US & UK Expat Tax Matters

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Tax Matters When Moving Between the UK and the US

We have created a new website for Americans and British who wish to know their tax obligations when moving to another country.

According to UK HMRC data, over 40,000 British citizens move to the US annually, while Americans relocate to the UK. Tax implications are often one of the most complex aspects of these moves, with double taxation, reporting obligations, and compliance risks creating potential pitfalls. Whether you are a British expat moving to the US or an American heading to the UK, understanding tax residency, income reporting, and tax treaty benefits is essential.

This guide explains key expat tax considerations, including residency determination, double taxation relief, pension implications, and filing requirements. By following expert-backed strategies, expats can remain compliant while minimizing tax liabilities.

How to Determine Tax Residency When Moving Between the UK and US

Tax residency is the foundation of your obligations in both the UK and the US. Each country has different rules for determining residency:

UK Tax Residency: The UK applies the Statutory Residence Test (SRT), which assesses residency based on physical presence, connections, and past residency history (source: HMRC).

US Tax Residency: The US applies the Substantial Presence Test (SPT), which considers the number of days spent in the US over a three-year period (source: IRS).

Expats must determine their tax residency status as it dictates income tax liability. If deemed a resident in both countries, the US-UK Tax Treaty helps resolve conflicts and determine primary residency.

International expat tax guidance: Whether you are American moving to the Uk or British moving to the US; you will need to think about your tax reporting obligations to the IRS and HMRC

Avoiding Double Taxation: US Foreign Earned Income Exclusion vs. UK Tax Relief

For those moving between the UK and US, the risk of double taxation is significant. However, there are provisions to mitigate this:

UK Relief for US Taxes: The UK provides a Foreign Tax Credit (FTC), allowing UK tax residents to offset US taxes paid against their UK tax liability (source: HMRC).

US Foreign Earned Income Exclusion (FEIE): Americans abroad can exclude up to $130,000 (2025) of foreign-earned income from US taxation if they meet either the Physical Presence or Bona Fide Residence test (source: IRS).

Tax Treaty Benefits: The US-UK Double Taxation Agreement ensures that income is not taxed twice, but expats must claim treaty benefits correctly via IRS Form 8833 or UK self-assessment.

Reporting Pensions

Pension taxation is a key concern for expats. Under the US-UK tax treaty:

UK Pensions for US Residents: UK pensions (including SIPPs) are taxable in the US but may receive UK tax relief if adequately structured.

US Pensions for UK Residents: 401(k) withdrawals are taxable in the UK, though tax credits may apply.

Reporting Requirements: Americans must report foreign pensions on Form 8938 (FATCA) and FBAR (FinCEN 114) if thresholds are met.

Real-World Scenarios & Solutions

Scenario 1: British Expat Relocating to the US

David, a UK citizen moving to Florida, has a UK rental property and ISA investments. Since ISAs are not tax-free in the US, he must report income and capital gains. He claims a Foreign Tax Credit (FTC) to offset UK rental tax against his US liability.

Scenario 2: American Moving to London

Lisa, a US citizen working in London, still has US investments. She claims Foreign Earned Income Exclusion (FEIE) for her UK salary while ensuring her US stock dividends are reported under UK tax rules.

Scenario 3: Dual UK-US Citizen Managing Pensions

James, holding both citizenships, receives UK state pension payments while living in New York. He reports these as foreign income on his US tax return while ensuring the UK does not double-tax him under treaty provisions.

Filing Obligations for Expats

UK Expats in the US: Must file IRS Form 1040, report foreign bank accounts via FBAR, and disclose UK investments via FATCA (Form 8938).

US Expats in the UK: Must file UK Self-Assessment, declare worldwide income, and potentially pay National Insurance Contributions (NICs).

Tax Treaty Forms: Expats may need Form 8833 (US-UK treaty claim) and Form W-8BEN (for UK tax relief on US investments).

As of 2024, changes to US expatriation taxes and UK remittance basis rules impact expats. The IRS has increased enforcement of FBAR violations, while HMRC is scrutinizing non-resident landlords. Keeping up with these changes is crucial for tax efficiency.

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