An American in the UK qualifies for the foreign earned income exclusion (opens the official IRS page in a new tab) only with a tax home in a foreign country and one of two tests: bona fide residence abroad for an uninterrupted period that includes an entire tax year, or physical presence abroad for 330 full days within twelve consecutive months. Qualifying is a separate question from whether claiming is wise, and in the UK the foreign tax credit often gives the better result.
This post is for US citizens and green card holders living in Britain who are completing or checking Form 2555. It goes deeper on one question than our guide to avoiding US-UK double taxation. We cover who may use each test, the full-year rule, the effect of telling HMRC you are not resident, day counting, the tax home requirement, a worked example and the choice that follows.
What is the bona fide residence test for someone living in the UK?
It asks whether you have genuinely made your home in the UK for an uninterrupted period that includes an entire tax year. The IRS decides, largely from the facts reported on Form 2555, and it looks at your intention or purpose in being there, together with the length of your stay and the nature of your work.
The test is open to US citizens and to resident aliens who are citizens or nationals of a country with which the United States has an income tax treaty. A British green card holder living in the UK can therefore use it, as can a US citizen. Publication 54 (opens the official IRS page in a new tab) is plain that living abroad for a year does not by itself confer bona fide resident status. The IRS weighs the whole picture, and it cannot make a determination until Form 2555 has been filed.
Because the test turns on intention and conduct, evidence matters. A permanent employment contract, a long tenancy or a purchased home, and a family living with you all tend to support residence. A fixed-term posting with a planned return points the other way. The Form 2555 instructions (opens the official IRS page in a new tab) note that where your actions and your statements conflict, your actions count for more.
- Your intention or purpose in being in the UK
- How long you have stayed and the nature of your work
- Whether family members lived with you, and for which dates
- The date your residence began and, if it has, the date it ended
- Whether you told a foreign tax authority you are not resident there
Why must bona fide residence cover a whole tax year?
Because the rule requires residence for an uninterrupted period that includes an entire tax year, which for most individuals is the calendar year. Someone who arrives in the UK in June cannot meet the test until 31 December of the following year, however settled they are from the first day.
Once the full year is in, the test reaches back. Publication 54 says the exclusion is then figured from the date the residence actually began, so part of the arrival year can be covered. Residence can also run to the date you abandon it, which may bring part of the departure year within the exclusion. A stay that ends before the close of its first full calendar year does not qualify under this test at all.
Brief trips do not break the period. The IRS allows visits to the United States or elsewhere, for holidays or business, provided you clearly intend to return to your foreign residence, or to a new one, without unreasonable delay. A first return is often due before the full year has run. Publication 54 (opens the official IRS page in a new tab) allows a Form 2350 extension, filed by the due date, or an on-time return without the exclusion followed by Form 1040-X once you qualify.
Does telling HMRC you are not UK resident rule out the test?
It can. The IRS says you are not a bona fide resident of a foreign country if you make a statement to its authorities that you are not a resident and they hold that you are not subject to their income tax as a resident. While such a claim is still undecided, the IRS does not treat you as a bona fide resident either.
In the UK, residence claims are made on the residence pages of Self Assessment. A non-residence claim on form SA109 (opens the official HMRC page in a new tab) sits uneasily with a US claim that the UK is your home. Lines 13a and 13b of Form 2555 ask about any statement of nonresidence directly, so the two returns need to tell the same story. The physical presence test does not depend on any statement to HMRC.
UK residence itself is decided by the Statutory Residence Test (opens the official HMRC page in a new tab), a set of day counts and ties that has nothing to do with the IRS test. Being UK resident under the SRT is consistent with bona fide residence but does not prove it, because the IRS applies its own facts-based judgement. A person can also be UK resident for a split year and still fall short of the US full-year requirement.
How does the physical presence test count days in the UK?
It counts 330 full days spent in one or more foreign countries within any period of twelve consecutive months. Intention and the nature of your home play no part. Only the count matters, alongside a foreign tax home, and a shortfall caused by illness, family events or an employer's instructions is not excused.
A full day runs from midnight to midnight. The day you fly out of the United States usually does not count, and time over international waters on the way is not time in a foreign country. Travel between foreign countries costs nothing, and a connection through a US airport of under 24 hours between two places outside the United States is not treated as presence in the United States.
The twelve-month window can start on any day, and you may choose the period that gives the largest exclusion. Windows used for different years can overlap, which helps in arrival and departure years. Form 2555 asks for both dates in full, with no open end. Because the test is a pure count, it suits people whose stay in the UK is open-ended but has not yet covered a calendar year, and people who expect to leave.
- Count full days only, midnight to midnight, in any foreign country
- Leave out days in the United States, including holiday visits
- Leave out time over international waters on the way to or from the US
- Choose the twelve-month window that gives the largest exclusion
- Keep travel records such as boarding passes, passport stamps and calendars
What does the tax home requirement add to either test?
It is a separate condition that applies to both tests. Your tax home, the general area of your main place of business, employment or post of duty, must be in a foreign country throughout the qualifying period. Meeting the day count or proving residence does not help if your tax home stays in the United States.
Two rules catch people. First, you have no foreign tax home for any period when your abode is in the United States. Abode turns on economic, family and personal ties, so keeping a US house is not decisive on its own, but a family left behind in the US can be. Second, work expected to last one year or less is treated as temporary unless the facts indicate otherwise, and a temporary absence leaves the tax home where it was.
Work expected to last more than one year is indefinite, and with no US abode the tax home moves abroad. If a posting first expected to last a year or less is later extended, it stays temporary until the expectation changes. A US employee seconded to London for a fixed short term can therefore spend every day in the UK and still not qualify. Our individual tax returns service reviews secondment letters before a claim is made.
How do the tests apply to a US citizen employed in Leeds?
Take a US citizen who moves from Denver to a permanent job with a UK employer in Leeds in early May, signs a long tenancy and brings her family. She cannot meet bona fide residence until the end of the following calendar year, but she can meet the physical presence count the following spring.
Her tax home moved with the permanent job, and her abode is in Leeds because her family, home and bank accounts are there. For the arrival year she can use a twelve-month physical presence window starting on her first full day in the UK, provided her time outside foreign countries in that window stays short. She either extends on Form 2350 or files on time and amends once the count is met.
From the second full calendar year she can rely on bona fide residence, which tolerates longer visits home where she plainly intends to return. Before claiming anything, though, we would compare the exclusion with the foreign tax credit (opens the official IRS page in a new tab). Her UK PAYE tax on a professional salary is likely to cover the US tax on it, and she has children, so the credit is the stronger starting point.
Should you claim the exclusion once you qualify?
Not automatically. Qualifying gives you a choice, and in the UK the foreign tax credit often gives the better result, because UK income tax on earnings is generally higher than US tax on the same earnings. The credit can bring US tax on that income to nil and carries the surplus forward.
The exclusion has costs. UK tax on excluded earnings cannot be credited, and the rest of your income is taxed at the rates that would apply if the excluded earnings were still on the return. Anyone claiming it cannot take the additional child tax credit. Unused credits, by contrast, carry back one year and forward ten. Our post on the foreign tax credit or the exclusion in the UK works through the comparison on Form 1116.
The choice also binds. The election continues until revoked, and after revoking you cannot choose the exclusion again for the next five tax years without IRS approval. Taking a foreign tax credit on income you could have excluded can count as revoking it. Our tax planning service models both routes over several years, our cross-border tax service prepares both returns together, and the wider reliefs are in our guide to US-UK double taxation.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
