Maybe you moved to the UK for a job, grad school, or just to try something new. But now you’ve got a local bank account, a favorite pub, and friends who call you “mate.” What started out as temporary is starting to look… permanent.
If that’s the case, it’s time to take a serious look at your tax life because even if you’ve settled in the UK, the U.S. still considers you its taxpayer.
1. You Still Have to File U.S. Taxes
Even if you’ve lived in the UK for the longest time, you still need to file a U.S. tax return yearly. That’s how the U.S. tax system is based on citizenship, not location.
That means your UK salary, freelance gigs, rental income, investment gains, and even your UK pension all go on your Form 1040. And if you’ve got money in non-U.S. bank accounts? More forms may apply.
2. You Can Avoid Double Taxation, But Only If You File
You probably won’t end up paying tax to both countries. The IRS offers two major ways to avoid double taxation:
- Foreign Earned Income Exclusion (FEIE): This lets you remove around $130,000 of your UK salary when reporting to the IRS.
- Foreign Tax Credit (FTC): This gives you credit for taxes you already paid to HMRC.
These are useful tools, but they’re not automatic. You need to file your return to claim them. Skip the paperwork, and you lose the protection.
3. You Have to Report UK Bank and Investment Accounts
If your total balance across all non-U.S. financial accounts ever hits $10,000, even for one day, you’re required to file an FBAR (FinCEN Form 114). And if your assets are larger, FATCA Form 8938 might also apply.
Accounts that count? UK checking, savings, pensions, ISAs, and investment platforms like Hargreaves Lansdown or Nutmeg. Basically, if it’s not in the U.S., the IRS probably wants to know about it.
4. Missed Some Filings? You Might Qualify for IRS Amnesty
If you’ve been abroad for a while and haven’t filed your U.S. taxes, you’re not alone and not necessarily in trouble.
The Streamlined Foreign Offshore Procedure lets you catch up penalty-free if your non-filing was unintentional. You’ll need to:
- File 6 years of FBARs
- Submit a statement explaining it wasn’t willful
Most expats in the UK don’t owe U.S. tax after applying exclusions and credits, so this can be a low-stress way to get back in the clear.
5. Don’t Forget UK Taxes. They Can Get Complicated Too
The longer you stay in the UK, the more the local rules apply. As a UK tax resident (and potentially UK-domiciled over time), you’ll be taxed on:
- Your worldwide income
- Capital gains from global assets
- And possibly hit with inheritance tax on your entire estate
6. Watch Out for Investment Traps
Here’s where things get messy fast. A few examples:
- UK pensions can trigger complex IRS reporting rules.
- ISAs, while tax-free in the UK, aren’t tax-free in the U.S.
- Foreign mutual funds can be classified as PFICs (a tax nightmare if mishandled.)
Even holding on to your U.S. brokerage or IRA can be tricky once you’ve been living abroad for a while, as some platforms restrict access for non-residents.
FAQs
Q: I don’t owe U.S. tax. Do I still need to file it?
Yes. Filing is required, even if your tax bill is zero.
Q: What if I’ve never filed and I’ve been here for years?
You may be able to catch up using the IRS Streamlined Procedure, no penalties, if done right.
Q: Are ISAs tax-free in the U.S.?
Nope. The IRS treats them like regular investment accounts.
Q: Do I report my UK pension?
Yes. Most pensions go on the FBAR, and possibly on other forms like 8938 or 3520.
Q: Can I skip FBAR if I only use UK banks?
No. The rules apply to all foreign accounts once you cross the $10K threshold.
Conclusion
Even if your life feels rooted in the UK now, your tax obligations to the U.S. don’t go away on their own. It’s smart to work with someone who understands both the U.S. and UK systems, like Expat Tax Online, because these two tax codes don’t always play nicely together.
The sooner you get on top of them, the easier your long-term financial life will be, no matter which side of the Atlantic you call home.
