US-UK double taxation: the treaty, foreign tax credits and how to avoid paying twice

The US-UK tax treaty works by assigning each category of income to the country of residence, the country of source, or both, and then requiring the country that taxes second to give a credit. It was signed on 24 July 2001, amended by a protocol in 2002 and has applied since 2003.

You can read the full text on GOV.UK as the 2001 UK-USA Double Taxation Convention as amended by the 2002 protocol, and the IRS publishes the same text with the US Treasury technical explanation of the United Kingdom treaty. The technical explanation is the US government's own article-by-article commentary and is the best guide to how the IRS reads each provision.

How to read the treaty

Read it in this order, because later articles depend on earlier ones.

1. Article 1 (general scope). This holds the saving clause. Read it first if you are a US citizen, because it switches most of the treaty off for you.
2. Article 2 (taxes covered). The treaty covers US federal income tax and UK income tax, capital gains tax and corporation tax. It does not cover US state taxes, social security contributions or inheritance tax.
3. Article 4 (residence). This decides which country you belong to for treaty purposes.
4. Articles 6 to 22. One article for each type of income.
5. Article 23 (limitation on benefits). A test of whether you are entitled to claim the treaty at all.
6. Article 24 (relief from double taxation). The credit rules, including the special rule for US citizens living in the UK.

Residence and the tie-breaker in Article 4

Treaty residence is the status of being liable to tax in a country because of your domicile, residence or citizenship. You can be resident in both countries under their domestic laws. A British executive with a green card who lives in London is one example. A person who passes the UK statutory residence test and the US substantial presence test in the same year is another.

When that happens, Article 4(4) applies a tie-breaker, in a fixed order:

1. You are resident where you have a permanent home available to you.
2. If you have a home in both, you are resident where your personal and economic relations are closer. This is your centre of vital interests.
3. If that cannot be determined, you are resident where you have a habitual abode.
4. If that fails, you are resident in the country of which you are a national.
5. If you are a national of both or neither, the two tax authorities settle it by mutual agreement.

Article 4(2) adds a rule that is easy to miss. A US citizen or green card holder counts as a US resident for the treaty only if they have a substantial presence, permanent home or habitual abode in the United States. An American who has lived only in London for years is a UK resident under the treaty, not a dual resident. That does not free them from US tax, because the saving clause takes over.

A green card holder who tie-breaks to the UK can file as a US non-resident on Form 1040-NR with Form 8833. That choice has consequences. It can put the green card itself at risk, and for someone who has held it in eight of the last fifteen years it can trigger the US exit tax. Take advice before making the claim, and see our page on giving up US citizenship or a green card.

The saving clause and why Americans get less than they expect

The saving clause is the provision in Article 1(4) that lets each country tax its own residents and citizens as if the treaty had not come into effect. For the United States, "citizens" is the word that matters. An article may say that a UK resident's pension or capital gain is "taxable only" in the UK, but if that UK resident is a US citizen, the US may tax it anyway.

This is why so many treaty summaries mislead Americans abroad. The article says one thing, and the saving clause quietly takes it away. The clause also reaches former citizens and long-term residents for ten years after they give up that status in some cases.

Article 1(5) lists the exceptions. These are the treaty benefits a US citizen keeps despite the saving clause:

• Article 17(1)(b): a pension payment that would be exempt in the country where the scheme is established stays exempt in the other country.
• Article 17(3): social security benefits are taxed only by the country where the recipient lives.
• Article 17(5): the alimony and child support rules.
• Article 18(1): no tax on growth inside a pension scheme in the other country until it is distributed.
• Article 18(5): relief for a US citizen living in the UK who contributes to a UK pension scheme.
• Article 24: relief from double taxation, including the re-sourcing rule.
• Articles 25 and 26: non-discrimination and the mutual agreement procedure.

A second list in Article 1(5)(b) covers government service, students, teachers and diplomats, but only for people who are not US citizens or green card holders. Everything not on these lists, including the "taxable only" rules for gains, interest, royalties and pension lump sums, can be overridden by the saving clause. The practical result is simple. If you are American, the treaty gives you pension protection, social security protection and a better credit. Almost everything else comes from the foreign tax credit.

The saving clause is reciprocal. The UK may also tax its own residents as if the treaty did not exist, subject to the same exceptions. That matters for US pension lump sums paid to UK residents, covered below.

Limitation on benefits

Limitation on benefits is the anti-treaty-shopping test in Article 23, which restricts treaty relief to "qualified persons" with a real connection to the US or the UK. An individual who is resident in one of the two countries qualifies automatically. The test bites on companies, trusts and other entities, which must meet an ownership, public trading or active business test. If you receive US income through a UK company or a trust, the entity must satisfy Article 23 before any reduced rate applies, and the Form W-8BEN-E asks which test it meets. Founders with holding structures will find more in our guide to US-UK tax for founders and executives.

Under the US-UK tax treaty, the country where you live generally taxes everything, the country where income arises may tax employment, business profits, dividends and real property within limits, and the residence country then credits the source country's tax. For US citizens, read every row below with the saving clause in mind: the US can still tax, and relief comes by credit.

Employment income (Article 14)

Salary is taxed where the work is physically done. If you live in the UK and work in the UK, the UK taxes first. If you are American, the US taxes the same pay and gives a foreign tax credit, or you exclude it under the FEIE.

Short business trips are protected. A UK resident working briefly in the US is exempt from US tax on that pay if three conditions are all met: they are in the US for no more than 183 days in any twelve-month period, the employer is not a US resident, and the cost is not borne by a US permanent establishment of the employer. The same rule runs the other way. Note that the test counts days of presence, not working days, and it looks at any twelve-month period, not the tax year.

For a US citizen living in the UK, days worked in the United States produce US-source pay. The UK taxes it as a resident, and the UK, not the US, gives the credit. Keep a travel calendar. It decides which country's tax is credited against which.

Directors' fees (Article 15)

Fees paid to you as a member of the board of a company may be taxed in the country where the company is resident, wherever the meetings take place. A UK resident on the board of a Delaware company can be taxed by the US on those fees, and the UK then credits the US tax. The article covers board fees only, not an executive salary from the same company, which falls under Article 14.

Self-employment and business profits (Article 7)

The treaty has no separate article for independent personal services. A self-employed person is treated as a business. Your profits are taxable only where you live, unless you have a permanent establishment in the other country, meaning a fixed place of business such as an office. A London consultant with US clients and no US office owes no US income tax on those fees if they are not a US person.

A self-employed American in the UK remains taxable by the US under the saving clause and credits UK income tax. US self-employment tax is a separate matter, dealt with by the social security agreement rather than the treaty.

