Americans Living in the UK - Part 5: Which tax return should be filed first?

After having discussed investments, retirement planning, and the UK-US Tax Treaty in earlier parts of this series on Americans living in the UK, this final article puts all of it together and turns to the question that often comes up in practice: which return should be done first, the US return or the UK return? For Americans living in the UK, the answer is rarely straightforward. You are dealing with two tax years, two filing systems, the UK-US income tax treaty, and a foreign tax credit framework that does not always operate in the same direction for every item of income. This article is written from a UK perspective and gives general guidance only. Detailed US tax advice should be taken separately.

The short answer

There is no universal rule that the US return must be done first or that the UK return must be done first.

The better answer is this:

• for US dividends, doing the US return first is often workable and often sensible
• for US interest, most recurring US pension income and most gains on movable property such as shares, it is usually more tax-efficient to know the UK tax first, or at least to compute it first, because the United States is often the country that must ultimately give relief
• for US real estate gains, the US return often comes first in practice, with UK credit relief claimed later

So the filing order should generally be driven by the income type, not by habit.

Why the answer is different for different income types

A US citizen living in the UK is in a special position. The treaty allocates taxing rights between the UK and the US, but the US saving clause means the United States can still tax its own citizens broadly as if the treaty did not exist. The important carve-out is that Article 24, which deals with relief from double taxation, is preserved. In other words, the treaty does not usually stop the US from taxing its citizen, but it is still supposed to help prevent the same income being taxed twice without relief.

That is why the real question is not simply “which return first?” It is “which country is expected to give the credit for this item of income or gain?”

The tax year mismatch matters

For the reader doing a 2024 US return and a 2024/25 UK return, there is an immediate practical issue. The US tax year ends on 31 December 2024. The UK tax year ends on 5 April 2025. The normal US filing date is earlier, although US citizens abroad get an automatic extension to 15 June and can usually extend further to 15 October. By contrast, the UK online filing deadline for 2024/25 is 31 January 2026.

That mismatch is one of the main reasons timing problems arise. Quite often, the country that is supposed to give credit does not yet know the final foreign tax number when its return is due.

1. US dividends

Treaty position

US dividends can be taxed in both countries. Under Article 10, the country of source may tax the dividend, but for a normal portfolio holding the treaty rate is generally capped at 15 percent.

Practical result for a US citizen in the UK

For a US citizen who is UK resident, the most common pattern is:

1. the dividend is taxed in the United States
2. the dividend is also taxed in the UK
3. the UK gives credit for the treaty-permitted US tax, usually up to 15 percent for a portfolio dividend
4. if the UK rate is higher, the excess is paid in the UK

That is why dividends are one of the areas where doing the US return first is often perfectly workable.

Example

Assume a US citizen resident in the UK receives a $10,000 US portfolio dividend in the period and is a higher-rate UK taxpayer. If the dividend is taxed in the US at 15 percent, and the UK dividend rate applicable to that income is 33.75 percent, the UK will usually give credit for the 15 percent US tax and collect the balance. In broad terms, that means the combined position lands at the higher UK rate, not a full double charge.

Most tax-efficient approach

For US dividends, US first and UK second is often the cleanest route.

That said, the position should not be overstated. It does not automatically follow that a later amendment of the US return will always be needed. Sometimes it will be appropriate, especially where the final UK computation changes the foreign tax credit position on the US side. Sometimes it will not. The better statement is that dividends are one of the few areas where starting with the US return is often practical and treaty-consistent.

2. US interest

Treaty position

Under Article 11, interest arising in one state and beneficially owned by a resident of the other state is generally taxable only in the state of residence. So, in treaty terms, ordinary US bank or bond interest of a UK resident is generally for the UK to tax.

Practical result for a US citizen in the UK

Because the person is a US citizen, the United States will still tax that interest under domestic law. But that does not mean the UK becomes the natural relieving state. In fact, for a US citizen resident in the UK, Article 24(6) is critical. The UK is not required to credit more US tax than the United States would have been allowed to impose on a UK resident who was not a US citizen. For ordinary interest, that amount is generally nil.

So the usual logic is:

1. the UK is the primary taxing state under the treaty
2. the US still taxes because of citizenship
3. the relief should usually be claimed on the US side by reference to the UK tax, not the other way round

Example

Assume a US citizen resident in the UK receives $10,000 of ordinary US bank interest. The treaty starting point is that the UK taxes it. The US may still tax it because the recipient is a US citizen, but in most cases the more efficient route is to compute the UK tax first and then use the UK tax as a foreign tax credit on the US return.

Most tax-efficient approach

For ordinary US interest, the more efficient route is usually to know the UK tax first, or at least to compute it first.

In practice that may mean one of three things:

• preparing the UK computation before finalising the US return
• filing the US return on extension
• filing the US return and later amending it once the UK figures are final

What is usually least efficient is assuming that the UK will simply credit the US tax. For ordinary interest, that is often the wrong way round.

3. US pension income

This is where many Americans in the UK get caught out, because not all pension payments are treated the same way.

