US and UK Tax Specialists for American Citizens Abroad

Introduction

Living abroad as an American offers new experiences—but it also brings complex tax challenges. The United States taxes its citizens on worldwide income, even when they live in the UK. Meanwhile, HMRC also taxes residents on their income. Without proper guidance, Americans abroad risk paying twice the amount they should.

That’s where US and UK tax specialists for American citizens play a vital role. These experts navigate two tax systems simultaneously, ensuring full compliance with both the IRS and HMRC while maximising every possible tax relief.

In this guide, we’ll explore how these tax specialists help Americans manage their overseas income, avoid double taxation, and maintain financial efficiency while living in the UK.

1. Understanding Dual Tax Obligations

The US and UK have very different tax systems. The United States employs a citizenship-based taxation system, which requires all American citizens to file an annual tax return with the IRS, regardless of their place of residence. The UK, however, taxes individuals based on residency and domicile.

As a result, Americans living in the UK must often report their income to both the IRS and HMRC. This includes:

• UK employment or self-employment income

• Rental income from US or UK properties

• Dividends, pensions, and investment earnings

US and UK tax specialists for American citizens help coordinate both returns, ensuring no income is missed or reported twice. They apply treaty provisions to reduce overlap and prevent double payments, aligning your filings with both legal frameworks.

2. The US-UK Tax Treaty: Your Key Protection

The US-UK Tax Treaty prevents Americans in the UK from being taxed twice on the same income. It allocates taxing rights between the two countries and provides relief through credits or exemptions.

Specialists ensure you benefit from the treaty’s main provisions:

• Foreign Tax Credit (FTC): Allows you to offset US tax with UK taxes paid on the same income.

• Tax-exempt categories include certain pensions, social security, and government service pay.

• Residence tests: Determine whether you’re taxed as a UK resident or remain US-domiciled.

Understanding how to apply treaty benefits correctly requires precision and accuracy. And accuracy. An experienced US and UK tax specialist for American citizens ensures the treaty provisions are correctly used to reduce your liability while keeping you compliant with both tax authorities.

3. Filing US Taxes as a UK Resident

Every American citizen abroad must file a US federal tax return using Form 1040, even if they owe no tax. For UK residents, the key forms include:

• To claim the Foreign Earned Income Exclusion (FEIE), use Form 2555.

• Form 1116: To claim Foreign Tax Credits (FTC)

• FBAR (FinCEN 114): For reporting foreign bank accounts over $10,000

• FATCA (Form 8938): For reporting foreign assets above IRS thresholds

Failing to submit these forms can lead to severe penalties. For example, non-compliance with FATCA can result in a $10,000 fine per form.

Specialist accountants for Americans abroad ensure that every requirement is met, deadlines are adhered to, and your filings align with both the US and UK tax calendars.

4. Managing UK Tax Residency and Domicile Status

Your UK tax obligations depend on your residency and domicile status. Residency is determined through the Statutory Residence Test (SRT), which considers your time spent in the UK, ties (such as family or property), and employment.

A U.S. expat who becomes a U.K. resident is taxed on worldwide income unless they claim the Remittance Basis. The remittance basis allows you to pay tax only on income brought into the UK, but it has limitations and potential costs after several years of residency.

US and UK tax specialists for American citizens help determine whether claiming the remittance basis is beneficial for your situation, balancing UK tax reliefs with US obligations.

5. The Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion enables U.S. citizens abroad to exclude a portion of their foreign income (up to $126,500 in 2024) from U.S. taxation. To qualify, you must meet either:

• The Bona Fide Residence Test (resident of another country for a full tax year), or

• The Physical Presence Test (330 full days abroad within 12 months).

However, this exclusion doesn’t apply to passive income, such as dividends, pensions, or capital gains. Specialists combine FEIE with the Foreign Tax Credit to maximise benefits and ensure your filings reflect accurate income categorisation.

6. Avoiding Double Taxation: How Experts Handle It

Without professional oversight, double taxation can easily occur. You could pay both the IRS and HMRC on the same income. US and UK tax specialists for American citizens use three main tools to prevent this:

1. Foreign Tax Credit: Offsetting US tax with UK tax paid.

2. Income Sourcing Rules: Allocating income to the correct country.

3. Tax Equalisation: For US employees working under corporate expatriate contracts.

These strategies ensure that each tax authority only taxes what it’s entitled to, keeping your liability fair and balanced.

7. FATCA, FBAR, and Reporting Obligations

The Foreign Account Tax Compliance Act (FATCA) and FBAR rules require U.S. citizens and residents abroad to disclose their overseas bank and investment accounts. Many UK banks also report account details directly to the IRS under FATCA agreements.

If you hold more than $10,000 in total across all foreign accounts, you are required to file an FBAR annually. Failing to do so can result in fines of up to $10,000 per omission, and deliberate violations can lead to criminal penalties.

Specialist accountants handle these complex filings, ensuring accurate reporting of all accounts, pensions, and investments—without breaching privacy or triggering penalties.

8. Managing Investments, Pensions, and Passive Income

Many US expats in the UK invest in ISAs, UK pensions, or local funds—believing they’re tax-free. Unfortunately, the IRS often views these differently.

For instance, ISAs are not recognised as tax-sheltered by the IRS. Similarly, UK mutual funds may be classified as PFICs (Passive Foreign Investment Companies), which can be subject to high US taxes and complex filing requirements.

US and UK tax specialists for American citizens help structure your investments tax-efficiently, advising on:

• PFIC reporting requirements

• Double taxation on pensions

• Timing withdrawals for maximum efficiency

They coordinate with both HMRC and IRS guidelines to optimise your global investment strategy.

9. Common Pitfalls US Expats Make

Many Americans in the UK fall into the same traps:

• Forgetting to file annual US returns

• Misunderstanding the tax treaty rules

• Failing to report UK pensions or investments

• Missing FATCA or FBAR deadlines

• Assuming they owe nothing because of UK taxes

Each of these mistakes can lead to penalties or back payments. US and UK tax specialists for American citizens prevent such issues through proactive planning, record-keeping, and early filing strategies.

10. Why Working with Dual-Qualified Accountants Matters

Cross-border taxation demands expertise in both jurisdictions. Generic accountants may understand one system, but dual-qualified professionals specialise in both.

They:

• Prepare and align both IRS and HMRC filings

• Apply treaty benefits correctly.

• Prevent double taxation
  Advice on long-term residency and repatriation.

For American citizens in the UK, this dual insight ensures legal compliance and maximum tax efficiency.

Conclusion

Managing overseas income as a US expat in the UK is complex—but with the right help, it becomes simple. US and UK tax specialists for American citizens handle every aspect of compliance, from IRS filings to HMRC assessments, ensuring you never overpay or fall behind on your tax obligations.

Whether you’re an employee, entrepreneur, or retiree, professional guidance saves time, money, and stress.

Ready to optimise your finances with expert guidance? Contact JungleTax today at hello@jungletax.co.uk or call 0333 880 7974 to speak with our specialist accountants.