Americans in the UK - Part 2: Income, Investments & Reporting

Americans living in the UK face a unique dual-tax situation. As UK tax residents, they must understand how Britain taxes various types of income and gains – employment earnings, self-employment profits, rental income, interest, dividends, and capital gains – and what needs reporting to HM Revenue & Customs (HMRC). At the same time, they remain subject to U.S. tax on worldwide income due to citizenship-based taxation. This article (written by a UK-qualified tax advisor) explains UK taxation of these income streams, highlights HMRC reporting obligations, and notes where UK rules overlap or conflict with U.S. tax obligations (without delving into detailed U.S. tax law). We’ll also include comparative examples (UK vs. US) and call-out boxes flagging common tax traps for Americans in the UK – especially around ISAs, UK investment funds, and employee share schemes.

This is part 2 of our 5-part "Americans in the UK" Series. If you missed part 1 of Americans in the UK, please go check it out before proceeding.

UK Tax Overview for U.S. Expats

Worldwide Income Taxation: If you are a UK resident for tax purposes, the UK will generally tax your worldwide income and gains. This means an American living in the UK typically must report all income – whether from UK sources or from the U.S. (or elsewhere) – to HMRC through the annual Self Assessment process. In practice, most American expats end up filing annual UK tax returns to report foreign income or claim reliefs. If you’re taxed in both countries on the same income, the UK-U.S. tax treaty and local laws provide reliefs to prevent true double taxation – for example, by allowing a foreign tax credit for U.S. tax paid on U.S.-source income or vice versa. However, mismatches in the two tax systems can still result in timing issues or lost credits, so careful planning is key.

Residence vs. Citizenship: The UK taxes based on residency – once you are a UK tax resident, you fall under UK tax rules. The U.S. taxes based on citizenship, so Americans abroad continue to file U.S. returns. This interplay means American expats must comply with both UK and U.S. tax rules. Fortunately, in many cases UK tax rates are similar to or higher than U.S. rates, so U.S. expats can often use UK taxes as a credit against U.S. tax. But there are notable differences in what is taxed, when it’s taxed, and how it’s reported, as we’ll explore for each income type below.

Employment Income (Salary and Wages)

If you work in the UK as an employee, your salary is subject to UK income tax and National Insurance contributions (social security taxes). Employers typically withhold these through the PAYE (Pay As You Earn) system. The UK tax year runs 6 April to 5 April, and you get a personal allowance (£12,570 in 2025) of tax-free income. Beyond that, earnings are taxed at progressive rates: for England/Wales/Northern Ireland residents, 20% basic rate, 40% higher rate (on income over ~£50k), and 45% additional rate (on income over £125k). Scotland has its own rate bands, but the concept is similar. 

Most expats with only UK wage income and no complications may not need to file a UK tax return if all tax is handled via PAYE. However, you must file a Self Assessment return if you have additional untaxed income (e.g. investments or U.S. income), or if your total income is above £100,000, etc. Reporting is crucial if HMRC doesn’t already have the data. For example, an American with UK salary and U.S. investment income will need to report the investment income on a UK return. 

Overlap with U.S. taxes: Your UK salary is also taxable by the U.S. (since the U.S. taxes citizens on worldwide income). The good news is that double taxation is usually mitigated. Many American expats claim the Foreign Earned Income Exclusion (FEIE) on their U.S. return, which can exclude around $120k of salary (amount adjusted annually) from U.S. tax. Any salary above that (or if FEIE isn’t used) can get a foreign tax credit for UK tax paid. Typically, UK tax on high salaries is equal or higher than U.S. tax would be, so Americans rarely owe extra U.S. tax on UK wages – but you still must file U.S. returns. Payroll in the UK does not fulfill U.S. filing obligations. Additionally, the U.S.-UK Totalization Agreement generally means you only pay social security tax to one country at a time (usually the country where you work). 

