Why are Americans in the UK taxed by both countries?
Double taxation arises because the two countries use different connecting factors. The United States taxes citizens and green card holders on worldwide income wherever they live. The United Kingdom taxes its residents on worldwide income and non-residents on UK-source income. A US citizen resident in Britain therefore falls within both systems on the same income every year.
Most countries tax people who live there and income that arises there. The United States adds a third basis: citizenship. A US citizen or green card holder files Form 1040 on worldwide income every year, whatever their address, as the IRS guidance for US citizens and resident aliens abroad (opens the official IRS page in a new tab) confirms. Moving to London changes the deadlines and the forms attached to the return. It does not remove the return.
The UK works on residence and source. Someone who is UK resident under the Statutory Residence Test (opens the official HMRC page in a new tab) is taxed on income and gains from anywhere in the world, through PAYE or on the SA100 Self Assessment return. A non-resident is taxed only on UK-source income such as rent from UK property. The US rules have no bearing on that test.
- Citizenship against residence. A US citizen living in Manchester is taxed by the UK as a resident and by the US as a citizen on the same salary, interest and gains.
- Residence against source. A British national in Leeds with dividends from US companies is taxed by the US because the income arises there and by the UK because the owner lives there.
- Residence against residence. Someone who meets the US substantial presence test and the UK residence test in the same year is resident in both until the treaty assigns them to one.
The two systems also measure income differently. The US tax year is the calendar year and the UK tax year runs from 6 April to 5 April. One return is in dollars and the other in pounds. Each country has its own exemptions: an ISA is sheltered in the UK and fully taxable in the US. Our comparison of US and UK income taxes sets the two side by side.
What are the ways to avoid US-UK double taxation?
There are four main reliefs. The US-UK income tax treaty allocates taxing rights and caps some source-country rates. The US foreign tax credit sets UK tax against US tax on the same income. The foreign earned income exclusion removes foreign earnings from US taxable income. UK foreign tax credit relief sets US tax against UK tax.
Three of the four tools belong to the US return and one to the UK return. Which country gives way depends on the type of income and on who has the first right to tax it. For a US citizen resident in the UK, the UK usually taxes first on earnings and most investment income, and the US gives the credit. For rent from American property, the US taxes first and the UK gives the credit.
| Relief | What it does | Where it is claimed | Income it reaches |
|---|---|---|---|
| US-UK income tax treaty | Allocates taxing rights, caps some withholding, settles dual residence, re-sources income | Form 8833 in the US where disclosure is required; SA109 in the UK | Income named in a treaty article, subject to the saving clause |
| Foreign tax credit | Reduces US tax by foreign income tax on the same income, within a limit | Form 1116 with the US return | Foreign-source income of any kind, basket by basket |
| Foreign earned income exclusion and housing exclusion | Removes qualifying foreign earnings and some housing cost from US taxable income | Form 2555 with the US return | Earned income only |
| UK foreign tax credit relief | Reduces UK tax by foreign tax on the same income, up to the treaty rate | Foreign pages (SA106) of the UK return | Foreign income and gains the other country may tax first |
A fifth option exists on the US side: deducting foreign tax as an itemised deduction, as the IRS explains in its guidance on taking a credit or a deduction (opens the official IRS page in a new tab). A deduction reduces taxable income where a credit reduces tax itself, so the credit is worth more in almost every UK case. The choice covers all creditable foreign taxes for the year.
The tools overlap, and using one can close off another. Foreign tax on income excluded on Form 2555 cannot also be credited. The treaty can change the source of income so that a credit becomes available where domestic law alone would deny it. For that reason our cross-border tax service prepares both returns from one schedule of income, tax charged and relief due. Simpler cases often need an individual US tax return with a Form 1116 and nothing more.
Does the US-UK tax treaty stop the US taxing a US citizen?
