U.S. taxes for Americans in the UK: what to file, and how to catch up.
Americans in the UK still file a U.S. return every year, but UK tax rates are high enough that most owe the IRS little or nothing. The catch is in the details: ISAs aren't tax-free in U.S. eyes, UK funds have their own rules, and the tax years don't line up. Most people who fell behind can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You're on PAYE and assumed HMRC had it covered.
- Your UK bank asked for a W-9 or your Social Security number.
- You've been saving into a Stocks and Shares ISA for years.
- You have children and have never claimed anything from the U.S.
How does the IRS treat ISAs, pensions and other UK accounts?
Every one of these goes on your FBAR. What differs is how the IRS taxes them.
| Account | U.S. treatment | |
|---|---|---|
| Workplace pension | Under the treaty, contributions through your UK employer and the growth generally aren't taxed by the U.S., within the limits for a similar U.S. plan. You're taxed when you draw it. | Mostly friendly |
| SIPP / personal pension | Treated the same way when it's part of your UK employment. If you're self-employed, the treaty's protection is less clear. | Check first |
| 25% tax-free lump sum | Tax-free in the UK, but may not be tax-free in the U.S. for a citizen living in the UK. | Plan ahead |
| UK State Pension | The U.S. can tax it for citizens living in the UK, with a credit for any UK tax on it. | Taxable |
| Cash ISA | Interest is taxable on your U.S. return. | Taxable |
| Stocks & Shares ISA | Taxable, and UK funds inside are usually PFICs (Form 8621). | Watch out |
| Lifetime ISA | The 25% government bonus and the growth could be taxable for the U.S., and funds inside are usually PFICs. | Watch out |
| UK unit trusts & OEICs | Usually PFICs, with complex reporting and tax rules. | Watch out |
| Premium Bonds | Prizes are taxable income for the U.S. | Taxable |
| Selling your home | UK relief is unlimited; the U.S. excludes $250,000 of gain ($500,000 for couples). Currency moves can create gains too. | Plan ahead |
Which UK investments are PFICs?
Most of what UK investment platforms sell: unit trusts, OEICs, investment trusts, and ETFs based in the UK or Ireland. For U.S. tax they’re passive foreign investment companies, or PFICs, and that doesn’t change inside an ISA.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- Not PFICs: shares of individual companies, gilts, Premium Bonds and bank accounts.
- Funds inside a workplace pension are a different case: the treaty covers the pension, so the funds inside usually don’t need their own Form 8621.
Before selling anything to tidy up, look at the U.S. cost of keeping versus selling. A sale has U.S. and UK consequences of its own.
What does the U.S.–UK tax treaty actually say?
The current treaty was signed in 2001 and took effect in 2003. For Americans living in the UK, these parts matter most:
- The saving clause (Article 1). The U.S. can tax its citizens as if the treaty didn’t exist, except for the provisions the treaty lists, which include its pension and social security rules.
- UK workplace pensions (Article 18). For a U.S. citizen living and working in the UK, contributions through a UK employer can be deducted or excluded on the U.S. return, and employer contributions and growth aren’t taxed, within the limits for a similar U.S. plan.
- Social security (Article 17). U.S. Social Security paid to someone living in the UK is taxed only by the UK. The UK State Pension isn’t covered the same way for a U.S. citizen living in the UK, so the U.S. can tax it too.
- Relief from double tax (Article 24). The U.S. gives a credit for UK income tax and capital gains tax on the same income.
National Insurance is covered by a separate U.S.–UK social security agreement, which generally means you pay into one system, not both. Read the U.S.–UK tax treaty on IRS.gov.
Two UK tax years, one U.S. return
U.S. returns run January to December, and the UK tax year runs 6 April to 5 April. So each U.S. return covers part of two UK tax years, and we work out which income and which tax belong to which U.S. year, using your payslips and P60s.
| United Kingdom | United States | |
|---|---|---|
| Tax year | 6 April to 5 April | January to December |
| Annual return | Self Assessment: 31 January after the tax year online, or 31 October on paper. Many employees on PAYE don’t file one. | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | Through PAYE, or 31 January and 31 July under Self Assessment | April 15, even if you file later |
| Foreign accounts | No separate report | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in the UK?
Usually the foreign tax credit. With UK rates of 20%, 40% and 45%, and higher in Scotland, UK tax on a salary is normally more than the U.S. tax on it. The credit wipes out the U.S. tax, and the unused credit carries forward for up to 10 years.
- The exclusion covers up to $130,000 of earned income for 2025 and can be simpler, but it gives up the refundable child tax credit and leaves other income to be covered another way.
- ISA income is the gap. It’s tax-free in the UK, so there’s no UK tax to credit, and spare credit from your salary can’t cover it, because it’s a different category of income. That’s why ISA interest and fund income often leave a small U.S. bill.
- Parents may be owed money. Using the credit can let families claim the refundable part of the U.S. child tax credit, up to $1,700 per child for 2025, within the time limits for refunds.
We run your returns both ways before choosing. How we compare the exclusion and the credit.
A worked example: a teacher in Bristol
Emma is a U.S. citizen teaching in Bristol on a £55,000 salary, with a workplace pension, a cash ISA earning about £700 a year, and a Stocks & Shares ISA holding two UK index funds. She has never filed a U.S. return.
| Item | How it’s handled |
|---|---|
| Salary | UK tax is higher than the U.S. tax on it, so with the foreign tax credit her U.S. tax on it is $0, with spare credit carried forward. |
| Workplace pension | Her contributions, her employer’s and the growth aren’t taxed by the U.S. under the treaty. It goes on the FBAR. |
| Cash ISA | The interest goes on her U.S. return, with no UK tax to credit, so a small amount of U.S. tax is due. |
| Stocks & Shares ISA | The two funds are PFICs: a Form 8621 for each, in each year filed. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if she qualifies. |
Catching up from the UK
Most Americans in the UK who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
Is my ISA tax-free for the U.S.?
No. The U.S. doesn't recognize ISAs. Cash ISA interest, and dividends and gains in a Stocks & Shares ISA, go on your U.S. return, and UK funds inside are usually PFICs.
Is my UK workplace pension taxed by the U.S.?
Generally not while it grows. Under the treaty, contributions through your UK employer and the growth aren't taxed by the U.S., within the limits for a similar U.S. plan. You're taxed when you draw it.
Is the UK State Pension taxable in the U.S.?
For a U.S. citizen living in the UK, yes: the U.S. can tax it, with a credit for any UK tax on it. U.S. Social Security works the other way: while you live in the UK, only the UK taxes it.
How do you handle the April tax year?
U.S. returns use the calendar year, so we split your UK income and tax between the two U.S. years using your payslips and P60s. It's routine for us.
Do I pay U.S. Social Security tax in the UK?
Generally not if you pay UK National Insurance. The U.S.-UK totalization agreement prevents paying into both systems for the same work in most cases.
Should I sell my UK funds?
Maybe, but not before getting advice. Selling has tax consequences of its own. We'll show you the U.S. cost of keeping versus selling.
American in the UK? Let's get you caught up.
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