Self-Employment Income (Business or Professional Income)

If you’re self-employed or have a business as a UK tax resident, you’ll report your business profits on a Self Assessment tax return each year. The net profit (income minus allowable business expenses) is subject to UK income tax at the same progressive rates as above. You’ll also pay Class 2 and Class 4 National Insurance Contributions (NICs) on self-employed earnings (Class 2 is a small flat amount; Class 4 is a percentage of profits, roughly 9% for moderate incomes and 2% on high profits). These NICs are essentially the UK’s version of self-employment social security tax.

Allowable expenses: The UK allows you to deduct ordinary business expenses (office costs, travel, a portion of home office costs, etc.) to arrive at taxable profit. There are specific rules and some simplified flat-rate options for expenses like vehicle use. If you’re an American running a sole proprietorship or freelance business in the UK, be aware of which expenses are deductible under UK rules, as they may not always align perfectly with U.S. rules. 

Overlap with U.S.: Your self-employment income is also subject to U.S. tax and self-employment tax (Social Security/Medicare) unless you elect to have the Totalization Agreement apply and pay into just one country’s system. Generally, if you pay UK NICs as a self-employed person, you would claim an exemption from U.S. self-employment tax. For income tax, you can use foreign tax credits on your U.S. return for the UK income tax paid on those profits. One complexity is that the income calculation can differ: the UK might allow or disallow certain deductions that the U.S. treats differently (for example, depreciation methods). This can lead to different profit figures on each return.

Finally, remember to register with HMRC when you become self-employed in the UK – you’ll need to file an annual Self Assessment and pay taxes by the due dates (usually 31 January following the tax year, with payments on account for the next year if applicable). The U.S. filing (Form 1040 with Schedule C and SE) remains due on April 15 (with an automatic extension to June 15 for expats, and possible extension to October 15).

Rental Income (Property Income)

UK taxation: Rental income from property (whether your property is in the UK or overseas) is taxable in the UK if you are a UK resident. You must declare rental profits on a Self Assessment return. The UK allows deduction of many expenses against rental income, including property repairs, letting agent fees, property management costs, insurance, and utilities you pay. One major restriction, however, is on mortgage interest for residential rentals: as of 2020, you cannot deduct mortgage interest to reduce your rental profits. Instead, the UK grants a tax credit equal to 20% of your mortgage interest paid. In effect, landlords get relief at only the basic rate of tax, no matter their tax bracket. (This is a big change from years past, when full interest was deductible – a trap for those unaware of the new rules.) 

 Beyond interest, most other expenses (repairs, maintenance, property taxes, etc.) remain fully deductible. Note also the UK has a special Rent-a-Room relief: if you rent out a furnished room in your own home to a lodger, the first £7,500 per year is tax-free. This is aimed at resident landlords with a spare room.

If you have overseas rental property (say you still rent out your house back in the U.S.), that income must also be reported to HMRC. The same rules for deductibility apply. You might also face withholding tax or local taxes in the property’s country – typically you can claim a foreign tax credit in the UK for those. For example, U.S. rental income is taxed in the U.S.; as a UK resident you declare it and then claim a credit for the U.S. tax paid, per treaty, to avoid double tax.

Overlap with U.S.: Americans need to report rental income on their U.S. tax returns regardless of where the property is. The U.S. rules differ – notably, the U.S. allows you to deduct mortgage interest and to take depreciation on the property (the UK does not have a concept of depreciation for rental houses). This can lead to your U.S. taxable rental income being lower than your UK taxable rental income. 

 In summary: report all rental income to HMRC, keep records of expenses, and be aware of the mortgage interest limitation in the UK. For U.S. purposes, do the same on the U.S. return. Properly claiming the foreign tax credits in each direction will generally prevent double taxation, but differences in allowable deductions require attention.