No. Article 1(4) of the US-UK income tax treaty, the saving clause, lets the United States tax its citizens and residents as if the treaty had not come into effect. Article 1(5) lists the exceptions, which include the double taxation relief article, certain pension and social security provisions, and non-discrimination. A US citizen keeps those benefits only.
The most common misreading of the US-UK treaty documents (opens the official IRS page in a new tab) is to find an article saying income is taxable only in the country of residence and to conclude that a US citizen in the UK owes no US tax on it. The saving clause prevents that. Article 1(5) then preserves a short list of benefits.
| Benefit | Article | Available to a US citizen |
|---|---|---|
| Relief from double taxation, including re-sourcing | 24 | Yes |
| Exemption matching the other country's exemption for a pension payment | 17(1)(b) | Yes |
| Social security taxed only where the recipient lives | 17(3) | Yes |
| Deferral of tax on growth inside the other country's pension scheme | 18(1) | Yes |
| Contribution relief for a US citizen resident in the UK, within limits | 18(5) | Yes |
| Non-discrimination and mutual agreement procedure | 25, 26 | Yes |
| Host-country pension contribution relief, government service, students, teachers, diplomats | 18(2), 19, 20, 20A, 28 | Only if not a US citizen or green card holder |
The re-sourcing rule in Article 24
The US credit only offsets US tax on foreign-source income. That is a trap for a US citizen in the UK who holds American shares: the dividends are US-source, so under domestic law UK tax on them could not be credited, while the UK taxes them in full. Article 24(6) resolves this in three stages.
- The UK credits US tax, but only the amount the US could charge a UK resident who was not a citizen. For a portfolio dividend that is the 15% treaty rate. For interest and most share gains it is nil.
- The US computes its tax on the citizen in the normal way and allows a credit for the UK tax paid after the first stage.
- To make that credit usable, the income is treated as arising in the UK to the extent needed to avoid double taxation. US tax cannot fall below the amount the UK credited.
Take a US citizen resident in Edinburgh, taxed at the UK higher rate, with directly held US shares. The UK taxes the dividends at its dividend rates less a credit of 15%. The US taxes them at US rates, then credits the net UK tax on a separate Form 1116 for income re-sourced by treaty. Total tax ends up at roughly the higher of the two countries' rates, not the sum. Software does not apply this rule unprompted, and our treaty relief service checks it for each item of income.
Which country taxes which income under the US-UK treaty?
The US-UK treaty gives the country where income arises a first or limited right over some income, such as rent from land and dividends, and gives the country of residence the sole right over other income, such as interest, royalties and most gains. For a US citizen, the saving clause then restores US taxation, with relief by credit.
The table gives the general rule in each article for an individual. Each article has conditions the table cannot hold, and the text published by HMRC under USA: tax treaties (opens the official GOV.UK page in a new tab) is the authority.
| Income | Article | General rule | US citizen resident in the UK |
|---|---|---|---|
| Employment income | 14 | Taxed where the work is done, with an exception for short visits | Both tax; US credits UK tax |
| Directors' fees | 15 | May be taxed where the company is resident | Both may tax; relief by credit |
| Dividends | 10 | Source country generally limited to 15%; lower for some company shareholders and pension schemes | US taxes in full; Article 24 shares the relief |
| Interest | 11 | Generally taxed only in the country of residence | Both tax; US credits UK tax |
| Royalties | 12 | Generally taxed only in the country of residence | Both tax; US credits UK tax |
| Pensions and lump sums | 17(1), 17(2) | Pensions by the residence country; lump sums by the scheme country | Lump sums are unsettled |
| Social security, State Pension | 17(3) | Taxed only in the country of residence when paid across the border | US Social Security: UK only. UK State Pension: both tax; US credits UK tax |
| Real property income | 6 | May be taxed where the property is | Both tax; residence country credits |
| Capital gains | 13 | Land where it lies; most other gains by the residence country only | Both tax; relief by credit |
| Government service | 19 | Generally taxed only by the paying government | Not protected for US citizens |
| Students and teachers | 20, 20A | Certain payments exempt in the host country | Not protected for US citizens |
Employment income and where the work is done
Article 14 turns on physical location. Salary is taxable where the duties are carried out, with an exception for short visits where the employer is not resident in the host country and the cost is not borne by an establishment there.