Dividends (Article 10)

The source country may tax dividends, but the rate is capped at 15% for individual investors. The cap is 5% where the recipient is a company holding at least 10% of the voting stock, and 0% for certain parent companies holding 80% or more and for pension schemes.

In practice the caps bind only on the US. US law withholds 30% from dividends paid to foreign investors, and a UK resident who is not a US person cuts that to 15% by giving the broker a Form W-8BEN. The UK then taxes the dividend and credits the 15%. The UK does not withhold tax on ordinary company dividends at all. Distributions from UK real estate investment trusts are the exception, with 20% withheld and the treaty rate at 15%.

For 2026-27 the UK taxes dividends above the £500 dividend allowance at 10.75%, 35.75% and 39.35%, according to HMRC's table of Income Tax rates and allowances for current and past years. The first two rates rose by two percentage points in April 2026. The US taxes qualified dividends at 0%, 15% or 20%. For a US citizen in the UK receiving US dividends, a special three-step credit applies, set out in the UK section below.

Interest and royalties (Articles 11 and 12)

Interest and royalties are taxable only in the country where the beneficial owner lives. A UK resident who is not a US person should suffer no US withholding on US bank or bond interest, and should claim back any that is deducted. Because the treaty rate is nil, HMRC will not credit US tax withheld on interest. You reclaim it from the IRS instead.

The saving clause means a US citizen in the UK is taxed by both countries on US bank interest. The fix is in Article 24, which treats the income as UK-source so that the US credits the UK tax.

Rental income from real property (Article 6)

Rent may always be taxed by the country where the property stands. The owner's country of residence taxes it too and credits the first tax. Two domestic rules matter more than the treaty here. A UK resident with US rental property should elect to be taxed on net income rather than suffer 30% withholding on gross rent. A US resident with UK rental property should register under the UK non-resident landlord scheme to receive rent without 20% basic rate tax deducted. Depreciation differs sharply: the US requires it, the UK does not allow it for residential property, so taxable profit rarely matches.

Capital gains (Article 13)

Gains on land and buildings may be taxed where the property is. Gains on shares and most other assets are taxable only where the seller lives. Article 13(6) lets a country tax gains of someone who was its resident at any time in the previous six years, which preserves the UK's temporary non-residence rules. Capital gains have their own section below because the currency and timing problems are large.

Government service, students and teachers (Articles 19, 20 and 20A)

Salaries and pensions paid by a government for government service are generally taxable only by that government. The exception is where the services are performed in the other country by a resident and national of that country. US federal employees and military personnel posted to the UK usually fall under this article and separate status-of-forces rules.

A student or business apprentice visiting one country from the other is exempt in the host country on payments from abroad for maintenance, education or training. A professor or teacher who visits for no more than two years to teach or research at a university or college is exempt in the host country on that pay. If the visit runs past two years, the exemption is lost from the start. These benefits are not available to US citizens and green card holders against US tax.

Other income (Article 22)

Income not dealt with elsewhere is taxable only in the country of residence. This sweeps up items such as prizes and some trust distributions. As ever, the saving clause keeps US citizens within US tax.

The US-UK tax treaty lets pension savings grow untaxed in both countries, taxes regular pension payments mainly where you live, gives lump sums to the country where the scheme is established, and taxes social security benefits only where the recipient lives. Pensions are the one area where US citizens get real treaty protection, and also the area with the most disagreement.

Growth and contributions (Article 18)

Article 18(1) says that income earned inside a pension scheme in one country is not taxed by the other country until it is paid out. An American with a UK workplace pension or self-invested personal pension therefore pays no US tax on the yearly growth, and a UK resident with a US IRA or 401(k) pays no UK tax on it. This paragraph is a saving clause exception, so it holds for US citizens.

Article 18(5) goes further for a US citizen who lives and works in the UK. Contributions to a UK pension scheme, by you or your employer, get US relief as if the scheme were a US plan, up to the limits that would apply to a comparable US plan. Article 18(2) gives the mirror relief to someone who moves countries with an existing scheme and keeps contributing. Without these paragraphs, employer contributions to a UK pension would be taxable US wages each year.

Regular pension payments (Article 17(1))

Periodic pension payments are taxable only in the country where the recipient lives. A UK resident who is not a US citizen pays UK tax only on IRA or 401(k) withdrawals, and can receive them free of US withholding by giving the plan a Form W-8BEN.

A US citizen living in the UK is taxed by both countries on a UK pension. The UK taxes first as the country of residence, and the US credits the UK tax. On a US pension, the US taxes as country of citizenship, and the relief runs through the special credit rules in Article 24.

Article 17(1)(b) adds an exemption that survives the saving clause. If a pension payment would be exempt from tax in the country where the scheme is established, it is exempt in the country of residence too. This is why a qualified Roth IRA or Roth 401(k) distribution, tax free in the US, is also tax free for a UK resident.

Lump sums and the 25% UK tax-free lump sum

Article 17(2) says a lump-sum payment from a pension scheme is taxable only in the country where the scheme is established. On its face, a UK pension commencement lump sum, normally 25% of the fund up to the lump sum allowance of £268,275, would be taxable only in the UK, which charges nothing.

The difficulty is that Article 17(2) is not on the list of saving clause exceptions. On the usual reading, and the one the IRS is generally understood to take, the US may therefore tax its citizens and residents on a UK lump sum. Two arguments are made against that result:

• The Article 17(1)(b) argument. The tax-free lump sum is a payment from a pension scheme that is exempt in the UK, so the exemption in 17(1)(b), which is a saving clause exception, should carry across. This fits best where the recipient lives in the US and the scheme is in the UK. It fits less well for an American living in the UK, because the article speaks of a scheme established in the other country.
• The lump-sum argument. Some advisers argue that Article 17(2) was meant to give exclusive rights to the scheme's country and that taxing it under the saving clause defeats the purpose.

There is no court decision or published IRS ruling that settles the point for the UK lump sum. It is a contested position. If you take it, you disclose it on Form 8833 and accept the risk of challenge. If you do not, the lump sum is US-taxable to the extent it exceeds your US tax basis in the scheme, and because the UK charged no tax there is nothing to credit. The amounts are often large, so this deserves a decision made before you draw the money, not after. Our cross-border pensions service works through both treatments on your figures.

US retirement accounts held by UK residents

A UK resident with a US IRA, 401(k) or Roth is in a better position than most people expect.