Interest Income

UK taxation: Interest from bank accounts, savings, and bonds is taxable for UK residents, but there are notable tax-free allowances. Every individual has a Personal Savings Allowance (PSA) which allows up to £1,000 of interest tax-free each year for basic rate taxpayers (those in the 20% bracket). If you fall into the higher rate bracket (40%), your PSA is £500; top additional rate taxpayers get no PSA. On top of that, if your other income is low, you might qualify for a 0% “starting rate” band for savings (up to £5,000 of interest) – but this is phased out once your non-savings income exceeds ~£17,500. In practice, many UK residents pay no tax on interest thanks to the PSA and these provisions. Interest from UK ISAs (more on ISAs later) is fully tax-free in the UK as well.

If your interest income exceeds these allowances, the excess is taxed at your marginal income tax rate (20% basic, 40% higher, 45% additional). Example: You earn £1,500 of bank interest and you’re a basic-rate taxpayer. The first £1,000 is tax-free (PSA), the remaining £500 is taxed at 20% (£100 tax). If you are employed, HMRC may adjust your payroll tax code to collect tax on interest automatically, or you might need to file a Self Assessment if interest is significant (over £10,000 or if you have other reasons to file).

For Americans, note that foreign interest (e.g. from U.S. bank accounts) is also taxable in the UK. You must convert it to GBP and include it on your UK return. There is no special exclusion for interest kept abroad (unless you claimed the remittance basis as a non-dom). 

U.S. taxation: The U.S. taxes interest income at ordinary federal income tax rates. Unlike the UK, the U.S. has no blanket “savings allowance” – even $1 of interest is technically taxable (though if it’s under $10, often no 1099-INT is issued, but legally it’s still income). This means an American expat who enjoys, say, £800 of bank interest fully tax-free in the UK (within the PSA) will still have to report and potentially pay U.S. tax on that interest. Depending on your U.S. tax bracket, that could be up to ~24% or more. There’s no UK tax to credit in that scenario, so it’s a pure U.S. tax liability. Example: You have £800 interest = ~$1,000; in the UK no tax (under allowance), in U.S. if you’re in the 22% bracket, you owe $220 U.S. tax on it. This is a case where an American in the UK can face U.S. tax on income that the UK didn’t tax at all.

Conversely, if you have a large amount of interest and the UK does tax it (say you earn £5,000 interest, and pay UK tax on ~£4,000 of it after allowances), then you would get a foreign tax credit on your U.S. return for the UK tax paid. Often UK interest tax will satisfy the U.S. liability unless your U.S. tax rate is higher than the UK’s 20% or 40%. 

Reporting: If you only have small amounts of UK interest and are employed, HMRC may collect the tax via PAYE code adjustments (banks also report interest to HMRC). But if you have significant interest or any foreign bank interest, you should file a Self Assessment.

Dividend Income

UK taxation: UK tax residents pay tax on dividend income from shares (UK or foreign) at special dividend tax rates. Like interest, dividends have a tax-free allowance – but it’s much smaller now. For 2024/25 onward, the dividend allowance is only £500 (it was £2,000 in 2022/23, then £1,000, and now £500). This means the first £500 of your dividend income in a year is tax-free (in addition to any portion that falls within your general personal allowance, if unused). Above that, dividends are taxed at 8.75% (if within what would be the basic rate band), 33.75% (higher rate), or 39.35% (additional rate). 

Importantly, UK does not differentiate between “qualified” and “non-qualified” dividends – all dividends (except those from tax-exempt accounts like ISAs or pensions) are treated the same. Also, the UK dividend tax applies to worldwide dividends for residents. If you hold U.S. stocks that pay dividends, you must report those to HMRC. Any U.S. withholding (typically 15% under the treaty on U.S. stock dividends for UK residents) can usually be claimed as a foreign tax credit on your UK return. Often the U.S. withholding on dividends will cover the UK liability, at least for basic-rate individuals (8.75% UK tax vs. 15% U.S. withholding – you’d have excess credit). Higher-rate UK taxpayers (33.75%) might have more UK tax to pay even after the 15% U.S. credit. 

