The United States is one of only two countries that taxes its citizens on worldwide income regardless of where they live. For Americans in the UK and green card holders who have not surrendered their status, this means filing a US return every year alongside UK Self Assessment. The two systems interact in ways that are mostly forgiving and occasionally brutal, and FATCA reporting has put the spotlight firmly on cross-border compliance.
The basic obligation
A US citizen or lawful permanent resident is required to file Form 1040 each year reporting worldwide income, regardless of where they live or where the income arises. The filing threshold is set by gross income, not by tax liability, and most working adults are above it. Filing is automatic, not by request.
Resident status in the UK does not change this. The UK and US each treat their respective tax obligations as primary for their own residents and citizens. The interaction comes through the UK/US Double Tax Treaty, the foreign tax credit on the US return, and the foreign earned income exclusion. Each provides relief but none of them removes the filing obligation.
FATCA and the global information net
The Foreign Account Tax Compliance Act (FATCA), enacted in the US in 2010 and implemented internationally through intergovernmental agreements, requires foreign financial institutions to report on accounts held by US persons. The UK-US FATCA IGA is in force, and UK banks, brokerages, and investment platforms routinely identify and report US clients to HMRC, which passes the data to the IRS.
For US persons in the UK, this means that hiding UK assets from the IRS is no longer practical. UK accounts above relatively low thresholds appear in IRS data. The companion US filing is the Report of Foreign Bank and Financial Accounts (FBAR / FinCEN Form 114), required where the aggregate balance of foreign accounts exceeds USD 10,000 at any point in the year. Form 8938 reports specified foreign financial assets above higher thresholds and accompanies Form 1040.
How the two returns line up
The UK tax year runs 6 April to 5 April. The US tax year is calendar year. This creates an immediate apportionment headache for income spanning both periods. Most practitioners convert UK income to calendar-year amounts for the US return and accept that perfect alignment is rarely achievable.
The UK Self Assessment is due by 31 January following the end of the UK tax year for online filers. The US Form 1040 is normally due 15 April, but Americans living abroad get an automatic extension to 15 June, and a further extension to 15 October on request. The October deadline is what most US/UK dual-filers actually work to.
Double tax relief in both directions
The UK and US Double Tax Treaty allocates taxing rights and resolves conflicts. In broad terms, employment income is taxed primarily where the work is performed, business profits where there is a permanent establishment, and dividends, interest, and royalties under specific articles with reduced withholding rates. Each side gives a credit for tax paid in the other on the same income.
For most US/UK individuals, the credit is taken on the US side because the UK usually has primary taxing rights as the country of residence. The US foreign tax credit on Form 1116 brings the worldwide US liability down by the UK tax already paid. The result for a UK-resident American earning salary and investment income from UK sources is usually a small or zero residual US tax liability, but the return must still be filed.
UK-specific traps for US persons
The pension trap is one of the worst. UK pension contributions and growth are generally tax-favoured in the UK, but the US does not always honour that treatment. The treaty includes specific articles on pensions, and properly drafted elections can defer US tax on UK pension growth, but stock and bond holdings in non-qualifying UK funds (such as some ISA investments and many UK-domiciled OEICs) can trigger Passive Foreign Investment Company (PFIC) treatment with punitive US tax.
The PFIC rules apply to most non-US pooled investment funds. The US tax on a PFIC can be substantially higher than ordinary capital gains tax, with interest charges on deferred distributions. Americans in the UK frequently discover this only when selling a UK fund years after acquisition. The planning answer is usually to hold individual stocks or US-domiciled funds rather than UK funds.
ISAs, SIPPs, and JISAs
UK-tax-free wrappers do not necessarily save US tax. An ISA holding cash is fine. An ISA holding UK funds usually triggers PFIC. A SIPP can be reported as a foreign grantor trust and may require Form 3520 and Form 3520-A, depending on US characterisation. Junior ISAs held for a US-citizen child are particularly problematic and many US/UK families avoid them.
How PushDigits supports US persons in the UK
We do not prepare US tax returns directly, but we work alongside US enrolled agents and CPAs to align UK and US treatment. Our tax planning team structures UK pension contributions, investment portfolios, and self-employment income with US tax consequences in mind, and our business advisory team handles the UK side of company formations where US ownership creates additional reporting layers.
If you are an American newly arrived in the UK, or a long-resident American who has never filed US returns and wants to come into compliance using the streamlined procedures, book a coordinated UK/US review or contact our cross-border team.