• Growth is sheltered from UK tax by Article 18(1).
• Periodic withdrawals from a traditional IRA or 401(k) are taxed in the UK as pension income. A non-US person owes no US tax. A US citizen is taxed by both and relieved by credit.
• Roth withdrawals that are qualified in the US are exempt in the UK under Article 17(1)(b).
• Lump sums are taxable in the US under Article 17(2). HMRC's position is that the UK's own saving clause still lets it tax a UK resident on the lump sum, giving credit for the US tax. What counts as a lump sum rather than a large withdrawal is not defined, and the treatment should be checked before a full encashment.

Roth conversions, required minimum distributions and inherited IRAs each raise their own questions. Plan them with both returns in view.

Social security and the State Pension (Article 17(3))

Social security benefits paid by one country to a resident of the other are taxable only in the country of residence. This is a saving clause exception. A US citizen living in the UK who receives US Social Security pays UK tax on it and no US tax. A UK State Pension paid to a US resident is taxable only by the US.

An American living in the UK who receives the UK State Pension is taxed on it by the UK as a resident. The US taxes it too as foreign pension income and credits the UK tax. The US Windfall Elimination Provision, which used to cut US Social Security for people with a foreign pension, was repealed for benefits payable after December 2023.

The Foreign Tax Credit reduces your US income tax by the foreign income tax you paid or accrued on foreign-source income, up to the US tax on that same income. You compute it on Form 1116, one form for each category of income, and any credit you cannot use carries back one year and forward ten.

The IRS explains eligibility on its page about the foreign tax credit for individuals, and the detailed rules are in IRS Publication 514, Foreign Tax Credit for Individuals. For Americans in the UK it is the main defence against double taxation.

Which UK taxes qualify

UK income tax and capital gains tax are creditable. National Insurance contributions are not, because they are social security taxes covered by the US-UK social security agreement. Council tax, stamp duty land tax, VAT and inheritance tax are not income taxes and do not qualify. Only tax you actually owe counts. If you could have claimed a UK relief or refund and did not, the IRS can deny credit for the avoidable part.

The baskets

A foreign tax credit basket is a separate category of income for which the credit limit is worked out on its own, so that high tax on one kind of income cannot shelter low-taxed income of another kind. Each basket needs its own Form 1116. The ones individuals meet are:

• General category. Salary, self-employment profits, pensions and most active income.
• Passive category. Dividends, interest, rent that is not from an active business, royalties and most capital gains.
• Certain income re-sourced by treaty. US-source income that a treaty treats as foreign so that a credit can be given. Americans in the UK use this for US dividends, interest and gains under Article 24. Each treaty and each class of income is computed separately.
• Section 951A category. Income of controlled foreign corporations, relevant to Americans who own a UK company. The 2025 US budget legislation renamed this income net CFC tested income for years from 2026.
• Foreign branch category. Profits of a foreign branch of a US business. Sole traders rarely fall here.

Excess credit in one basket cannot be used in another. Many Americans in the UK build up a large unused general basket credit from salary and still owe US tax on untaxed passive income such as ISA dividends.

The limitation formula

The credit in each basket cannot exceed this amount, set by section 904 of the Internal Revenue Code:

US tax before credits × (foreign-source taxable income in the basket ÷ total taxable income)

Deductions, including the standard deduction, are spread across your income, so the foreign-source figure is net, not gross.

Take an example for tax year 2026. Suppose Hannah, a single US citizen in London, earns a salary of £90,000, and assume an average exchange rate of $1.30. Her pay is $117,000.

• US taxable income is $117,000 less the 2026 standard deduction of $16,100, which is $100,900.
• US tax on that, using the 2026 brackets, is $16,910.
• UK income tax on £90,000 for 2026-27 is £23,432, or about $30,462.
• All her income is foreign general category income, so the limit is the whole $16,910.
• Her credit is $16,910. Her US tax is nil. The unused $13,552 carries forward.

Now suppose Hannah also earns $4,000 of interest from a US bank. Her taxable income is $104,900 and her US tax is $17,790. Her general basket limit becomes $17,790 × ($101,432 ÷ $104,900), which is $17,202. That leaves $588 of US tax on the interest that her salary credits cannot touch, even though she has more than $13,000 of spare credit. The UK also taxes that interest. Relief for it comes through the re-sourced by treaty basket, not the general one. This is the point where many self-prepared returns go wrong.

Carryback and carryforward

Unused credit carries back one year and then forward for up to ten years, within the same basket. Carryforwards are valuable in three situations: a year when you work in the US and have US-taxed foreign-source pay left over, a year after you leave the UK for a lower-tax country, and years when UK tax falls because of pension contributions. They are worthless against US-source income and they expire. Keep a schedule of them. The IRS asks for it on Schedule B of Form 1116.

Paid or accrued, and the tax year mismatch

The US tax year is the calendar year. The UK tax year runs from 6 April to 5 April. You must choose how to match them.

• Paid basis. You credit UK tax actually paid in the calendar year: PAYE deducted from January to December, plus any Self Assessment payments made in that year.
• Accrual basis. You credit the UK tax for the UK tax year that ends within the US year. For the 2026 US return, that is the liability for the UK year ended 5 April 2026.

The paid basis is simple for employees on PAYE. It causes trouble where tax is paid late. A gain realised in February 2026 is taxed by the US in 2026, but the UK tax is not due until 31 January 2027. On the paid basis the credit arises in 2027 and has to be carried back, which means amending the 2026 return. The accrual basis puts the credit in 2026. Electing accrual is a one-way door: once chosen, you must use it in every later year. Foreign tax is translated at the average rate for the year on the accrual basis and at the rate on the day of payment on the paid basis.

The high-tax kick-out

The high-tax kick-out is the rule that moves passive income into the general basket when the foreign tax on it exceeds the top US rate. UK interest taxed at 45%, or UK dividends taxed at 39.35%, can be kicked out of passive and into general. This is usually helpful, because it lets surplus tax join your salary credits rather than sit stranded, but it must be tested and shown on the form.

The Net Investment Income Tax

The Net Investment Income Tax (NIIT) is a 3.8% US tax on investment income of individuals whose modified adjusted gross income exceeds $200,000, or $250,000 for a joint return. Those thresholds are not indexed. The IRS sets out the scope in its questions and answers on the Net Investment Income Tax.

Foreign tax credits do not offset the NIIT. The tax sits in a different chapter of the Code from the income tax, and the credit applies only to the income tax. Americans abroad argued that tax treaties supply a credit regardless. The Tax Court rejected that in Toulouse in 2021. The Court of Federal Claims then accepted it under the French treaty in Christensen in 2023 and under the Canadian treaty in Bruyea in 2024. On 31 August 2026 the Court of Appeals for the Federal Circuit reversed both decisions and held that the treaty credit is subject to the limits of US law, so it cannot be used against the NIIT. Decisions are published on the court's Federal Circuit opinions and orders page.

