UK vs US Tax in 2026/27: A Dual-Filer Guide

Dual UK-US tax for US citizens and green card holders in 2026/27: the treaty, Foreign Earned Income Exclusion, Foreign Tax Credit, FBAR, Form 8938, PFICs.

2026/27 tax year

Income Tax & Allowances
UK-wide

The United States taxes its citizens and resident aliens, including green card holders, on worldwide income wherever they live. The United Kingdom taxes its residents, decided by the Statutory Residence Test. A US citizen living in the UK therefore deals with two tax systems, two filing calendars and two sets of disclosure rules. This guide sets out how they interact in 2026/27, using the 2001 UK-US tax treaty, the UK-US social security agreement and IRS guidance.

General information, not personal advice. Cross-border positions depend on individual facts and the penalties for getting US reporting wrong can be large. Most dual filers use both a US tax preparer and a UK tax adviser.

1. Two systems, one taxpayer

The friction comes from the US taxing by citizenship and the UK by residence. A US citizen who has never lived in the US still files Form 1040 if their income is over the filing threshold. Three things do most of the work of preventing double tax: the Foreign Earned Income Exclusion (Form 2555), the Foreign Tax Credit (Form 1116) and the social security agreement, which assigns contributions to one country at a time. None of them removes the obligation to file.

2. US filing basics from the UK

A US citizen abroad reports the same income on Form 1040 as anyone else. For 2026 the standard deduction is $16,100 for a single filer and $32,200 for a married couple filing jointly (IRS 2026 inflation adjustments). Taxpayers living abroad get an automatic 2-month extension to file, and can apply for a longer extension if they need time to meet the bona fide residence or physical presence test (IRS Publication 54).

If you have fallen behind and the failure was not wilful, the IRS Streamlined Foreign Offshore Procedures require the most recent 3 years of tax returns and the most recent 6 years of FBARs, with tax and interest paid; eligible taxpayers who follow them are not charged failure-to-file, accuracy, information return or FBAR penalties.

3. UK residence and the FIG regime

On the UK side, the Statutory Residence Test (Finance Act 2013 Schedule 45) decides each tax year whether you are UK resident. A UK resident is taxed on worldwide income. Full detail is in our UK residence (SRT) guide.

Since 6 April 2025 the remittance basis has been replaced by the 4-year foreign income and gains (FIG) regime for people who become UK resident after 10 consecutive tax years of non-residence. Relief must be claimed, source by source, and claiming it costs you the Income Tax and CGT tax-free allowances for that year. Foreign earnings are not eligible (Overseas Workday Relief is a separate regime) (GOV.UK). For a US citizen, FIG can keep US investment income out of UK tax in those years, but the US still taxes it.

4. The 2001 UK-US treaty

The convention was signed on 24 July 2001, amended by a protocol signed on 19 July 2002, and entered into force on 31 March 2003 (GOV.UK). The provisions that matter most to individuals:

Article 1(4), the saving clause: each country may tax its residents, and the US its citizens, as if the treaty had not come into effect.
Article 1(5), the exceptions: for everyone, the saving clause does not override Article 9(2) (associated enterprises), Article 17(1)(b), 17(3) and 17(5), Article 18(1) and 18(5), and Articles 24 to 26 (Article 1(5)(a)). Article 18(2) (pension schemes) and the government service, student, teacher and diplomatic agent articles (19, 20, 20A and 28) are protected only for people who are neither citizens of nor admitted for permanent residence in (green card holders of) the taxing country (Article 1(5)(b)).
Article 4(2) and (4): a US citizen or green card holder is a US resident for the treaty only with substantial presence, a permanent home or a habitual abode there; dual residents are resolved by permanent home, centre of vital interests, habitual abode and nationality.
Article 24(6): where the US taxes a UK-resident citizen under the saving clause, the UK only credits the US tax a non-citizen would pay on US-source income, and the US gives credit for the UK tax, re-sourcing the income where needed to avoid double tax.

