Do I have to pay US taxes if I live in the UK? Tax Advice for US Citizens in UK

Written by Ollie Cutting

Who is responsible for filing?

You must file your US taxes if you are a US citizen living in UK or spending part of your time in the UK. This requirement applies to any US citizen, dual national, or Green Card holder who resides in the UK, even if you are not receiving any US income. Technically, any income derived anywhere in the world is generally reportable on a US tax return. However, there are useful tax treaties between the US and other countries that can mitigate double taxation in certain situations.

For instance, you must record on a US tax return if you are receiving income from employment in the UK but are not receiving any US sourced income. However, you are unlikely to pay significant additional taxes in USD, as the income should offset itself with the majority of the associated taxes due in the US, given the alignment of the tax systems in the two countries and the US-UK tax treaty.

Who is exempt from filing a US tax return while resident in the UK?

A recent university graduate in the UK for an internship is a typical example of an American living there without needing to file a US tax return. You probably won’t make more than £6,000 a year with a summer work placement. Even after converting from GBP to USD, as a single filer, this is less than the $15,000 threshold for 2025, so you are not required to file. Broadly speaking, anyone with US citizenship or a Green Card should file a US tax return if they have assets that generate income or other income streams, unless they are advised by a professional that it is unnecessary due to being below the requisite income thresholds.

What about my investments?

Since 2008, we have focused our efforts on understanding the complexities of investing as a dual US and UK tax filer. The availability of investment products varies in the two jurisdictions, and while one type of investment structure may be tax-efficient in the UK, this efficiency is not guaranteed to be reciprocated in the US (and vice versa).

Generally speaking, qualified pension assets in either the US or the UK are covered by the US-UK tax treaty, and there exists a degree of reciprocity when it comes to respecting the tax-deferred nature of these schemes. That said, it is important to seek professional wealth management and US tax advice for UK residents that is aligned on the tax treatment of your pension schemes and their underlying investments to avoid any surprises.

Common examples where US citizens living in UK might run into unexpected taxation include UK ISA accounts(tax-free in the UK, but treated as taxable in the US), UK offshore bonds (efficient in the UK, but taxes may apply in the US), or US or UK life insurance policies with an investment component (which can be inefficient from a UK or US standpoint).

There is also the matter of gaining access to diversified investment funds without triggering unwelcome, penal taxes in the US. The IRS considers collective investment schemes domiciled outside of the US as Passive Foreign Investment Companies, or ‘PFICs’. This could mean that even the most simple UK-based ETFs (for example) are subject to penal taxation and additional reporting requirements in the US. This suggests that a US tax filer based in the UK may be better off holding their taxable assets in a US based account and buying US domiciled funds to ensure that their investments are well diversified and tax-efficient. It is essential to seek US tax advice for UK residents to recommend a suite of funds that are both US and UK tax-efficient.

How can I get back on track after a long period without filing?

In some cases, an individual may be brought to the attention of their US citizen status later in life, often to their surprise. We have seen examples where someone finds a copy of a US passport during spring cleaning after having lived in the UK for many years. A notable public example of this is Boris Johnson, who had to pay US taxes on his property sale despite not having lived in the US since the age of 5.¹ This case made headlines due to his position as London Mayor at the time.

The quickest, least expensive, and safest way for US citizens living in UK to make up lost US tax revenue is through the Streamlined Tax Amnesty program. For US residents living abroad, the IRS Tax Amnesty is designed specifically for this situation, and qualified US-UK tax professionals can guide individuals through the process.

The program’s principal goal is to allow US taxpayers to come forward without worrying about penalties for filing late or other consequences. Often, individuals going through this process also take the opportunity to rearrange their affairs, so that their financial plan is viewed favourably by the IRS and the tax authority in their second country.

Filing US taxes from UK – What to expect

When filing US taxes from the UK, it’s essential to understand that, despite residing outside of the US, you must still file a US tax return each year. Even though the US-UK tax treaty helps to mitigate the risk of double taxation, navigating the complexities of US taxes while living in the UK can be challenging. The good news is that there are tax credits, deductions, and exclusions (like the Foreign Earned Income Exclusion) that can help minimise or even eliminate your US tax liability in many cases.

Conclusion

The requirement to file a US tax return applies to the majority of US citizens or US-connected individuals living anywhere in the world, including those filing US taxes from UK. With the right guidance and support, this does not always mean paying taxes twice, and there are many ways to create efficient, long-term wealth plans that are fit for purpose and well received by both the IRS and HMRC. If you are unsure about your filing requirements or need US tax advice for UK residents, seeking professional advice tailored to your specific situation is crucial.

References

1.    London Mayor Boris Johnson agrees to pay US tax bill – BBC News

The Legal Stuff

The information is intended for clients of MASECO LLP and should not be reproduced, copied or made available to others, in whole or in part, without MASECO’s prior written consent.

• Nothing in this document constitutes investment, legal or fiscal advice and should not be construed as such.
• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
• This document does not take into account the specific goals or requirements of any particular individual.
• MASECO gives no assurance or guarantee that the information is accurate or complete and it should not be relied upon as such.
• MASECO is not a tax specialist and we recommend that anyone considering investing seeks their own tax advice.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership in England and Wales (Companies House No. OC337650) and has its registered office at The Kodak Building 11 Keeley Street, London, WC2B 4BA.

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.