The US-UK treaty contains the same "subject to the limitations of the law of the United States" wording. As matters stand in October 2026, an American in the UK should expect to pay the NIIT in full on UK dividends, interest, rent and gains, on top of UK tax, with no relief. Further review remains possible, so if you filed a protective refund claim, ask what should now happen to it.

Alternative minimum tax

The alternative minimum tax has its own foreign tax credit, computed on a second set of Forms 1116 using AMT income. The old rule limiting the credit to 90% of AMT has gone, so a full credit is possible. The 2026 AMT exemption is $90,100 for single filers and $140,200 for joint filers, per the IRS announcement of tax inflation adjustments for tax year 2026. AMT is most likely to arise for Americans in the UK who exercise incentive stock options.

The Foreign Earned Income Exclusion lets a qualifying American abroad exclude up to $130,000 of foreign earnings from US tax for 2025 and $132,900 for 2026. For someone on a UK salary the foreign tax credit usually gives a better result, because UK tax normally exceeds the US tax and the surplus carries forward.

The exclusion is set by section 911 of the Internal Revenue Code and elected on Form 2555, Foreign Earned Income. The limit is indexed each year and applies per person, so two working spouses each have their own.

The two qualifying tests

Your tax home must be in a foreign country and you must meet one of two tests.

• Bona fide residence test. You are a bona fide resident of a foreign country for an uninterrupted period that includes a full calendar year. It looks at your intentions and ties: your home, family, visa and whether you pay tax locally as a resident.
• Physical presence test. You are physically in a foreign country for at least 330 full days in any period of twelve consecutive months. It is a pure day count. A day over international waters or in the US does not count.

In your first year abroad you usually qualify through physical presence, with the limit prorated for the days in the qualifying period that fall in the tax year. The IRS summarises both tests on its Foreign Earned Income Exclusion page.

The housing exclusion

The foreign housing exclusion is an additional exclusion for employer-provided amounts spent on housing abroad above a base amount. The base is 16% of the FEIE limit, $21,264 for 2026. Qualifying costs are capped at 30% of the limit, $39,870 for 2026, unless you live in a listed high-cost location. London has a higher cap, published each year, most recently in IRS Notice 2026-25 on housing cost limits. Rent, utilities and insurance count. Mortgage payments, purchased furniture and domestic help do not. Self-employed people take a housing deduction instead.

What the exclusion does not cover

• Dividends, interest, capital gains and rent.
• Pensions, annuities and social security.
• Pay for days worked in the United States, even for a UK employer.
• Pay from the US government.
• US self-employment tax, which is still due on excluded profits unless the social security agreement exempts you.

Stacking

Stacking is the rule that income above the exclusion is taxed at the rates that would apply if the excluded income were still there. If you exclude $132,900 and have $40,000 left, the $40,000 is taxed starting in the 24% bracket, not the 10% bracket. You can use foreign tax credits on the remainder, but UK tax attributable to the excluded income is disallowed. The exclusion does not create low-bracket space.

The five-year revocation rule

Once you elect the exclusion it stays in force until you revoke it. If you revoke it, you cannot elect it again for five tax years without IRS consent, which is requested by private letter ruling. Claiming a foreign tax credit on income you could have excluded counts as a revocation. The IRS sets out the rule on its page about choosing the Foreign Earned Income Exclusion. Switching from exclusion to credit is therefore easy to do once and hard to undo.

The child tax credit and IRA contributions

Two side effects decide many cases. First, if you claim the exclusion you cannot receive the refundable part of the child tax credit. For 2025 the credit is $2,200 per child, of which up to $1,700 is refundable, and both figures are indexed. A family that uses the foreign tax credit instead can receive that refund even with no US tax to pay. Second, excluded income does not count as compensation for IRA contributions. If all your earnings are excluded, you cannot contribute to a traditional or Roth IRA.

Worked comparison: exclusion against credit for a UK salary

Take Hannah again, on £90,000 ($117,000) in 2026, and suppose she has two children under 17.

Both routes reduce US tax on the salary to nil. Only the credit leaves her with a refund, pension options and a bank of credit for a later year. At higher salaries the gap widens. Someone on £150,000 exceeds the exclusion limit, and stacking taxes the excess at high rates, while the credit route still covers the whole salary because UK tax of 40% and 45% outruns US tax.

When the exclusion does win

The exclusion is the better choice when UK tax on your earnings is low or nil. Common cases are the first part-year in the UK before much PAYE has been paid, earnings sheltered by overseas workday relief, self-employed people with modest UK tax, and people about to move on to a low-tax country who will not use carried-forward credits. Run both calculations before the first return, because the first choice shapes the next five years. That comparison is part of every US federal return we prepare for clients abroad.

The UK gives Foreign Tax Credit Relief: a credit against UK tax for US tax paid on US-source income, limited to the lower of the UK tax on that income and the US tax the treaty allows. You claim it on the foreign pages of your Self Assessment return, form SA106.

HMRC's general guidance is on its page about what to do if you are taxed twice on foreign income, and the form and notes are published as Self Assessment: Foreign (SA106).

How HMRC limits the credit

Three limits apply to every claim.

1. The treaty rate. HMRC credits only the US tax the treaty permits. If your US broker withheld 30% from a dividend because you did not file a Form W-8BEN, HMRC credits 15%. You must reclaim the other 15% from the IRS.
2. The UK tax on that income. The credit cannot exceed the UK tax attributable to the same item. The UK works this out source by source, and unused credit on personal income cannot be carried forward.
3. Minimisation. You must take reasonable steps to reduce the foreign tax, including claiming treaty relief and available refunds.

Where the treaty rate is nil, as for interest, royalties and most gains on shares, HMRC gives no credit at all for US tax. HMRC's country notes are in its Double Taxation Relief Manual guidance on the United States.

The special rule for US citizens resident in the UK

Article 24(6) deals with the problem that the US taxes its citizens on everything while the UK is asked to credit only the tax the US could charge a non-citizen. It produces a three-step calculation for US-source income of a US citizen living in the UK.

1. The UK credits US tax at the treaty rate only. The UK computes its tax on the US-source income and gives credit for the tax the US could have charged a UK resident who is not a US citizen: 15% on dividends, nil on interest.
2. The US credits the remaining UK tax. The US computes its full tax on the same income and gives credit for the UK tax paid after step one. That credit cannot reduce the US tax below the amount credited in step one.
3. The income is re-sourced. To make step two possible, the income is treated as arising in the UK to the extent needed. On the US return it goes into the re-sourced by treaty basket on its own Form 1116, with a Form 8833.

