Tax Savings for Americans in London | Xerxes LLP

How American Citizens Working in London Could Save on Tax

A London job offer can look attractive on paper, but the salary alone does not tell an American employee what they will keep. UK tax, continuing US obligations and the treatment of benefits all deserve attention. The opportunity is not simply to find a deduction. It is to make sure the two tax systems are considered together.

For American citizens working in London, effective tax planning starts with a practical question: are you claiming the reliefs available to you, and do those claims improve your overall position? A lower bill in one country is not necessarily a lower combined bill. Reviewing both sides before making decisions can help avoid expensive assumptions.

Look at the combined UK and US position

Americans arriving in Britain may become subject to UK tax on worldwide income, depending on residence and available reliefs. Being taxed overseas can also create a need to consider double taxation relief. This makes a coordinated review more useful than treating your British payslip as the complete answer. HMRC guidance for people coming to the UK.

Think of the review as one financial exercise with two sets of rules. Your adviser needs to understand your employment, other income and relevant claims before assessing the result. Comparing the combined liability under different permitted approaches gives you a clearer picture than looking at an isolated UK or US saving.

Make proper use of foreign tax credits

The US foreign tax credit is intended to reduce double taxation where foreign-source income is taxed by both countries. Qualifying UK income tax may therefore reduce the US tax charged on the relevant income. The credit is subject to eligibility tests and limits; it is not an unrestricted offset against every US tax charge. IRS foreign tax credit overview.

Check whether unused credits remain available

Unused foreign tax credits can generally be carried back one year or forward ten years, subject to the applicable rules and exceptions. Reviewing earlier returns can therefore be worthwhile, particularly where your income or work arrangements have changed. IRS Publication 514.

The practical lesson is to retain more than this year’s payslips. Previous returns, credit calculations and evidence of foreign taxes help an adviser establish whether an available relief has been overlooked. That review may identify an opportunity, but the existence of an unused credit does not guarantee that it can be used immediately.

Compare exclusions rather than assuming they are best

The foreign earned income exclusion is another potential route to reducing US federal income tax. Qualifying taxpayers can exclude eligible overseas employment or self-employment income within the applicable limit. However, it does not cover every income category and does not itself reduce self-employment tax. IRS foreign earned income exclusion guidance.

For a London employee, the relevant question is whether an exclusion produces a better result than relying on foreign tax credits, or whether a permitted combination is appropriate. You cannot claim foreign tax credits for taxes attributable to income excluded under these rules. IRS guidance on coordinating foreign tax relief.

This is why copying a colleague’s approach can be misleading. Two people with similar salaries may have different investment income, family circumstances or previous elections. Ask for a comparison based on your own figures.

Consider overseas workday relief if you qualify

Some newly UK-resident employees perform part of their role abroad. Overseas Workday Relief may reduce UK tax on eligible employment income relating to duties performed outside the UK.

Under the post-April 2025 regime, qualifying employees can generally benefit for up to four tax years following at least ten continuous tax years of non-UK residence. Subject to transitional provisions, annual relief is capped at the lower of 30% of qualifying employment income or £300,000.

An election and claim are required. Making the election also removes entitlement to the UK Personal Allowance and capital gains annual exempt amount for that year. The benefit therefore needs to be calculated, not assumed. HMRC Overseas Workday Relief guidance.

For someone managing international responsibilities from London, maintaining an accurate workday record is a sensible starting point. An overseas holiday is not an overseas work assignment, and the location of your employer alone does not establish where your duties were performed.

Check whether foreign income and gains relief helps overall

Eligible new residents can claim relief on qualifying foreign income and gains under the UK’s four-year FIG regime. This can be relevant to Americans with overseas investments alongside their London employment. The relief is time-limited and applies to qualifying amounts claimed, not automatically to everything earned.

Claiming FIG relief also means losing the UK Personal Allowance and capital gains annual exempt amount for that year. A person with relatively little qualifying foreign income may therefore find that making a claim is not beneficial. HMRC FIG helpsheet.

The US calculation matters too. Where UK tax is reduced, the foreign tax credits available against US tax may also change. The planning task is to compare the overall result with and without a claim, rather than treating a UK exemption as the final saving.

Review housing costs for potential US relief

London accommodation costs may be relevant to the US foreign housing exclusion or deduction. Eligibility requires a foreign tax home and satisfaction of the relevant residence or physical presence test.

The calculation uses qualifying housing expenses, subtracts a base amount and applies limits. It is not a deduction for your entire housing budget. The exclusion relates to employer-provided amounts, which can include salary, while the deduction relates to self-employment earnings. Property purchases and furniture purchases are not qualifying housing expenses. IRS foreign housing guidance.

Keep tenancy agreements and records of relevant expenditure available for review. Whether housing relief provides an additional benefit depends on the rest of your US calculation.

Do not overlook pension tax relief

UK pension contributions can attract tax relief, but how it is delivered depends on the scheme. Where a pension uses relief at source, a higher or additional-rate taxpayer may need to claim further relief. Employees whose contributions already receive full relief through payroll should avoid claiming the same relief twice. HMRC pension tax relief guidance.

Contribution planning must also take account of the annual allowance. The standard allowance is £60,000, including relevant employer contributions, but it can be lower for high earners or people who have flexibly accessed a pension. HMRC annual allowance guidance.

For Americans, the UK benefit is only one part of the decision. Ask for the US treatment of the particular arrangement to be checked before increasing contributions. Pension decisions should also fit your retirement plans and access-to-money needs.

Turn a tax review into a practical plan

Start with your employment package, recent returns, pension details, investment records and overseas workday information. Ask which claims are available, what each changes and how the UK and US results interact.

A useful review should leave you understanding the reasons for the proposed approach. The objective is to claim legitimate relief correctly and make informed decisions, not to pursue a headline saving without knowing the consequences.

Discuss your position with Xerxes Associates LLP

Xerxes Associates LLP provides personalised US and UK tax planning and compliance services from London. Whether you have recently arrived or have worked in Britain for several years, the team can review your circumstances and explain relevant cross-border considerations.

Explore Xerxes’ US and UK tax services or contact Xerxes Associates LLP to discuss your position.