U.S. taxation: The U.S. taxes dividends in two categories: “qualified” dividends (from U.S. companies or qualifying foreign companies/treaty countries, held for a minimum period) are taxed at favorable capital gains rates (0%, 15%, or 20% depending on income level). “Non-qualified” dividends are taxed as ordinary income (up to 37%). Many dividends from UK companies do count as qualified for U.S. purposes (due to the U.S.-UK tax treaty) – meaning most UK stock dividends would be taxed at 15% for an American in the U.S. (assuming they’re not high enough for the 20% bracket). For U.S. expats, this means U.S. tax on dividends is often 15%. Compare this to UK rates: if you’re a basic-rate taxpayer, UK wants 8.75% – crediting that against the U.S. 15% still leaves ~6.25% U.S. tax owed. If you’re a higher-rate UK taxpayer, UK takes 33.75% which is more than the U.S. 15%, so in that case the U.S. would be fully offset (no additional U.S. tax, but also no refund for the excess UK tax).

 UK Dividend Reporting: You must report dividends on your UK tax return if they exceed the £500 allowance or if you already use your personal allowance on other income. Even if under £500, if you’re filing a return for other reasons, you generally should include all dividend income (the software/HMRC will just calculate zero tax on the portion within allowances). HMRC will not automatically know about foreign dividends unless you disclose them. U.S. stocks often have 15% withheld at source; claim that on the foreign tax credit section to reduce your UK tax due.

Capital Gains (Selling Stocks, Property, etc.)

UK taxation: The UK charges Capital Gains Tax (CGT) on gains from the sale of assets (investments, second properties, etc.) above an annual tax-free allowance. This allowance was historically £12,300 but has been sharply reduced – it’s £6,000 for 2023/24 and only £3,000 for 2024/25 onward (for individuals). Any gains in excess of the allowance are taxed at 10% for basic-rate taxpayers or 20% for higher/additional-rate (for most assets). Gains on residential property (e.g. a second home or rental property sale) are taxed at slightly higher rates: 18% basic / 28% higher. Notably, the UK does not have different rates for long-term vs short-term gains – the rate is determined by your income bracket, not by how long you held the asset. 

The UK also offers Principal Private Residence Relief (PPR) which typically exempts the gain on your main home from CGT, as long as it was your principal residence for the time you owned it. So if you sell your primary home in the UK, usually no UK CGT is due (assuming you meet the occupancy conditions). That’s a huge relief for many homeowners – but, as we’ll see, this is a potential trap when considering U.S. taxes.

For other assets like shares, funds, or cryptocurrency, you calculate the gain (sale proceeds minus cost/basis and any allowable costs of sale). You can also subtract any capital losses (including carried-forward losses from prior years) to reduce gains. After that, apply the annual £3,000 allowance, and any remainder is taxed at 10%/20% as appropriate. UK residents need to report capital gains on the Self Assessment tax return if gains exceed the allowance or total proceeds exceed 4× the allowance (even if gains were small). Also, if you sell UK real estate that does incur CGT, you must file a special property CGT return and pay the tax within 60 days of completion (this is a newer rule for property sales). 

U.S. taxation: The U.S., by contrast, distinguishes between short-term gains (assets held one year or less, taxed at ordinary income rates up to 37%) and long-term gains (held >1 year, taxed at 0/15/20% preferential rates). U.S. citizens also have a home-sale exclusion (currently $250,000 of gain can be excluded if you owned and lived in the home for 2 out of 5 years, $500,000 if married filing jointly). Unlike the UK’s full principal residence exemption, the U.S. cap can and does get exceeded if a home appreciated substantially. For example, if an American in London sells their main home for a £400k gain, the UK PPR rules make it fully tax-free in the UK, but the IRS would only let them exclude up to $250k/500k, potentially leaving a taxable gain on the U.S. side. This is a common surprise for expats – a home sale with no UK tax can still trigger U.S. capital gains tax. Unfortunately, there’s no UK tax paid to claim as a credit in that scenario (since UK didn’t tax it), so it’s an out-of-pocket U.S. liability. 