Take an example for 2026-27. Suppose Daniel, a US citizen and UK higher rate taxpayer, receives $10,000 of dividends from US companies and has used his dividend allowance.

• UK tax at 35.75% is $3,575. The UK credits US tax at 15%, which is $1,500. UK tax payable is $2,075.
• US tax on qualified dividends at 15% is $1,500. That is no more than the treaty rate, so the US keeps $1,500 and no further credit is needed.
• Total tax is $3,575, the higher of the two countries' rates, split between them.

If Daniel were in the 20% US bracket, US tax would be $2,000. The US would keep $1,500 and credit UK tax against the extra $500. The total stays at $3,575. If his income were high enough for the Net Investment Income Tax, a further $380 would be due to the US with no relief.

Article 24(6)(a) also says that the UK need not credit US tax on income from outside the United States. So for UK-source income of an American in the UK, the UK always taxes first and only the US gives relief.

Claiming on the SA106

Report each item of foreign income in sterling, with the foreign tax paid, and tick the box to claim Foreign Tax Credit Relief. Enter foreign tax at the treaty rate, not the amount actually withheld. Convert at the rate on the date the income arose or at HMRC's published average rates, and use the same approach every year. A claim must be made within four years of the end of the tax year. Americans in the UK should note that the tax year reported is the UK year, so a US dividend paid in March 2026 belongs on the 2025-26 UK return and the 2026 US return.

The foreign income and gains regime from April 2025

The remittance basis, under which non-domiciled UK residents paid UK tax on foreign income only when they brought it to the UK, was abolished from 6 April 2025. Domicile no longer determines UK income tax or capital gains tax.

The replacement is the four-year foreign income and gains (FIG) regime. A person who becomes UK resident after at least ten consecutive tax years of non-residence can claim full relief from UK tax on foreign income and gains for their first four tax years of residence, and can bring the money to the UK freely. HMRC's guidance explains how to check if you can claim the 4-year foreign income and gains regime. Claiming costs you the income tax personal allowance and the capital gains annual exempt amount for that year. Foreign employment earnings are dealt with separately through overseas workday relief.

Two points matter for Americans. First, the FIG regime removes UK tax, not US tax. With no UK tax to credit, the US taxes the income in full, so the saving is the difference between the two countries' rates rather than the whole UK charge. Second, the regime changes the exclusion-versus-credit decision, because earnings relieved in the UK carry no credit and may be better excluded. People who used the remittance basis before April 2025 can bring old foreign income to the UK at a reduced rate under the Temporary Repatriation Facility: 12% in 2025-26 and 2026-27 and 15% in 2027-28. Whether the US credits that charge is not straightforward and needs checking before you designate funds.

We prepare the UK return alongside the US one, so that each credit claimed in one country matches the tax shown in the other. See our UK Self Assessment service and treaty relief service.

A US person living in the UK pays UK capital gains tax on the sterling gain and US tax on the dollar gain from the same sale, then credits the UK tax against the US tax. The two gains are rarely the same number, because the US measures everything in dollars and the UK measures in pounds.

The rates side by side

HMRC publishes the current figures on its pages for Capital Gains Tax rates and Capital Gains Tax allowances. The 18% and 24% rates have applied to shares and to residential property since 30 October 2024. The US 20% rate begins at $545,500 of taxable income for single filers and $613,700 for joint filers in 2026.

Because UK rates are now usually higher than US rates on long-term gains, the UK tax often covers the US tax. The trouble comes from the differences in how the gain is measured.

Currency gains and the phantom gain problem

A phantom gain is a taxable gain in one currency on an asset that made little or no real profit in the currency it was bought and sold in. US law requires you to translate the purchase price into dollars at the exchange rate on the purchase date and the sale price at the rate on the sale date. The movement in the pound becomes part of your gain or loss.

Take an example. Suppose Priya, a US citizen in Manchester, buys UK shares for £100,000 when the pound is worth $1.20. Her dollar cost is $120,000. She sells them years later for the same £100,000 when the pound is worth $1.35. Her dollar proceeds are $135,000.

• UK gain: nil. UK tax: nil.
• US gain: $15,000. US tax at 15%: $2,250, plus the 3.8% surtax if her income is high enough.
• Foreign tax credit: nil, because the UK charged nothing.

Priya has made no money in the currency she lives in and still owes US tax. The effect runs both ways. If the pound falls between purchase and sale, the US gain is smaller than the UK gain, the UK tax exceeds the US tax and the surplus credit joins the passive basket carryforward. You cannot choose which way it goes, but you can know the dollar basis of every holding before you sell, and time disposals with the exchange rate in view.

Holding foreign currency is itself an asset for US purposes. Cash in a sterling account has a dollar basis, and spending or converting it can produce a gain or loss. Gains of $200 or less on personal transactions are ignored under section 988 of the Internal Revenue Code. Larger movements on big cash balances are reportable.

Other measurement differences

• Share matching. The UK pools shares of the same class at average cost, with same-day and 30-day matching rules. The US uses specific identification or first-in, first-out. The same sale gives two different costs.
• Losses. The US disallows a loss on a wash sale within 30 days. The UK 30-day rule works differently. US capital losses offset only $3,000 of other income a year.
• Gifts between spouses. The UK treats a transfer between spouses as giving rise to neither gain nor loss. The US does the same only if the receiving spouse is a US citizen or resident.
• Tax-free wrappers. Gains inside an ISA are exempt in the UK and taxable in the US.
• Sourcing. Under section 865 of the Internal Revenue Code, a gain on shares sold by a US citizen living abroad is foreign-source only if foreign tax of at least 10% is paid on it. Where the UK annual exempt amount or a relief brings the UK rate below that, the gain is US-source and other credits cannot shelter it.

Timing mismatches

The US taxes a gain in the calendar year of sale. The UK taxes it in the tax year to 5 April and collects the tax by 31 January after that year ends, or within 60 days for UK residential property. A sale in May 2025 falls in the 2025 US year, but the UK tax is not payable until January 2027. On the paid basis the credit arises in 2027 and can only be carried back one year, to 2026, so it misses the 2025 gain entirely. Accruing foreign taxes, or paying the UK tax early, usually solves it. Decide before the sale, not when the US return is due.

For US citizens selling US shares while living in the UK, the UK taxes the gain as the country of residence and gives no credit for US tax, because the treaty rate on such gains is nil. The US then credits the UK tax, using the treaty re-sourcing rule where the gain would otherwise be US-source.

A US person selling a UK home usually pays no UK tax, because private residence relief exempts a main home, but may owe US tax on any dollar gain above the $250,000 exclusion, or $500,000 for a joint return, and on any currency gain made on repaying the mortgage. A UK resident selling US property faces US withholding under FIRPTA and then UK capital gains tax with credit for the US tax.