5. Foreign Earned Income Exclusion (Form 2555)

The exclusion is $132,900 for 2026, up from $130,000 for 2025 (IRS). You need foreign earned income, a tax home in a foreign country, and either:

the bona fide residence test: residence in a foreign country for an uninterrupted period that includes an entire tax year (for most US filers, a calendar year, not a UK tax year); or
the physical presence test: 330 full days in a foreign country or countries during any 12 consecutive months.

Only earned income qualifies: salary, wages and self-employed earnings for work done abroad. Investment income, pensions and gains do not. A separate foreign housing exclusion or deduction may also be available. If you revoke the exclusion you need IRS approval to choose it again within 5 years, and claiming the Foreign Tax Credit, additional child tax credit or earned income credit in a later year is treated as revoking it (IRS Publication 54).

6. Foreign Tax Credit (Form 1116)

The credit reduces US tax by the UK income tax paid on the same income, up to the US tax on that income. Unused foreign tax is carried back 1 year and then forward up to 10 years (IRS Publication 514). UK National Insurance cannot be credited: no credit or deduction is allowed for social security taxes paid to a country the US has a social security agreement with.

Dividends show the limit of the credit. UK dividend tax rates for 2026/27 are 10.75%, 35.75% and 39.35% above a £500 allowance, while US qualified dividends are taxed at lower rates, so UK tax on dividends often exceeds the US tax and leaves unused credit.

7. National Insurance and US Social Security

The UK-US social security agreement was signed on 13 February 1984 and its main parts came into force on 1 January 1985 (SI 1984/1817). It prevents paying both UK National Insurance (for employees in 2026/27, 8% main rate and 2% above the Upper Earnings Limit, plus 15% employer contributions) and US Social Security on the same work. Usually you pay where you work; if you are posted abroad temporarily you may stay in your home system with a certificate of coverage (GOV.UK, National Insurance if you work abroad).

8. PFICs: ISAs and non-US funds

A foreign corporation is a PFIC if 75% or more of its gross income is passive, or at least 50% of its assets produce passive income (Form 8621 instructions). Most UK and other non-US funds, including OEICs, unit trusts and many exchange-traded funds, fall within it. Each year a holder generally files Form 8621 and is taxed under the default excess distribution rules unless a Qualified Electing Fund or mark-to-market election is available.

The treaty has no article for ISAs, so the US does not treat an ISA as tax-free: a stocks and shares ISA holding non-US funds is, for US purposes, an ordinary account holding PFICs. Income in a UK pension scheme is in a different position because Article 18(1) defers US tax until benefits are paid.

9. UK pensions and the US

Article 18(1) means income and gains inside a UK pension scheme are taxed by the US only when paid out. For a US citizen employed in the UK by a UK employer, Article 18(5) can make their contributions deductible, and the employer's contributions not taxable, in the US, but only up to what a generally corresponding US plan would allow and only where the US competent authority accepts the scheme as corresponding.

In the UK, up to 25% of a pension can usually be taken tax-free from the normal minimum pension age, 55 now and 57 from 6 April 2028, within the £268,275 Lump Sum Allowance (GOV.UK). Article 17(1)(b) exempts in the residence country the part of a pension that would be exempt where the scheme is, but it applies to a scheme in the other country. A UK-resident US citizen drawing a lump sum from a UK scheme should therefore assume the US may tax it, and get advice before drawing.

State pensions follow Article 17(3): social security paid by one country to a resident of the other is taxable only in the country of residence, and Article 1(5) protects this for citizens. A UK resident receiving US Social Security pays UK tax on it; a US resident receiving the UK State Pension pays US tax on it.

10. FBAR and Form 8938

FBAR (FinCEN Form 114): required if the total value of your foreign financial accounts exceeded $10,000 at any time in the calendar year, including accounts you only have signature authority over. Filed through the BSA E-Filing System, not with the tax return; due April 15 with an automatic extension to October 15.