Take a US citizen who lives in Surrey, works for a UK company and spends a quarter of her working days at its Boston office. Both countries tax the whole salary. The Boston days are US-source earnings, so UK tax on them is not creditable under domestic law. The UK credits the US tax on those days, and the treaty re-sources the rest. Equity awards are apportioned the same way, as our guide to US-UK tax for founders, fund managers and executives explains.
How does the foreign tax credit work on Form 1116?
The foreign tax credit reduces US income tax by foreign income tax paid or accrued on foreign-source income. Form 1116 limits the credit, category by category, to the US tax on that category of income. Unused credit is carried back one year and forward ten years. UK income tax and capital gains tax qualify. National Insurance does not.
The foreign tax credit (opens the official IRS page in a new tab) is the main relief for anyone paying UK tax at rates above the US rates on the same income. It is a credit against tax, so UK income tax deducted through PAYE on a London salary comes straight off the US tax on that salary. The detailed rules are in Publication 514 (opens the official IRS page in a new tab).
The credit cannot exceed the US tax on foreign-source taxable income. The form works this out as a fraction: foreign taxable income in a category over worldwide taxable income, multiplied by US tax. The calculation runs separately for each category, known as a basket, with a separate Form 1116 (opens the official IRS page in a new tab) for each. Credits in one basket cannot shelter US tax in another.
| Basket | Typical income | Usual result |
|---|---|---|
| General | Salary, bonuses, self-employment profit, most pension income | UK tax often exceeds US tax, leaving excess credit to carry |
| Passive | Interest, dividends, most investment gains | UK tax can be lower than US tax on some items |
| Income re-sourced by treaty | US-source dividends, interest and gains of a US citizen resident in the UK | Credit for UK tax on that income only |
Deductions are allocated between US and foreign income before the fraction is applied, which is why the credit rarely equals the UK tax on a payslip. The standard deduction is spread across all income. These mechanics explain why a small amount of US tax can remain even when UK tax looks higher overall.
Where UK tax in a basket exceeds the limit, the excess is carried back one year and forward ten, within the same basket. Someone on a salary taxed partly at the UK higher rate typically builds a pool of general-basket credits. The pool has value if they later have foreign-source earnings taxed lightly abroad, such as workdays in a low-tax country.
- Creditable: UK income tax and capital gains tax, including PAYE that is a final liability.
- Not creditable: National Insurance, because a totalization agreement is in force.
- Not creditable: VAT, stamp duty land tax and council tax, which are not income taxes.
- Not creditable: UK tax that is refundable, or tax on income excluded on Form 2555.
Which year do you claim UK tax in on a US return?
A US taxpayer credits UK tax either in the calendar year it is paid or, by election, in the year it accrues. UK tax accrues when the UK tax year ends on 5 April, so under the accrual method a full UK year's tax falls into one US year. The election, once made, is permanent.
A US calendar year contains roughly the last three months of one UK tax year and the first nine of the next. Deciding which US return each payment belongs to is the most frequent practical problem on Form 1116.
| Paid basis | Accrual basis | |
|---|---|---|
| When UK tax is credited | The US year it is paid or withheld | The US year in which the UK tax year ends |
| PAYE on salary | Each deduction counts in the calendar year withheld | The whole UK year counts in the US year containing 5 April |
| Exchange rate | Generally the rate on the date of payment | Generally the average rate for the year the tax relates to |
| Can it be changed | Accrual can be elected on a timely return | No; the election binds later years |
Worked example: salary, then a gain
A US citizen employed in London has tax deducted monthly. On the paid basis, PAYE withheld from January to December is credited against US tax on the salary earned in those months. Income and tax line up closely, and the paid basis is usually the cleaner choice.