For non-property assets like stocks: suppose you sell shares of a company. The UK will tax any gain above £3k at 10%/20%. The U.S. will tax the gain (no allowance, but possibly at 15% if it was long-term). If the UK ends up taxing the gain at 10% (because your income is low enough), and the U.S. taxes at 15%, you’ll owe that 5% difference to the IRS. If the UK taxed at 20% (higher bracket) and the U.S. at 15%, you’d owe nothing to the U.S. (the foreign tax credit for the 20% covers the 15% U.S. tax – excess can’t be refunded).

 Planning around CGT: For Americans in the UK, it’s often wise to use the UK annual CGT allowance deliberately – you might realize some gains up to £3k each year tax-free in the UK (still taxable in U.S., but maybe at 0% if your total U.S. income is low enough). Conversely, if you have big gains, consider that paying some UK tax (at 10 or 20%) can actually save you U.S. tax, since you get the credit. The worst scenario is a gain that UK exempts (like a main home or ISA gain) but the U.S. taxes fully – in such cases, plan ahead with your U.S. exclusion (for a home, perhaps limit the exposure by timing sale or improving basis). In any case, always report the transactions in both countries. The IRS and HMRC do share data on asset sales (especially property sales due to solicitors’ reporting and U.S. FATCA reporting on accounts).

Employer Share Schemes & Stock Options

Many expats in the UK participate in employer share schemes or receive stock-based compensation, either from a UK company or a U.S. company. Examples include share options (stock options), RSUs (restricted stock units), Share Incentive Plans (SIPs), or EMI options (a UK tax-advantaged stock option scheme for employees of smaller companies). These can be very attractive in one country’s tax system but problematic in the other’s.

UK treatment: The UK has favorable rules for certain share schemes. For instance, EMI (Enterprise Management Incentive) options – if qualifying – allow employees of UK startups/SMEs to exercise stock options without paying UK income tax or National Insurance, as long as the exercise price was at least the market value at grant. The gain is instead taxed later as a capital gain when shares are sold (often at 10% if within entrepreneur relief or 20% CGT). Similarly, Share Incentive Plans can grant a small amount of free shares each year that are tax-free if held for a certain period. Save-As-You-Earn (SAYE) schemes let employees buy shares at a discount after a 3–5 year saving period, with no UK tax on the discount at purchase (again, you only pay CGT when selling the shares down the line). All of these UK schemes aim to shift or reduce the tax burden – typically avoiding treating the share benefit as immediate salary income.

U.S. treatment: The IRS does not recognize most of these UK-specific arrangements. From the U.S. perspective, stock compensation is usually taxed either at grant, vesting, or exercise (depending on the instrument). For example, RSUs are taxed as ordinary income when they vest (deliver shares). Non-qualified stock options are taxed as ordinary income on the “spread” at exercise (difference between exercise price and market value). Importantly, an EMI option – which in the UK has no tax at exercise – is just a non-qualified stock option to the IRS. So an American who exercises an EMI option will have created immediate U.S. taxable income equal to the bargain element, even though HMRC doesn’t tax a penny at that point. There is no UK tax paid to credit, so the American could owe U.S. tax out-of-pocket on an illiquid stock they just acquired.

Another nuance: If you move between the UK and U.S. during your employment, tracking the portion of stock compensation earned in each country is important. The UK and U.S. will prorate taxation based on workdays in each jurisdiction in many cases. The tax treaty can tie-break certain issues, but again, this is an advanced area.

Trap: ISAs and Other “Tax-Free” Investments

One of the biggest misunderstandings for Americans in Britain revolves around the beloved ISA (Individual Savings Account). UK residents love ISAs because they allow tax-free investment growth and income in the UK – interest, dividends, and capital gains inside an ISA are exempt from UK tax. Sounds perfect, right? 

