Tax Guide for U.S. Expats Living in the United Kingdom

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U.S. Expats

The United Kingdom is a popular place for American expats to live because it has a long history, a culture that speaks English, and has been a world power for a long time. However, while the United Kingdom may be a fantastic place to call home, it’s crucial to be aware of the tax implications before moving.

Keep reading to learn everything you need to know about paying taxes in the United Kingdom as an American citizen.

How do taxes work in the United Kingdom for U.S. expats?

Like in the United States, the United Kingdom taxes salary, earnings, business income, and investment income as earned. Pay As You Earn (PAYE) taxes are payroll taxes. The acronym PAYE stands for “Pay As You Earn,” which encompasses both income tax and national insurance. An extra dollar of income is taxed at a greater rate due to the progressive nature of the system.

Do U.S. expats living in the U.K. have to pay taxes?

As soon as they arrive, most Americans in the U.K. have questions about whether or not they should file taxes in the United Kingdom or the United States. Usually, “both” is good enough as an answer. This is because: 

  • Most foreigners living in the United Kingdom will have some local tax responsibilities.
  • Regardless of where they reside, every U.S. resident must submit a U.S. tax return yearly.

Have U.S. and U.K. Tax Treaties Been Established?

Yes. To avoid paying taxes in two places, Americans living in the U.K. can rely on a tax treaty between their own country and the United States. If you owe income taxes, the payments will usually be sent to the country where you are considered a resident.

Where do U.S. Expats living in the United Kingdom file their tax returns?

SA 100, Tax Return for Non-UK Residents

The SA100 is the United Kingdom’s version of the United States’ Form 1040, the Internal Revenue Service’s form for reporting individual income and tax information.

When you need to submit Form SA100 will be determined by the method you choose. Paper tax returns must be postmarked no later than October 31 of the tax year they are being filed. Online tax returns must be submitted by January 31 of the following year. There are no grace periods for submitting paperwork. You can also read about US tax CPA in the United Kingdom to know more.

How Can Americans Living Abroad in the United Kingdom Save Money on Taxes?

You may be eligible to benefit from different tax laws and regulations that can help you reduce or eliminate your tax bill in the United States while living in the U.K. The merger of the Foreign Earned Income Exclusion (FEIE), Housing Exclusion (HE), and Housing Deduction (H.D.) found on Form 2555 – Foreign Earned Income, and the Foreign Tax Credits (FTC) found on Form 1116 – Foreign Tax Credit results in the creation of these rights of offsets. Therefore, if the country in question has a foreign income tax, the Foreign Tax Credit on Form 1116 may be applicable.