Suppose the same person sells shares at a gain in the autumn. The gain falls in that calendar year for US purposes. The UK tax is due by 31 January after the UK tax year ends, more than a year later. On the paid basis it is credited in the year of payment, and the one-year carryback does not reach the year of the gain. US tax is paid in full and the credit arrives too late.
On the accrual basis the UK tax accrues on the 5 April after the sale, is credited in that US year and can be carried back one year to the year of the gain.
How does the foreign earned income exclusion work in the UK?
The foreign earned income exclusion lets a qualifying US taxpayer with a tax home abroad exclude up to $130,000 of foreign earned income for tax year 2025 on Form 2555. Qualification is by the bona fide residence test or the physical presence test. It covers earnings only, and never pensions, dividends, interest, rent or gains.
The foreign earned income exclusion (opens the official IRS page in a new tab) removes income from the US return instead of crediting foreign tax against it. It is an election made on Form 2555 (opens the official IRS page in a new tab). It is not applied automatically, and the person's tax home must be outside the United States.
- Bona fide residence test. The taxpayer is a genuine resident of a foreign country for an uninterrupted period that includes a full calendar year. It looks at intention, home and family.
- Physical presence test. The taxpayer is physically present in a foreign country for at least 330 full days in any period of twelve consecutive months. It is a count of days, and days in the United States do not count.
In the year of arrival or departure the exclusion is prorated by qualifying days. Someone who moves to the UK in the autumn can often qualify under the physical presence test once the twelve months have run, which is why first-year returns are frequently filed on extension.
What the exclusion cannot do
The exclusion covers wages, bonuses and self-employment profit for personal services. It does not cover pensions, social security, dividends, interest, capital gains or rent, as Publication 54 (opens the official IRS page in a new tab) sets out. Pay for work physically performed in the United States is US-source and cannot be excluded, even if a UK employer pays it into a UK account.
The stacking rule makes the exclusion less generous than the headline figure suggests. Income above the limit, and any unearned income, is taxed at the rates that would apply if the excluded income were still on the return. UK tax attributable to the excluded earnings cannot be credited, so part of the UK tax on a larger salary is wasted.
Form 2555 also carries the housing exclusion for employees and the housing deduction for the self-employed. They cover housing costs above a base amount, up to a limit that is higher for certain high-cost locations, and only for someone who qualifies for the main exclusion.
Is the foreign tax credit or the FEIE better in the UK?
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 removes the US tax, preserves excess credits as carryovers, and keeps open reliefs that the exclusion closes. The exclusion can still suit some lower earners.
The exclusion was designed for people working in countries with little or no income tax. Where UK tax on a salary already exceeds the US tax on it, the credit brings US tax on that salary to nil without excluding anything, and the surplus is carried forward. Our article on the foreign tax credit or the exclusion in the UK works through the comparison.
| Profile | Usually stronger | Why |
|---|---|---|
| Employee taxed partly at the UK higher rate | Foreign tax credit | UK tax exceeds US tax; excess credits build up |
| Basic-rate earner with modest pay | Either; compare both | Both often reach nil; the exclusion is simpler but gives up credits tied to earned income |
| Self-employed | Foreign tax credit | Neither removes self-employment tax, which the totalization agreement deals with |
| Parent with qualifying children | Foreign tax credit | The refundable part of the child tax credit is unavailable to anyone filing Form 2555 |
| Saving into an IRA or Roth IRA | Foreign tax credit | Excluded earnings do not count as compensation for contributions |
| Saving into a UK pension | Foreign tax credit | Treaty contribution relief needs taxable earnings to set against |
A US citizen employed in London on a salary taxed partly at the UK higher rate, with two children, takes the credit. Her UK tax covers the US tax on her earnings, the excess is carried forward, and she can claim the refundable child tax credit that the exclusion would have blocked.
A US citizen working part time in a Cardiff bookshop, earning little more than the UK personal allowance, pays little UK tax. The US standard deduction may cover the earnings unaided. If it does not, there is little UK tax to credit and the exclusion may be the simpler route to nil.