UK private residence relief against the US section 121 exclusion

HMRC explains the UK relief in its guidance on tax when you sell your home, and the US rule is in section 121 of the Internal Revenue Code. The US amounts are fixed in the statute and have not been indexed since 1997, which is why London homeowners breach them so often.

The joint $500,000 exclusion needs a joint return, which generally means both spouses are US taxpayers or the non-US spouse elects to be treated as one. Where the home is jointly owned with a non-American spouse who does not file, only the American's half of the gain is in the US net, with a $250,000 exclusion against it.

A worked example, including the mortgage trap

Suppose Rachel, a single US citizen, buys a London flat for £500,000 when the pound is at $1.60, a dollar cost of $800,000. She funds it with a £400,000 interest-only mortgage, which is $640,000 at that rate. Years later she sells for £900,000 when the pound is at $1.30, which is $1,170,000, and repays the mortgage.

• UK position. The £400,000 gain is fully covered by private residence relief. UK tax is nil.
• US gain on the flat. $1,170,000 less $800,000 is $370,000. After the $250,000 exclusion, $120,000 is taxable. At 15% that is $18,000, with a further $4,560 if the Net Investment Income Tax applies.
• US gain on the mortgage. She borrowed the equivalent of $640,000 and repaid the equivalent of $520,000, because £400,000 costs fewer dollars at $1.30. The $120,000 difference is a currency gain.

The IRS treats the loan as a separate transaction from the house. In Revenue Ruling 90-79, and in the Quijano case in the First Circuit in 1996, the gain on repaying a foreign currency mortgage was held taxable even though the taxpayer saw it as part of one home purchase. A loss on a mortgage, when the pound has risen, is a personal loss and is not deductible. There is disagreement among practitioners over whether the gain is ordinary income or capital gain, and the $200 personal transaction exemption does not help at this scale. We are not aware of any change to this treatment as of October 2026. Remortgaging and each capital repayment can trigger the same calculation.

In Rachel's case the US tax bill arises on a sale the UK regards as exempt, so there is no UK tax to credit. The steps that help are taken early: keep records of improvement costs with dates and exchange rates, check whether a joint return doubles the exclusion, and model the mortgage position before you redeem.

The 60-day UK return and letting relief

If any UK tax is due on a UK residential property, a UK resident must report the sale and pay the tax within 60 days of completion, using HMRC's service to report and pay Capital Gains Tax on UK property. Non-UK residents must file within 60 days whether or not tax is due. No return is needed from a UK resident when private residence relief covers the whole gain. Paying within 60 days has a useful side effect: it puts the UK tax in the same US year as the sale in most cases.

Letting relief is now narrow. Since April 2020 it is available only where you let part of the home while living in it yourself, and it is capped at £40,000. If you moved out and let the whole property, the let period is taxable apart from the final nine months. HMRC's rules on letting out part of your home set out the conditions. On the US side, depreciation claimed, or allowable, during a let period is taxed at up to 25% on sale and is not covered by the section 121 exclusion.

Selling US property as a UK resident

FIRPTA is the US Foreign Investment in Real Property Tax Act, which requires the buyer of US real estate from a foreign seller to withhold 15% of the gross sale price and pay it to the IRS. It is a withholding on the price, not a tax on the gain. The IRS guidance on FIRPTA withholding sets out the exceptions.

• No withholding applies if the buyer will live in the property and the price is $300,000 or less.
• A reduced rate of 10% applies if the buyer will live in it and the price is over $300,000 but not over $1,000,000.
• You can apply on Form 8288-B for a withholding certificate that cuts the amount to the expected tax. Apply before or on the closing date.

You then file a US non-resident return, Form 1040-NR, report the actual gain and recover any excess withholding. The treaty lets the US tax the gain because the property is there. The UK taxes the same gain, computed in sterling, at 18% or 24%, and credits the US federal tax on the gain. US state tax on the gain is usually also creditable in the UK as a tax on income or gains, although it is outside the treaty. Our property and capital gains service prepares the US and UK computations together, so the credit is claimed in the right country and year.

A PFIC, or passive foreign investment company, is any non-US company that earns 75% or more of its income from passive sources or holds 50% or more of its assets to produce passive income. Almost every UK unit trust, OEIC, investment trust and non-US exchange-traded fund meets that test, and US tax law taxes them harshly.

The definition is in section 1297 of the Internal Revenue Code. It was written to stop Americans deferring tax in offshore funds. It catches ordinary retail savings products as well.

What counts as a PFIC in a UK portfolio

• UK unit trusts and OEICs, including index trackers.
• Investment trusts listed in London.
• ETFs domiciled in Ireland or Luxembourg, which is most ETFs sold to UK investors.
• Money market funds held as cash in a UK investment account.
• Funds held inside a stocks and shares ISA or a general investment account. The wrapper changes nothing for US purposes.
• Some start-up companies that hold mostly cash, in their early years.

Funds held inside a UK registered pension are generally treated as protected by the pension article of the treaty and are not reported fund by fund. Individual shares in trading companies are not PFICs. A cash ISA is not a PFIC, though its interest is taxable in the US.

The default regime: excess distributions

If you make no election, section 1291 of the Internal Revenue Code applies. An excess distribution is the part of a year's distributions that exceeds 125% of the average of the previous three years, and the whole of any gain on sale. It is spread evenly over the days you held the fund. The part allocated to the current year is ordinary income. The part allocated to earlier years is taxed at the highest rate in force for each year, currently 37%, whatever your own bracket, and interest is charged as if the tax had been due back then. Losses are not allowed under this regime.

Take an example. Suppose Ben, a US citizen in Bristol, puts $50,000 into a UK index fund in a stocks and shares ISA on 1 January 2021 and sells it on 31 December 2025 for $80,000, having made no election.

• The $30,000 gain is an excess distribution, spread over five years at $6,000 a year.
• The $6,000 for 2025 is ordinary income. At a 24% rate that is $1,440.
• The $24,000 for 2021 to 2024 is taxed at 37%, which is $8,880.
• Interest runs on each earlier year's share of that tax. At recent IRS underpayment rates it would add roughly $1,500.
• Total US cost: close to $11,800, about 39% of the gain. The same gain on a US fund would cost $4,500 at the 15% long-term rate.

The UK charged nothing because the fund was in an ISA, so there is no credit. The longer the holding, the worse the interest charge becomes.