Form 8938 (FATCA): filed with the return. For people living outside the US the thresholds are $200,000 at year end or $300,000 at any time for a single filer, and $400,000 / $600,000 for married filing jointly. For US residents they are $50,000 / $75,000 and $100,000 / $150,000. Penalty: up to $10,000, plus $10,000 for each 30 days after IRS notice, to a maximum of $60,000 (IRS comparison of Form 8938 and FBAR requirements). If both apply, file both.

11. Worked example: £100,000 UK salary, US citizen

A US citizen, UK resident in 2026/27, earns £100,000 of UK salary with no other income and no pension contributions, and files as single using the standard deduction.

UK side (2026/27, from the salary engine)

Gross: £100,000
Income Tax: £27,432
Employee National Insurance: £4,011
Take-home: £68,557
Effective rate (Income Tax plus employee NI): 31.4%

At exactly £100,000 the full Personal Allowance is kept; the taper removes £1 for every £2 above it. See the £100k tax trap explainer.

US side (2026, Foreign Tax Credit)

Using an assumed rate of $1.30 per £1 (for illustration only; a real return uses the IRS yearly average or the actual rate), gross income is $130,000. Less the $16,100 standard deduction, taxable income is $113,900 and US tax on the 2026 single brackets is about $19,934. UK Income Tax at the same rate is about $35,662, which is more than the US tax, so the Foreign Tax Credit removes the US tax and leaves about $15,728 of unused credit to carry back or forward. UK National Insurance is not part of the credit.

Under the FEIE instead, the first $132,900 of earned income would be excluded, which here covers all of it, but the exclusion creates no credit to carry forward. The better choice depends on other income, children and future plans.

12. Renouncing citizenship and US state tax

Renouncing US citizenship, or a long-term resident giving up a green card, brings the expatriation rules in IRC sections 877 and 877A into play. A covered expatriate is treated as selling worldwide assets the day before expatriation. You are covered if your net worth is $2 million or more, your average annual net income tax for the previous 5 years exceeds an inflation-adjusted amount ($206,000 for 2025), or you do not certify on Form 8854 that you met all US federal tax obligations for those 5 years. The deemed gain is reduced by an exclusion amount, $890,000 for 2025; later figures are in the Form 8854 instructions (IRS Expatriation tax).

US states set their own residence rules, and some can continue to treat a person who moves abroad as a state resident. Check the rules of the state you left before assuming you have no state filing.

Methodology and sources

UK figures come from the salary engine behind salarytax.uk using the 2026/27 ruleset (England and rest-of-UK bands, no pension, student loan or benefits in kind). US figures are the 2026 amounts published by the IRS (Rev. Proc. 2025-32) and, where stated, 2025 amounts. The exchange rate in the worked example is an assumption, not a market rate.

Frequently asked questions

Do US citizens living in the UK have to file US tax returns?

Yes. US citizens and resident aliens (including green card holders) are taxed on worldwide income wherever they live, so a US citizen resident in the UK still files Form 1040 if their income is above the filing threshold (IRS Publication 54). The UK return is separate. Many UK-resident filers end up owing little or no US tax on salary after the Foreign Earned Income Exclusion or Foreign Tax Credit, but those reliefs have to be claimed on a return.

What is the Foreign Earned Income Exclusion (FEIE)?

It lets a qualifying US citizen or resident exclude foreign earned income from US tax, up to $132,900 for 2026 ($130,000 for 2025), claimed on Form 2555. You need a tax home abroad and must meet either the bona fide residence test (residence abroad for an uninterrupted period that includes an entire US tax year, which is the calendar year) or the physical presence test (330 full days abroad in 12 consecutive months). It covers earned income only, not dividends, interest, rent, pensions or gains (IRS).

Is the Foreign Tax Credit better than FEIE for UK residents?