A US citizen who has used the exclusion for a decade and whose pay now exceeds the limit is least comfortable. Earnings above the limit are taxed at stacked rates and only part of the UK tax is creditable. Revoking usually helps, at the price of the five-year bar.
Which US taxes are not covered by the credit or the treaty?
Three US charges sit partly outside the main reliefs. The net investment income tax is generally not creditable under domestic law, and treaty-based claims are contested. Self-employment tax is governed by the totalization agreement, not the income tax treaty. State income tax does not always follow the federal treaty, credit or exclusion.
Net investment income tax
The net investment income tax (opens the official IRS page in a new tab) is a 3.8% charge on interest, dividends, gains and rent for taxpayers whose income exceeds a threshold set by filing status. The threshold for married filing separately, the usual status for a US citizen married to a non-US spouse, is the lowest. The tax is computed on Form 8960 (opens the official IRS page in a new tab).
The charge is generally not creditable under domestic law, and treaty-based claims are contested. A US citizen in the UK with substantial investment income can therefore owe it even where UK tax on the same income exceeds all the US income tax on it. A treaty claim is a disclosed position with litigation risk.
Self-employment tax and the totalization agreement
US self-employment tax, at 15.3% before any agreement is applied, is a social security charge. Neither the credit nor the exclusion reduces it. Relief comes from the separate totalization agreement with the United Kingdom (opens the official SSA page in a new tab), which assigns social security coverage to one country so contributions are not paid to both on the same work.
A self-employed US citizen who lives in the UK is generally covered by the UK system and pays National Insurance only. The evidence is a certificate of coverage from HMRC, kept with the US return. Employees sent temporarily from one country to the other can usually stay in their home system for the assignment, again with a certificate.
State income tax
The income tax treaty binds the federal government. Some states do not follow it, and some do not allow the foreign earned income exclusion or a credit for foreign income tax. A person still treated as domiciled or resident in such a state can owe state tax on worldwide income with no relief for UK tax. Some states are known for being slow to release former residents.
- Check whether the last state of residence taxes former residents who keep a home, a driving licence or a voter registration there.
- Check whether that state adds the federal exclusion back to income.
- Check whether a treaty position on the federal return is recognised by the state.
How are pensions taxed between the US and the UK?
Under Article 18 of the US-UK treaty, growth inside a UK pension scheme is generally not taxed by the US until it is paid out, and that protection survives the saving clause. Relief for contributions is narrower. Under Article 17, periodic pensions are taxed by the country of residence, and social security only there.
Pensions are where the treaty does most for a US citizen, and where loose summaries cause most harm. Growth and contributions fall under different paragraphs with different protection. Our US-UK pensions service reviews each scheme against the treaty definitions before a position is taken.
| Item | Provision | Position |
|---|---|---|
| Growth inside a UK pension scheme | 18(1) | Generally not taxed by the US until distributed; protected from the saving clause |
| Contributions to a UK pension scheme | 18(5) | Relief within limits tied to US rules; narrower, with conditions |
| Periodic pension payments | 17(1)(a) | UK taxes; the US may tax its citizen too, with a credit |
| Payments exempt in the source country | 17(1)(b) | Exempt in the residence country as well; protected |
| Lump sums | 17(2) | Assigned to the country of the scheme; not protected from the saving clause |
| US Social Security and UK State Pension | 17(3) | Taxed only in the country of residence when paid to a resident of the other country; protected |
Growth and contributions
Article 18(1) says that where a resident of one country belongs to a pension scheme established in the other, income earned by the scheme is taxed only when paid out. For a US citizen with a UK workplace or personal pension that meets the treaty definition, the US generally does not tax the growth year by year. Contribution relief is separate, capped by reference to US limits, and conditional.