A. Regular pension distributions

Under Article 17(1)(a), pensions and other similar remuneration beneficially owned by a resident of one state are generally taxable only in that state of residence. For a UK resident, that points first to the UK.

But again, the saving clause means the US can still tax its citizens. So a US citizen resident in the UK can find that a regular IRA or 401(k) withdrawal is taxed in both places.

The practical consequence is similar to US interest:

1. the UK is usually the primary taxing state under the treaty
2. the United States may still tax because of citizenship
3. relief will often have to be obtained on the US side by using the UK tax as a foreign tax credit

For regular pension withdrawals, it is therefore usually more efficient to know the UK tax first, or at least compute it first.

B. Lump sums

Article 17(2) is different. A lump-sum payment derived from a pension scheme established in one state and beneficially owned by a resident of the other state is generally taxable only in the state where the pension scheme is established.

So if the payment is a true lump sum from a treaty-recognised US pension scheme, the treaty starting point is that the United States has the taxing right and the UK should not tax it.

This is an important exception and it is often overlooked. It also means the filing strategy may be different from the strategy for ordinary annual withdrawals.

C. US Social Security

Article 17(3) deals separately with social security type payments. A US social security payment made to a UK resident is generally taxable only in the UK.

So do not treat US Social Security in the same way as an IRA or 401(k) distribution. It is a different treaty category.

Most tax-efficient approach

• for regular US pension withdrawals, UK first or UK computed first is often the more efficient route
• for a true lump sum from a US pension scheme, US first is often the right route because the treaty points to US-only taxation
• for US Social Security, the treaty points to UK-only taxation

4. US capital gains on movable property

Treaty position

Article 13(5) provides that gains from the alienation of property other than the categories specifically carved out earlier in Article 13 are taxable only in the state of residence. That usually means gains on listed shares and many other investment assets belong first to the UK when the seller is UK resident.

Practical result for a US citizen in the UK

Once again, citizenship changes the practical picture. The United States will still tax the gain under domestic law. But that does not mean HMRC must give credit for all of that US tax. Article 24(6) again matters. The UK only has to take into account the amount of US tax that the US could have charged a UK resident who was not a US citizen.

For a gain on ordinary listed shares, that amount is generally nil.

That is why the usual analysis is:

1. the UK has the primary taxing right on the gain
2. the US still taxes the gain because the seller is a US citizen
3. the relief usually has to be obtained on the US side, not the UK side

Example

Assume a US citizen resident in the UK sells listed US shares at a gain. The UK taxes the gain because the seller is UK resident. The United States also taxes the gain because the seller is a US citizen. But for treaty purposes this is usually a gain that belongs first to the UK, so the more efficient route is usually to compute the UK tax and then claim relief on the US side.

For 2024/25 there is an extra complication: the main UK CGT rates changed on 30 October 2024, so any worked example needs to state the disposal date clearly.

Most tax-efficient approach

For gains on shares and other movable property, UK first or UK computed first is usually the better answer.

This is also the area where simplistic statements such as “the UK will always credit US capital gains tax” are most likely to be wrong.

5. US capital gains on immovable property

Treaty position

Article 13(1) provides that gains attributable to the alienation of real property situated in the other state may be taxed in that other state. So a gain on US real estate may be taxed in the United States.

Practical result for a UK resident US citizen

Because the seller is UK resident, the UK will generally also tax the gain, subject to its own domestic rules. But here the US source taxing right is built into the treaty itself. That makes UK foreign tax credit relief much more natural.

So the usual practical pattern is:

1. the US taxes the real estate gain
2. the UK also taxes the gain because the seller is UK resident
3. the UK gives credit for the US tax, subject to the usual UK cap

Most tax-efficient approach

For US real estate gains, US first and UK second is often perfectly sensible in practice.

So which return should be done first?

If you want one practical rule for an American in the UK, it is this:

Do not choose the filing order once for the whole year without looking at the mix of income.

Instead, ask the following question for each category:

Which country is likely to be the relieving state for this item?

That usually gives the following broad result:

• US dividends: often US first
• US interest: usually UK first, or UK computed first
• regular US pension income: usually UK first, or UK computed first
• US pension lump sums: often US first
• US Social Security: UK only under the treaty
• gains on shares and other movable assets: usually UK first, or UK computed first
• gains on US real estate: often US first

Final practical point

Many timing problems are really foreign tax credit problems in disguise. The country that is meant to give the credit may not yet know the final tax paid to the other country because the tax years do not line up. That is why extensions, provisional calculations and later amendments sometimes become necessary.

So the real planning point is not just filing order. It is making sure the return that is supposed to give relief has the right foreign tax figure available when it is filed.

Conclusion

For Americans living in the UK, the question “US return first or UK return first?” has no single answer.

The more accurate answer is that filing order should follow the treaty character of the income:

• dividends and US real estate gains often point naturally to US first
• interest, most recurring pension income and gains on movable property often point to UK first, or at least to computing the UK tax first

That distinction matters because the UK-US treaty does not operate in the same direction for every type of income. Once that is understood, the filing strategy becomes much clearer and, in many cases, more tax-efficient.