However, the U.S. does not recognize the ISA’s tax-free status. To the IRS, a Stocks & Shares ISA is just a regular brokerage account. Any income or gains inside it are fully taxable on your U.S. return. The IRS provides no special exclusion for ISAs (unlike the UK-U.S. treaty recognition of UK pensions, or the way the UK recognizes U.S. Roth IRAs – see below). 

This means that if an American in the UK dutifully maxes out their £20,000 ISA each year and invests in a spread of funds and stocks, they could be in for a nasty surprise. All those ISA dividends, interest, and realized gains must be reported annually to the IRS. You don’t get a U.S. tax deferral, let alone exemption, on them. In essence, the ISA’s benefit is largely lost on U.S. taxpayers. You might avoid UK tax, but you’ll pay U.S. tax, so it’s not tax-free globally. 

It gets worse: Many Americans unknowingly invest their ISAs in UK mutual funds, ETFs, or investment trusts. These are likely classified by the IRS as PFICs (Passive Foreign Investment Companies) – a category with punitive U.S. tax treatment. PFIC rules can lead to paying U.S. tax on phantom income (unrealized gains) at the top rate, plus interest charges, or forcing you into very complex annual reporting. In short, an American with a portfolio of UK funds in an ISA faces one of the harshest corners of the U.S. tax code. 

So, should U.S. taxpayers avoid ISAs entirely? Not necessarily, but extreme caution is required. If you do open an ISA, you’d want to fill it with investments that are U.S.-compliant (e.g. individual stocks or perhaps certain U.S.-domiciled ETFs that have UK reporting status). This significantly limits the ISA’s appeal (no easy diversified UK funds), potentially negating the convenience of ISAs. Some advisors suggest that Americans abroad might be better off investing through a regular brokerage account in U.S. assets (claiming foreign tax credits on any UK tax), rather than navigating the ISA/PFIC minefield, unless you have a specific strategy. 

To put it plainly: Don’t assume “tax-free in UK” means “tax-free in US.” The ISA is a prime example of a well-meaning UK investment wrapper that doesn’t translate for Americans.

On a positive note, the Roth IRA in the U.S. is treated somewhat like an ISA, and the UK actually honours it. Under the US-UK tax treaty, the UK treats U.S. Roth IRAs as tax-exempt retirement accounts. That means growth and withdrawals from a Roth are tax-free in both countries (assuming treaty conditions are met). So for Americans in the UK, prioritizing a Roth IRA (if you have U.S. earned income to contribute) might be a better “tax-free savings” vehicle than a UK ISA, bizarre as that sounds. Of course, contributions to a Roth IRA are limited (and not UK-tax-deductible), but it’s something to consider in your planning.

Trap: UK Funds and PFICs

The UK has its own regime for offshore funds: if a fund isn’t a HMRC “reporting fund,” any gain on sale is taxed as income (up to 45%) instead of capital gain. Most U.S. domiciled funds lack UK reporting status, so they get bad UK tax treatment. This is the catch-22 U.S. expats face: UK funds are bad for U.S. tax (PFIC), U.S. funds are bad for UK tax (offshore fund rules).

How to resolve this? One approach is to invest in individual stocks and bonds (no fund wrappers). Another is to seek out U.S. ETFs that have UK reporting status – a few USD-denominated ETFs have taken the steps to be reporting funds in the UK, making them acceptable on both sides. These are niche and need careful selection. A third approach some adopt is to prioritize avoiding PFIC (the more punitive regime) and live with the less punitive UK non-reporting fund tax if necessary (e.g. hold U.S. funds, don’t sell them until perhaps you leave the UK or can mitigate the UK tax). 