Lump sums
A UK pension can usually pay part of the fund as a lump sum free of UK tax. Article 17(2) assigns lump sums to the country in which the scheme is established, but that paragraph is not among the benefits protected from the saving clause. The cautious reading is that the US may tax a US citizen on a UK lump sum, with no UK tax to credit. Other readings are argued, and none should be relied on without advice.
Social security and the State Pension
Article 17(3) is clearer. Social security paid by one country to a resident of the other is taxable only in the country of residence, and this survives the saving clause. US Social Security paid to a US citizen resident in the UK is taxed by the UK alone. The UK State Pension (opens the official GOV.UK page in a new tab) paid to someone living in the United States is taxed by the US alone. A UK State Pension paid to a US citizen who lives in the UK is not a payment to a resident of the other country, so the paragraph does not shield it from US tax: the UK taxes it and the US gives credit for the UK tax. ISAs are not pension schemes and have no US protection.
Do US persons pay capital gains tax in both the UK and the US?
A US citizen resident in the UK is within both countries' capital gains rules on the same disposal. The UK charges 18% and 24% for 2025/26 after a £3,000 annual exempt amount. The US taxes the dollar gain. Relief is by foreign tax credit, and timing and currency differences often leave a mismatch.
For 2025/26 the UK charges Capital Gains Tax (opens the official GOV.UK page in a new tab) at 18% and 24%, the lower rate applying to gains within the basic rate band, after an annual exempt amount of £3,000. The US taxes long-term gains at preferential rates and short-term gains as ordinary income. The treaty generally reserves gains other than on land to the country of residence, but the saving clause keeps the US charge alive for citizens.
Both countries therefore tax the gain and the US credits the UK tax. For foreign assets the credit sits in the passive basket. For US assets, such as shares in American companies, the gain is re-sourced under Article 24 so the UK tax can be credited.
- Currency. The UK computes the gain in pounds. The US converts cost at the rate on the day of purchase and proceeds at the rate on the day of sale. A sterling loss can be a dollar gain.
- Timing. A disposal between 1 January and 5 April falls in one US year and in the earlier UK tax year. The UK tax may be paid well after the US tax is due.
- Exemptions. Gains inside an ISA, on a main home or within the annual exempt amount bear no UK tax. The US taxes them with nothing to credit.
- Funds. UK and other non-US funds are commonly passive foreign investment companies, taxed by the US under a separate and less favourable regime.
Worked example: UK shares sold in February
A US citizen resident in Oxford sells directly held shares in a UK company in February. The gain belongs to that calendar year on the US return and to the UK tax year ending that April. The UK tax is due by the following 31 January, in the next calendar year. On the paid basis it is credited in that later year and carried back one year to the year of sale, which works only if the US return was extended or is amended.
Planning for gains is largely a matter of sequence. People with larger portfolios are usually served through our high net worth division.
What tax does a US citizen pay when selling a UK home?
A US citizen selling a UK main home may owe no UK tax because of private residence relief, yet still owe US tax. The US applies its own main-home exclusion with its own ownership and use tests and a fixed dollar cap, computes the gain in dollars, and can tax a currency gain on repaying a sterling mortgage.
UK private residence relief (opens the official GOV.UK page in a new tab) exempts the gain on a property that has been the owner's only or main home throughout ownership. The US does not recognise it. Its own exclusion under section 121, described in IRS guidance on the sale of your home (opens the official IRS page in a new tab), requires the seller to have owned and lived in the property as a main home for a minimum period before sale, and is capped at a fixed dollar amount that is higher for joint filers.
Where the dollar gain exceeds the cap, the excess is taxable in the US. The UK charged nothing, so there is no UK tax to credit and the US tax is a real cost.
Worked example: a London flat and a weaker pound
A US citizen buys a London flat with a sterling mortgage, lives in it throughout and sells after the pound has weakened. The UK gain is exempt. For the US, cost is converted at the stronger historic rate and proceeds at the weaker current rate, which reduces the dollar gain. The mortgage runs the other way: she repays the loan with pounds that cost fewer dollars than the pounds she borrowed.
