidence, but a P60 covers a UK tax year rather than your calendar year. On the paid basis, Form 1116 for UK tax needs the amounts withheld from January to December, drawn from payslips across two tax years. Keep both P60s to reconcile the total.
Only after modelling it, because the election is irrevocable for later years in which you claim a credit. UK tax generally accrues at the close of the UK year on 5 April. That can suit some taxpayers and mismatch others.
You can generally carry it back one year and forward ten years, within the same category. You record this on Schedule B of the form. Credits on general category income are kept separate from passive category credits.
Usually yes, within ten years of the regular due date of the return for the year the tax was paid or accrued. You generally file an amended return with Form 1116. Interest on any refund and other limits can apply.
The position is unsettled. One view treats it as an income tax collected through Self Assessment, and another treats it as a clawback of a benefit. We record the reasoning and take a cautious approach.