The elections: QEF and mark-to-market

• Qualified electing fund (QEF). You report your share of the fund's ordinary income and capital gains each year, and keep long-term gain treatment. It needs an annual PFIC information statement from the fund. Very few UK retail funds provide one.
• Mark-to-market. You report the rise in value each year as ordinary income, and a fall as an ordinary loss up to earlier gains. It is available for funds that are regularly traded on a qualifying exchange or redeemable at net asset value. It needs no help from the fund, so it is the practical election for most UK holdings.

Either election works cleanly only if made for the first year you hold the fund. Made later, the built-up gain must first be purged under the excess distribution rules. Each fund is reported on its own Form 8621 every year. Ten funds mean ten forms.

The de minimis exception

You need not file Form 8621 for PFICs taxed under the default regime if the total value of all your PFICs is $25,000 or less at year end, or $50,000 on a joint return, and you received no excess distribution and made no sale in the year. The exception removes the annual filing only. It does not remove the tax when you sell. The conditions are in the IRS Instructions for Form 8621.

UK reporting funds against US PFICs: why no fund suits both by default

The UK has its own anti-deferral rule, pointing the other way. A UK reporting fund is an offshore fund that reports its income to HMRC each year, so that investors pay capital gains tax on a sale. A gain on a non-reporting offshore fund is taxed as income, at up to 45%. HMRC publishes the list of approved offshore reporting funds.

The two regimes collide. A US-domiciled mutual fund or ETF is not a PFIC, but to HMRC it is an offshore fund, and most have no reporting status. UK rules on retail product disclosure also stop most UK brokers selling US-domiciled ETFs to retail clients. A UK or Irish fund is fine for HMRC and a PFIC for the IRS. A small number of US-listed ETFs do hold UK reporting status, and these are the main funds that suit both systems. They have to be chosen deliberately.

What Americans in the UK can invest in instead

• Individual shares and bonds, which are not PFICs.
• US-domiciled ETFs with UK reporting fund status, bought through a broker that will deal for US persons.
• A UK pension, where the treaty protects growth.
• Cash savings and, for the UK side, National Savings and Investments products. Premium Bond prizes are tax free in the UK and taxable in the US.

If you already hold PFICs, do not sell in a hurry. Work out the cost under each regime first, since a managed exit over a tax year end can cost less than an immediate sale. Our PFIC reporting service prepares the Forms 8621 and the exit calculation. ISAs and funds also have to be disclosed as foreign accounts, which is covered in our guide to FBAR and FATCA reporting.

You claim a treaty position on your US return by attaching Form 8833 where the treaty overrides or changes a rule of the Internal Revenue Code, and on your UK return through the treaty claim boxes or an HMRC claim form. If both countries still tax the same income after you have claimed every relief, you ask the competent authorities to resolve it under Article 26.

Form 8833 and treaty-based return positions

A treaty-based return position is a position taken on a US tax return that a treaty overrules or modifies the Internal Revenue Code and so reduces your tax. You disclose it on Form 8833, Treaty-Based Return Position Disclosure, one form for each position. The penalty for failing to disclose is $1,000 for an individual for each position.

Positions that Americans and UK residents commonly disclose include:

• Residence under the Article 4 tie-breaker.
• Re-sourcing US income as UK-source under Article 24 to claim a credit.
• Deferral of tax on a pension scheme under Article 18, where the Code would otherwise tax it.
• Exemption of a pension lump sum or of social security under Article 17.

Some claims need no form. The regulations at 26 CFR 301.6114-1 waive disclosure for, among other things, reduced withholding on dividends and interest, and treaty claims that reduce tax on employment income, pensions, annuities, social security, and the income of students and teachers. When in doubt, file the form. It costs nothing and starts no audit by itself.

At source, the treaty is claimed differently. A UK resident who is not a US person gives US payers a Form W-8BEN with a tax identification number to get the 15% dividend rate and nil rate on interest. A US resident claiming UK treaty relief may need an IRS residency certificate, Form 6166, which you request on Form 8802. A UK resident asked to prove residence to the IRS or a US payer can apply to HMRC for a certificate of residence.

The usual causes of unrelieved double tax

Before turning to the tax authorities, check the ordinary causes. In our experience most cases of apparent double tax come from one of these:

1. The credit was claimed in the wrong country. Each country credits only tax on income sourced in the other.
2. The credit was put in the wrong basket, or the re-sourcing claim was missed.
3. US tax was withheld above the treaty rate and never reclaimed.
4. The tax years were mismatched and a carryback was not claimed.
5. The returns reported different amounts for the same income.

These are fixed by amending returns. The US allows a refund claim based on foreign tax credits for ten years. The UK limit for overpayment relief and credit claims is four years from the end of the tax year.

Competent authority and the mutual agreement procedure

The mutual agreement procedure is the process in Article 26 by which a taxpayer asks the tax authorities of the two countries to settle a case of taxation that does not accord with the treaty. The competent authority is the official body in each country that handles those cases: the IRS for the US and HMRC for the UK.

You present the case to the competent authority of the country where you are resident or of which you are a national. Under the treaty the case must be presented within three years of the first notification of the action that causes the problem, or within six years of the end of the tax year concerned if later. The US process is described on the IRS page about competent authority assistance. HMRC's approach is in its International Manual guidance on the mutual agreement procedure.

Typical cases are a dual residence dispute the tie-breaker has not settled, a disagreement about which country a pension scheme belongs to, or both countries treating the same income as arising within their borders. The authorities must try to reach agreement but are not obliged to. The treaty provides for arbitration only if both authorities agree to it. Cases take many months and often years, so file protective claims in both countries to keep the time limits open while you wait. The procedure cannot fix double tax that the treaty itself permits, such as the Net Investment Income Tax or US tax on an ISA.

The US-UK income tax treaty does not cover US state income taxes, estate, gift and inheritance taxes, or social security contributions. State taxes follow each state's own law, estates and gifts fall under a separate 1978 treaty, and contributions are governed by a social security agreement.

US state taxes

Article 2 lists only federal income taxes on the US side. The states are not parties to the treaty and most are free to ignore its income rules. Only the non-discrimination article reaches them.

What happens in practice depends on how the state builds its tax base. Many states start from federal adjusted gross income, so the foreign earned income exclusion and treaty exemptions flow through automatically. Some do not. California is the best-known example: it does not allow the foreign earned income exclusion, gives no credit for foreign income taxes and does not follow federal treaty exemptions. A few states have no income tax at all.

For a Briton in the US this means UK income that the treaty exempts federally can still be taxed by the state, with no credit for the UK tax. For an American in the UK it means making sure state residence really has ended. States such as California, New York and Virginia look at domicile, a home kept available, a driving licence and voter registration. The California Franchise Tax Board guidance on residency status shows how one state approaches it. Going the other way, HMRC generally accepts US state income tax as a creditable foreign tax under UK domestic law even though the treaty does not mention it.