That difference is a currency gain on the debt. The US treats it as ordinary income, and the main-home exclusion does not shelter it. A currency loss on a personal mortgage is generally not deductible. Our article on selling a UK home as a US citizen lists the records needed.
UK reporting and rental property
Where a UK resident has tax to pay on a residential property disposal, such as a second home, the gain must be reported and the tax paid within 60 days of completion, as the guidance on tax when you sell property (opens the official GOV.UK page in a new tab) explains. Non-residents report within the same window whether or not tax is due.
Rent from UK property is taxed by the UK and by the US, with the US giving credit. The profit figures differ: the US requires depreciation on the building, which the UK does not allow for residential lets, and the UK restricts mortgage interest relief to a basic-rate credit. A landlord who leaves the UK stays within the non-resident landlord rules (opens the official GOV.UK page in a new tab). Our cross-border property service prepares both schedules together.
How do UK residents avoid double tax on US income?
A UK resident who is not a US person claims the treaty rate on US income at source by giving the payer Form W-8BEN, which cuts dividend withholding from 30% to 15% in general. The UK then taxes the income and gives foreign tax credit relief on the SA106 foreign pages.
The US taxes non-residents on US-source income, usually by withholding at 30% on dividends unless a treaty rate is claimed. The claim is made on Form W-8BEN, given to the broker and not sent to the IRS. It is generally valid until the end of the third calendar year after signing.
| US income | US position under the treaty | UK position |
|---|---|---|
| Portfolio dividends | Withholding generally limited to 15% | Taxable; credit up to the treaty rate |
| Bank and bond interest | Generally no US tax | Taxable in full |
| Gains on US shares | Generally no US tax | Taxable in full |
| Rent from US property | Taxable; a return is usually filed to tax net profit | Taxable; credit for US tax |
| US Social Security | Taxable only in the UK | Taxable |
The UK gives relief for foreign tax (opens the official GOV.UK page in a new tab) on the foreign pages, SA106 (opens the official HMRC page in a new tab). The credit is the lower of the foreign tax and the UK tax on the same income, and cannot exceed the rate the treaty allows. If a broker withheld at the full default rate, the UK credits only the treaty rate and the excess is reclaimed from the IRS. We prepare these claims within our UK Self Assessment service.
When a Briton becomes a US resident
A British national can become a US tax resident under the substantial presence test (opens the official IRS page in a new tab), which looks at 31 days in the current year and a weighted total of 183 days over three years, with exclusions for exempt individuals and certain transit days. The closer connection exception and the treaty tie-breaker are separate ways of remaining a non-resident.
Article 4 settles dual residence by tests applied in order: permanent home, closer personal and economic ties, habitual abode, nationality, then agreement between the authorities. A UK consultant who works at a client site in Texas for months in consecutive years, with home and family in Kent, may meet the day count. The tie-breaker can treat her as resident only in the UK. She files Form 1040-NR and discloses the position.
A green card holder can make the same claim, but it can count as giving up US residence for expatriation purposes. A US citizen cannot use it at all. Britons moving permanently are covered by our international tax service.
How does the UK four-year FIG regime affect double tax relief?
From 6 April 2025 the remittance basis was abolished and replaced by the foreign income and gains regime. A new UK resident who was non-resident for the previous ten tax years can claim UK relief on foreign income and gains for four tax years. A US citizen who claims it still pays US tax, with less UK tax to credit.
Until 5 April 2025, a UK resident not domiciled in the UK could elect to be taxed on foreign income and gains only when they were brought to the UK. That remittance basis no longer exists. Its replacement, described in guidance on tax on foreign income for people new to the UK (opens the official GOV.UK page in a new tab), turns on residence history alone and lasts four tax years.
The relief is claimed on the Self Assessment return, year by year, and the foreign income still has to be quantified. A claimant gives up the personal allowance and the capital gains annual exempt amount for that year. Relieved income can be brought to the UK without a charge. Our article on what changed for Americans in Britain after non-dom describes the transition.
