If you live in the UK but still have tax ties to the US, chances are you’ve asked the same question more than once: Why am I filing in two countries?
With different rules around what gets taxed where, it’s enough to leave anyone’s head in a spin. And while the US-UK double tax treaty is designed to stop double taxation, it doesn’t automatically remove your filing obligations, and it can be hard to keep things clear.
In reality, the treaty helps in some areas, changes how certain income is taxed in others, and still leaves plenty that must be reported on both sides.
Let’s break down how the US-UK tax treaty works. We’ll cover the types of income it covers, how residency affects your returns, and what you still need to file in the US and the UK this year.
What Is the US-UK Tax Treaty (and Why Does It Exist)?
Think of this treaty as a set of “tie-breaker” rules. Because US taxes are based on citizenship, and UK taxes are based on residency, you’re caught in the middle. Without this agreement, you’d risk paying full tax on your salary, pensions, and investments to both governments.
The treaty steps in to:
- Assign Taxing Rights: Decide which country has the primary right to tax specific types of income
- Stop Double Taxation: Allow tax paid in one country to be credited against tax owed in the other
- Protect Retirement Income: Make sure pensions and similar income are generally taxed in the appropriate country
Keep in mind, the treaty doesn’t mean you stop filing. But it does mean that, when applied correctly, you won’t pay tax twice on the same pound or dollar.
How to Claim Treaty Benefits
One important thing to understand is that the US-UK tax treaty doesn’t apply automatically. In most cases, you have to actively claim the benefits when you file your tax returns.
This happens in two main ways:
1. Using Foreign Tax Credits (The Offset)
This is the most common tool expats use. If you’ve paid UK taxes to HMRC on your salary or other income, you can usually claim a Foreign Tax Credit on your US return for the UK taxes paid.
Because UK income tax rates are often higher than US rates, this credit frequently reduces (and in many cases eliminates) your US tax liability on the same income.
2. Claiming Treaty Exemptions (IRS Form 8833)
In some situations, the tax treaty gives one country exclusive taxing rights over certain types of income – meaning the other country cannot tax it at all, or can only tax it at a reduced rate.
This can apply to things like specific pension income, social security benefits, or other treaty-protected income.
When you rely on one of these treaty positions that overrides normal US tax rules, you usually need to disclose it to the IRS using Form 8833.
Four Must-Knows for 2026
To keep your filing straightforward this year, keep these four points in mind:
1. The Non-Dom Replacement
The UK has officially moved to a residence-based system. If you’ve lived in the UK for more than four years, you’re now taxed on your worldwide income. The Remittance Basis (keeping money offshore to avoid UK tax) is gone as of 6 April 2025.
2. The 4-Year FIG Trap
If you’re a new arrival to the UK, you may qualify for the UK’s new four-year tax-free window on foreign income and gains under the FIG regime.
This regime is available to anyone who has been non-UK resident for at least the previous ten consecutive tax years. Even individuals originally born in the UK can qualify if they’ve been abroad long enough.
It applies for a maximum of four tax years, starting from 6 April 2025, or from the first tax year in which you become UK tax resident (if earlier). If you were already UK resident for fewer than four tax years as of 6 April 2025, you can use the FIG regime for the remainder of your four-year period.
But there is an important trade-off. When you claim FIG, you sacrifice key UK tax allowances. These include:
- Personal Allowance
- Blind Person’s Allowance
- Tax reductions for married couples and civil partners
Transferable Tax Allowance for married couples and civil partners - Certain reliefs relating to life insurance payments and similar arrangement
For some people, this reduces the benefit significantly. And for US citizens in particular, it often provides little (or no advantage!) at all.
That’s because the US taxes its citizens on worldwide income regardless of where they live. That means foreign income covered by FIG may still be fully taxable in the US – while you’ve lost valuable UK allowances at the same time.
3. The $10,000 FBAR Form Rule
This isn’t part of the tax treaty, but it’s one of the most commonly missed requirements. If the aggregate value of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts (FBAR).
The tax treaty doesn’t protect you from FBAR penalties – and missing this filing can lead to serious fines.
4. Lump Sum Pension Withdrawals
It’s important to know that lump sums taken from US pensions – like a 401(k) – can now be taxed in the UK if you’re a UK resident.
For around 24 years, these US-source lump sums were generally treated as exempt from UK tax under the 2001 US–UK tax treaty, specifically Article 17(2), which reserved taxing rights to the country where the payment arises (the US).
But HMRC’s new internal guidance has changed this long-standing interpretation. The UK has now determined that it will also tax US-source pension lump sums received by UK residents (alongside the US) with any double tax relief provided through foreign tax credits.
You can still claim a credit for any US tax you’ve already paid, but if the UK tax due is higher, you’ll need to pay the difference to HMRC.
Under Article 17(1)(b) of the treaty, that 25% lump sum from a UK pension can be taken tax-free in both countries. In practice, if reported properly to the IRS (via a treaty election on Form 8833), the IRS will honor the UK’s tax exemption on that amount, resulting in no US tax on the 25% lump.
If you live in the UK but still have tax ties to the US, chances are you’ve asked the same question more than once: Why am I filing in two countries?
With different rules around what gets taxed where, it’s enough to leave anyone’s head in a spin. And while the US-UK double tax treaty is designed to stop double taxation, it doesn’t automatically remove your filing obligations, and it can be hard to keep things clear.
In reality, the treaty helps in some areas, changes how certain income is taxed in others, and still leaves plenty that must be reported on both sides.
Let’s break down how the US-UK tax treaty works. We’ll cover the types of income it covers, how residency affects your returns, and what you still need to file in the US and the UK this year.
What Is the US-UK Tax Treaty (and Why Does It Exist)?