Often, because UK Income Tax on salary is frequently higher than the US tax on the same income, so the credit can wipe out the US tax and leave unused credit. Unused foreign tax is carried back 1 year and then forward up to 10 years (IRS Publication 514). If you revoke an FEIE election, you need IRS approval to choose it again within 5 years, and claiming the Foreign Tax Credit in a later year counts as revoking it (IRS Publication 54). Which is better depends on your income mix and family position.

Do I pay both UK National Insurance and US Social Security?

Usually not. The UK and US social security agreement, signed on 13 February 1984 and in force from 1 January 1985 (Social Security (United States of America) Order 1984), stops double contributions on the same work. The general rule is that you pay in the country where you work; someone posted abroad temporarily may stay in their home system with a certificate of coverage (GOV.UK). Social security taxes paid to a country with such an agreement cannot be claimed as a US foreign tax credit (IRS Publication 514).

Why are UK ISAs a problem for US citizens?

The UK-US treaty has no provision for ISAs, so the US taxes income and gains inside an ISA as if the account were an ordinary investment account. UK and other non-US funds held in an ISA will usually be Passive Foreign Investment Companies, which bring Form 8621 reporting and punitive default tax rules. A cash ISA avoids the PFIC issue, but the interest is still US-taxable. Take advice before opening a stocks and shares ISA as a US person.

How does the US treat a UK pension?

Under Article 18(1) of the treaty, income earned inside a UK pension scheme is taxed by the US only when paid out, and Article 1(5) keeps that benefit for US citizens. Article 18(5) can also give US relief for contributions by a US citizen working in the UK for a UK employer, limited to what a corresponding US plan would allow. The tax-free lump sum is less clear: the treaty exemption in Article 17(1)(b) covers a scheme in the other country, so a UK-resident US citizen drawing a UK lump sum should get specific advice.

What is FBAR and who has to file it?

A US person with a financial interest in, or signature authority over, foreign financial accounts must file FinCEN Form 114 (FBAR) if the aggregate value exceeded $10,000 at any time in the calendar year. It is filed electronically through FinCEN's BSA E-Filing System, not with the tax return, and is due April 15 with an automatic extension to October 15. Civil penalties are inflation-adjusted and are higher for wilful failures (IRS comparison of Form 8938 and FBAR).

How does Form 8938 differ from FBAR?

Form 8938 is filed with the tax return. For a single filer living outside the US it applies if specified foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any time ($400,000 / $600,000 for married filing jointly); thresholds for US residents are lower. The penalty is up to $10,000 for failure to file plus $10,000 for each 30 days after an IRS notice, to a maximum of $60,000. Filing one form does not replace the other (IRS).

What is a PFIC?

A Passive Foreign Investment Company is a non-US corporation where 75% or more of gross income is passive, or at least 50% of its assets produce passive income (Form 8621 instructions). Most non-US pooled funds meet the test. Holding one generally means filing Form 8621 each year and choosing between the default excess distribution rules, a Qualified Electing Fund election (which needs information from the fund) or, for marketable stock, mark-to-market.

How does the treaty deal with being resident in both countries?

Article 4(4) of the 2001 treaty breaks ties in order: permanent home, centre of vital interests, habitual abode, then nationality, then mutual agreement. But the saving clause in Article 1(4) lets the US tax its citizens as if the treaty had not come into effect, except for the benefits listed in Article 1(5), which include relief from double taxation (Article 24), social security payments (Article 17(3)) and pension scheme deferral (Article 18(1) and (5)). Article 24(6) re-sources income so a UK-resident US citizen can credit UK tax.

Does renouncing US citizenship end the filing obligation?

It ends citizenship-based taxation from that date, but a "covered expatriate" pays an exit tax under IRC section 877A on a deemed sale of worldwide assets. You are covered if your net worth is $2 million or more, your average annual net income tax over the previous 5 years exceeds an inflation-adjusted amount ($206,000 for 2025), or you fail to certify 5 years of compliance on Form 8854. The deemed gain is reduced by an exclusion ($890,000 for 2025); later years are in the Form 8854 instructions (IRS).