UK Tax Reporting Requirements (HMRC) for Expats

To stay compliant in the UK, Americans should ensure they meet HMRC’s reporting thresholds:

• Self Assessment: You’ll likely need to register for Self Assessment and file annual tax returns if you have any foreign income, self-employment income, rental income, or significant investment income. HMRC explicitly notes that UK residents with foreign income usually should file a return. Also, if you have £10,000+ of combined investment income (interest/dividends) or £2,500+ of untaxed income, these are common triggers for needing a return. If all your income is from a UK employer via PAYE and under £100k, you might not need to file – but once you have U.S. source income, it’s safer to be in the system.
• Declaring Foreign Assets/Accounts: The UK doesn’t have an FBAR exactly, but the Self Assessment form asks about foreign bank accounts and you must report income from them.
• Deadlines: The UK tax year ends 5 April. The filing deadline is 31 January following the tax year for online filing (paper returns by 31 Oct). Payment of any balance of tax is also 31 January, with payments on account due 31 Jan and 31 July if applicable. Missing these deadlines leads to fines and interest. Mark your calendar and plan for both UK and U.S. deadlines, which are different.
• HMRC and IRS coordination: Thanks to FATCA and international information exchange, HMRC and IRS share data on taxpayers with cross-border ties. It’s not uncommon for HMRC to know about your U.S. bank interest or for IRS to know about your UK accounts. Always report transparently to avoid inquiries. If HMRC ever contacts you about unreported foreign income, don’t ignore it – they have increased focus on offshore compliance.
• National Insurance Number: Ensure you have a NI number and are paying into the system correctly (either via PAYE or self-assessment for NICs). This can affect your UK state pension down the line.
• Keep records: Keep copies of your P60s/P45s (UK wage summaries), bank interest statements, dividend vouchers, rental accounts, etc. You’ll need these for both tax returns. Also keep exchange rate records for converting income to USD for your U.S. return.

Key Takeaways for Americans in the UK

• Report Worldwide Income: As a UK resident, you must report all worldwide income and gains to HMRC (unless on a remittance basis, which most U.S. citizens don’t use). This includes U.S. salaries, interest, dividends, rents, etc. Don’t assume that just because you paid tax in the U.S. or a form came to your U.S. address that HMRC isn’t interested – they are. Use the Self Assessment system to declare foreign income and claim foreign tax credit relief where applicable.
• Understand UK Tax on Each Income Type: The UK has various allowances and different tax rates for different incomes. Make use of the personal allowance (£12,570) and know thresholds. For example, £500 dividend allowance and £1,000 savings interest allowance can shelter small investment earnings. But once you exceed them, be prepared for UK tax and reporting. The UK capital gains allowance is now very low (£3k), so more people will need to report asset sales.
• Plan for U.S. Obligations Too: UK tax law is only half your picture – as a U.S. citizen you’ll still file U.S. taxes annually. The good news is the tax treaty and foreign credits prevent most double taxation, but gaps exist. Identify areas where U.S. tax could exceed UK tax (often investment income like dividends, interest, or low-taxed capital gains). Always consider the combined tax impact of any action.
• Avoid Tax Traps: Pay attention to common pitfalls:
  • ISAs are NOT tax-free for the IRS. If you use ISAs, invest in a U.S.-friendly way or be ready for U.S. tax and forms.
  • Non-U.S. Funds = PFICs. Steer clear of non-U.S. mutual funds/ETFs to avoid nightmarish tax bills and reporting. Opt for individual securities or special reporting-status funds.
  • Employee stock plans – timing is crucial. Coordinate exercises/vests so that you can use credits and avoid paying tax on “ghost income” in one country.
  • Pension contributions – (not covered in depth here, but note) UK pension contributions are usually deductible in the UK and can be excluded in the U.S. via treaty up to limits. But foreign pension accounts and U.S. pension accounts each have their own cross-border issues; get advice specific to your situation.

Living in the UK can be a rewarding experience for Americans, and with proper tax planning you can avoid nasty surprises. Remember that complying with both tax systems is achievable – thousands of U.S. expats do it annually. Stay informed, keep good records, and use the reliefs available. With that in place, you can focus more on enjoying life in the UK and less on fearing the taxman (or the IRS)!