What US Expats in the UK Can Do to Stay Tax Efficient

Staying tax efficient isn’t just about saving money — it’s about reducing stress and avoiding legal risk. With the right planning and expert advice, US expats in the UK can enjoy financial peace of mind, focus on building their lives abroad, and stay in good standing with both HMRC and the IRS.

Living in the UK as a US expat brings exciting opportunities — but it also brings complex tax obligations. With both the IRS and HMRC expecting accurate reporting, staying tax efficient is essential if you want to avoid overpaying or triggering audits.

Fortunately, with the right strategy, US expats in the UK can reduce their tax burden and maximise their earnings legally and safely.

Understand Your Dual Tax Obligations

As a US citizen or Green Card holder, you’re required to file a US tax return no matter where you live — even if all your income is earned in the UK. At the same time, you may also be liable to pay UK tax.

The good news? There are several ways to avoid double taxation:

• Foreign Earned Income Exclusion (FEIE)
  You may be able to exclude up to around $120,000 (adjusted annually) of foreign income from your US taxes if you meet either the Physical Presence Test or Bona Fide Residence Test. 
• Foreign Tax Credit (FTC)
  This allows you to offset the tax you pay in the UK against your US tax liability, dollar for dollar. 
• US–UK Tax Treaty
  The treaty helps resolve many overlaps between the two systems, especially for pensions, dividends, and social security.
  

Make Use of UK Tax Reliefs Too

UK tax laws come with their own set of reliefs and allowances that expats can use to stay tax efficient:

• ISA accounts (tax-free in the UK, but not recognised by the IRS)
  
• Capital gains tax exemptions
  
• Marriage allowance and Personal Allowance for UK tax residents
  

Speak to a cross-border tax expert before using these, as some UK reliefs may still be taxable under US law.

Avoid Common Pitfalls

• FBAR and FATCA non-compliance: You must report non-US bank accounts and financial assets if they exceed certain thresholds.
  
• Overlooking reporting for pensions and ISAs: The IRS treats these differently than HMRC.
  
• Ignoring state tax obligations: Some US states (e.g., California) tax former residents even after they move abroad.
  

Work With a Dual Tax Specialist

The best way to stay tax efficient is to work with a tax advisor who understands both US and UK systems. At Xerxes Associates LLP, we specialise in helping US expats optimise their finances, stay compliant, and avoid costly mistakes.

Get in Touch

For those seeking guidance on taxation or other expatriate tax matters, Xerxes Associates LLP offers consultations to discuss individual needs and circumstances. To learn more about their services or to schedule a consultation, visit their contact page.