For a US citizen the benefit is smaller than it looks, because the United States taxes that income in any event. If the UK does not tax US dividends, interest and gains, there is no UK tax to credit and no re-sourcing to perform. The saving is the difference between the UK rate and the US rate, not the whole UK charge.
- UK employment income is not foreign income and stays taxable in the UK.
- Loss of the personal allowance raises UK tax on UK earnings, which can outweigh the saving where foreign income is modest.
- Fewer passive-basket credits arise in the years of claim.
- From year five, worldwide income is taxable in the UK and the credit rules apply in full.
Worked example: an American on a five-year posting
A US citizen moves from Chicago to London for five years, never having lived in the UK. She has a UK salary taxed partly at the higher rate and a US brokerage account. In her first four UK tax years she can claim the regime, so the UK taxes the salary and leaves the brokerage income to the US, at the cost of her personal allowance.
Whether the claim is worthwhile depends on the brokerage income against the value of the allowance, and can differ year to year. In the fifth year the UK taxes the brokerage income and Article 24 begins to apply. Realising gains before then, while only the US taxes them, is a step to consider.
How do you claim double tax relief and avoid the common mistakes?
Relief is claimed item by item. On the US return, credits go on Form 1116, the exclusion on Form 2555, and treaty-based positions are disclosed on Form 8833. On the UK return, foreign tax credit relief goes on SA106 and residence and treaty claims on SA109. A certificate of residence supports claims made to the other country.
A treaty position that overrides US domestic law is generally disclosed on Form 8833 (opens the official IRS page in a new tab). Some claims are exempt, including a reduced withholding rate claimed through a withholding certificate. On the UK side, form SA109 carries residence and treaty claims and cannot be filed through HMRC's own free online service. HMRC helpsheets HS302 and HS304 cover dual residents and non-residents.
Each country will certify residence so the other grants relief. A UK resident applies to HMRC for a certificate of residence (opens the official HMRC page in a new tab). A US resident applies to the IRS on Form 8802 (opens the official IRS page in a new tab).
Classify the income
Decide whether it is earnings, a dividend, interest, a pension, rent or a gain, and which tax year it falls into in each country.
Establish your status
Confirm whether you are a US citizen, green card holder or US resident, and whether you are UK resident. If both claim you, apply Article 4.
Find the source
Earnings arise where the work is done, rent where the property is, dividends where the company is. Source decides who taxes first.
Read the article and the saving clause
Find the treaty article for that income. If you are a US citizen, check whether the benefit appears in Article 1(5). If not, the US may still tax.
Identify who gives the relief
Where the UK taxes first, the US credits UK tax. Where the US taxes first, the UK credits US tax up to the treaty rate. For US-source income of a US citizen in the UK, apply Article 24(6).
Compute both taxes and the credit
Work out UK tax on the item, then US tax, then the credit within its limit, using the paid or accrual year consistently.
Check what remains
Look for net investment income tax, self-employment tax, state tax and currency gains. Keep payslips, tax calculations and proof of payment.
Common mistakes
- Claiming the exclusion by default. It wastes UK tax on the excluded earnings and builds no carryover.
- Crediting UK tax in the wrong year. P60 figures for a UK tax year do not belong on a calendar-year return unadjusted.
- Assuming the treaty exempts a US citizen. Only benefits listed in Article 1(5) bind the US for its own citizens.
- Forgetting state tax. Some states ignore the treaty and continue to tax former residents.
- Overlooking exempt UK income. ISA income and gains on a main home are taxable in the US with nothing to credit.
Earlier years can often be put right. A US return can generally be amended within three years from filing or two years from payment, whichever is later, and a longer period applies to claims arising from foreign tax credits. Where returns were never filed, see our guide to IRS streamlined filing from the UK. Account reporting continues regardless, as our guide to FBAR and FATCA reporting in the UK explains.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