The estate and gift tax treaty in brief

A separate convention signed in 1978 covers US federal estate and gift tax and UK inheritance tax. The IRS lists it among its estate and gift tax treaties. Its main features are:

• A tie-breaker that assigns a single treaty domicile to someone both countries claim.
• Primary taxing rights for the country of domicile, with the other country generally limited to land and business property within its borders. The US keeps the right to tax its citizens.
• A credit in each country for the other's tax on the same property.
• A pro rata share of the US estate tax exemption for a UK-domiciled person with US assets, in place of the $60,000 that US law gives a non-resident.

The numbers differ hugely. The US estate tax exemption is $15,000,000 per person for 2026. The UK nil-rate band is £325,000, with tax at 40% above it. From 6 April 2025 the UK charges inheritance tax on worldwide assets by reference to long-term residence, broadly ten of the previous twenty tax years, rather than domicile. HMRC explains the test in its guidance on Inheritance Tax if you are a long-term UK resident. The treaty still uses domicile, so how the new UK test and the old treaty language fit together needs individual advice. Gifts to a spouse who is not a US citizen have no unlimited US marital deduction, which catches many mixed-nationality couples.

The totalization agreement and social security contributions

A totalization agreement is a bilateral social security agreement that stops a worker paying contributions to two countries on the same earnings and lets periods of cover in both count towards benefits. The US-UK agreement has been in force since 1985. The Social Security Administration explains it in its guide to the US-UK social security agreement.

• Employees pay in the country where they work. Someone on a UK contract pays UK National Insurance only.
• Detached workers sent by their employer to the other country for five years or less stay in the home country's system. The employer obtains a certificate of coverage to prove it.
• Self-employed people pay in the country where they live. A self-employed American who is UK resident pays UK National Insurance and is exempt from US self-employment tax. Attach the UK certificate of coverage, obtained from HMRC, to the US return.

Without the certificate, the IRS can charge 15.3% self-employment tax on profits already subject to National Insurance. The foreign tax credit and the exclusion do not reduce that tax. HMRC's guidance on National Insurance if you go abroad covers the UK side. On benefits, the agreement lets you combine US and UK contribution periods to meet each country's minimum, so short careers on both sides are not wasted.

A Briton moving to the US becomes taxable there on worldwide income from the residency start date, and from that day UK ISAs, UK funds and UK property are inside the US system. Most of the planning that saves tax has to be done before arrival, because the US gives no uplift in the cost of assets you bring with you.

When US residence starts

You become a US tax resident by holding a green card or by meeting the substantial presence test: 183 days counted over three years, with the current year's days in full, last year's at one third and the year before's at one sixth. In the year you arrive you are usually a dual-status taxpayer, non-resident for the first part and resident for the rest. On the UK side, split-year treatment under the statutory residence test can end UK residence on departure rather than at the next 5 April. If both countries claim you for a period, the Article 4 tie-breaker decides.

Pre-arrival planning

• Realise gains first. The US taxes the whole gain on an asset sold after you arrive, measured from your original cost. Selling, or selling and rebuying, before US residence resets the cost. Check the UK tax on doing so.
• Deal with UK funds. Unit trusts, OEICs, investment trusts and Irish ETFs become PFICs on the day you become a US resident. Sell them or plan a mark-to-market election for the first US year.
• Review ISAs. The US does not recognise the ISA. Interest, dividends and gains are taxable each year. You can keep an ISA as a non-resident of the UK but cannot add to it.
• Take income early. Bonuses, dividends from your own company and share option exercises are often cheaper before US residence begins.
• Look at companies and trusts. A UK company you control may become a controlled foreign corporation, and a UK trust may become a foreign trust with US reporting.

UK pensions after the move

Article 18(1) keeps growth in a UK registered pension free of US tax while you live in the US. Regular pension payments to a US resident are taxable only in the US under Article 17(1), and you can ask HMRC for a no-tax code so the UK scheme pays gross. The UK tax-free lump sum is the contested point described earlier. For a US resident the Article 17(1)(b) argument is at its strongest, but it remains a disclosed treaty position. Most US states follow the federal treatment of pensions. Some do not.

What the UK keeps taxing

After you leave, the UK still taxes UK rental income, gains on UK land and property, and UK government service pensions. Gains on UK property must be reported to HMRC within 60 days of completion even if no tax is due. UK interest and dividends are generally free of UK tax for a non-resident. If you return to the UK within five years, the temporary non-residence rules can tax gains and some income realised while you were away, and Article 13(6) of the treaty allows it.

The US taxes all of this too and credits the UK tax on UK-source income. As a US resident who is not a citizen, you get more from the treaty than an American in Britain does, but the saving clause applies to you as a US resident all the same. Our cross-border tax planning service covers moves in both directions, and employers sending staff across can start with US-UK business expansion.

You avoid US-UK double taxation by settling residence first, deciding which country taxes each item first, claiming the credit in the other country in the right category and year, and making sure both returns report the same income. The order of work matters as much as the rules.

1. Fix your status. Confirm UK residence under the statutory residence test, US status by citizenship, green card or day count, and treaty residence under Article 4 if both apply.
2. List every source of income and every asset. Include ISAs, pensions, funds, property, company shares and accounts held jointly with a non-US spouse.
3. Assign each item a treaty article. Note which country taxes first and whether the saving clause changes the answer.
4. Prepare the first-taxing country's figures first. For UK-source income of a UK resident, that is the UK computation. You cannot compute the US credit without it.
5. Choose exclusion or credit for earnings. Run both, with the child tax credit, IRA and carryforward effects.
6. Sort income into baskets. General, passive and re-sourced by treaty, each on its own Form 1116.
7. Deal with the gaps. ISA income, PFICs, currency gains, the home sale exclusion and the Net Investment Income Tax are where credits run out.
8. Disclose treaty positions. Attach Form 8833 where needed and keep the working papers.
9. Reconcile the two returns. The same income should appear on both, translated consistently, with each credit matching tax shown on the other return.
10. Keep the schedules. Carryforwards, dollar basis of assets, PFIC elections and pension basis all roll forward for years.

How US UK Tax Experts handles it

US UK Tax Experts prepares the US return and the UK return from one file, so the income, exchange rates and credits agree across both. We work out the UK liability, compute the US credit basket by basket, test the exclusion against the credit, and disclose treaty positions on Form 8833. Where earlier years were filed without the right relief, or not filed at all, we amend them or use the IRS streamlined filing procedures.

To start, email hello@usuktaxexperts.com or use the contact page. We reply within one working day. You can also see the full list of services.