Think of this treaty as a set of “tie-breaker” rules. Because US taxes are based on citizenship, and UK taxes are based on residency, you’re caught in the middle. Without this agreement, you’d risk paying full tax on your salary, pensions, and investments to both governments.
The treaty steps in to:
- Assign Taxing Rights: Decide which country has the primary right to tax specific types of income
- Stop Double Taxation: Allow tax paid in one country to be credited against tax owed in the other
- Protect Retirement Income: Make sure pensions and similar income are generally taxed in the appropriate country
Keep in mind, the treaty doesn’t mean you stop filing. But it does mean that, when applied correctly, you won’t pay tax twice on the same pound or dollar.
How to Claim Treaty Benefits
One important thing to understand is that the US-UK tax treaty doesn’t apply automatically. In most cases, you have to actively claim the benefits when you file your tax returns.
This happens in two main ways:
1. Using Foreign Tax Credits (The Offset)
This is the most common tool expats use. If you’ve paid UK taxes to HMRC on your salary or other income, you can usually claim a Foreign Tax Credit on your US return for the UK taxes paid.
Because UK income tax rates are often higher than US rates, this credit frequently reduces (and in many cases eliminates) your US tax liability on the same income.
2. Claiming Treaty Exemptions (IRS Form 8833)
In some situations, the tax treaty gives one country exclusive taxing rights over certain types of income – meaning the other country cannot tax it at all, or can only tax it at a reduced rate.
This can apply to things like specific pension income, social security benefits, or other treaty-protected income.
When you rely on one of these treaty positions that overrides normal US tax rules, you usually need to disclose it to the IRS using Form 8833.
Four Must-Knows for 2026
To keep your filing straightforward this year, keep these four points in mind:
1. The Non-Dom Replacement
The UK has officially moved to a residence-based system. If you’ve lived in the UK for more than four years, you’re now taxed on your worldwide income. The Remittance Basis (keeping money offshore to avoid UK tax) is gone.
2. The 4-Year FIG Trap
If you’re a new arrival to the UK, you may qualify for the UK’s new four-year tax-free window on foreign income and gains under the FIG regime.
But keep in mind, claiming FIG requires giving up key UK tax allowances – including your Personal Allowance. For many US citizens, who’re taxed by the US on worldwide income anyway, this can increase your overall tax bill rather than reduce it.
3. The $10,000 FBAR Form Rule
This isn’t part of the tax treaty, but it’s one of the most commonly missed requirements. If the total value of all your foreign financial accounts (including UK bank accounts and most UK pensions) exceeds $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts (FBAR).
The tax treaty doesn’t protect you from FBAR penalties – and missing this filing can lead to serious fines.
4. Lump Sum Pension Withdrawals
It’s important to know that lump sums taken from US pensions – like a 401(k) – can now be taxed in the UK if you’re a UK resident.
In the past, these payments were usuallyfully exempt. That’s no longer the case. You can still claim a credit for any US tax you’ve already paid, but if the UK tax due is higher, you’ll need to pay the difference to HMRC.
On the US side, the IRS is also paying closer attention to the UK’s 25% tax-free pension lump sum. It can still be claimed as tax-free in the US – but you now need to clearly report this position on Form 8833 to avoid problems.
How to File Your Tax Return in 2026
Knowing the treaty exists is one thing; claiming it is another. Because the US and UK have different tax years – the US follows the calendar year, while the UK runs from April 6th to April 5th – the timing of your filings is everything.
The US Side (The 1040)
As a US citizen, your primary obligation is to file Form 1040 with the IRS.
- The Deadline: Even though the US deadline is April 15th, expats living abroad get an automatic extension to June 15th to file. If more time is needed, taxpayers can file Form 4868 by June 15 to request an additional 4-month extension, pushing the deadline to October 15
- The Forms: You’ll typically include Form 1116 (to claim your Foreign Tax Credits) or Form 2555 (for the Foreign Earned Income Exclusion). If you’re taking a specific treaty position that contradicts US law, you’ll also need Form 8833.
- The FBAR: Don’t forget that Form 114 (FBAR) is filed separately from your tax return and is due by April 15th. You’re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15
The UK Side (Self Assessment)
If you have income that isn’t taxed at the source (like rental income or US dividends), you’ll need to file a UK Self Assessment return.
- The Deadline: The online filing and payment deadline is January 31st following the end of the tax year. For the current 2025/26 tax year, your deadline is January 31st, 2027.
- The Forms: You’ll use the main SA100 form and usually the SA106 (Foreign) page to report your US income and claim relief for the US tax you’ve already paid.
Pro-Tip
If you owe tax in both countries, try to pay your UK tax before December 31st. This ensures the payment falls within the US calendar year, making it much easier to claim as a credit on your US return.
Need Help Making the Treaty Work for You?
US-UK tax returns are complicated, and small mistakes can easily lead to missed reliefs, late filings, or paying far more tax than you should.
The Expat Taxes UK team specialises in cross-border US and UK tax – from claiming treaty benefits and foreign tax credits to handling forms like 8833, FBARs, Self Assessment returns, and US filings.
We’ll make sure everything is reported correctly, deadlines are met, and you’re using every relief available – so you stay compliant without overpaying.
If you’d like expert support with your US and UK tax obligations, book a consult with Expat Taxes UK for personalised expat tax advice.
P.S. By booking a consultation, you’ll receive a £100 credit that can be applied to any future services – including UK tax return preparation – so you can start saving straight away.
DISCLAIMER: The material in this article is for general information purposes only and does not constitute legal or taxation advice. Legal, financial, investment and taxation advice should be sought before acting or refraining from acting. All information and taxation rules are subject to change without notice. Expattaxes.co.uk Limited accept no liability for any action taken based on the information in this article or any of the articles on this website.
