In the United Kingdom, you are defined as a resident by the rules set out by the Her Majesty's Revenue and Customs (HMRC). In short, your residency is determined by your long-term intentions and the number of days you spend in the country. This exercise counts each day if you are in the U.K. at midnight.

There are also two types of residents for a tax year: Ordinarily and not ordinarily.

For U.K. tax purposes, domicile is important for determining how you are taxed on your worldwide income. Domicile is defined as where a person has a long-term, permanent home. It is different from citizenship or residence.

Your domicile or origin is the same domicile as your father's domicile at the time of birth. If your father had changed domicile while you were still a dependent, your domicile would also have changed. You can, however, adjust your domicile. To do so, you must cut links with your previous domicile, move to a new jurisdiction, and have a permanent home in that jurisdiction. It is challenging to acquire the domicile of choice compared to the domicile of origin, and the responsibility to prove that your domicile has changed lies on you.

Most expats in the U.K. are considered non-U.K. domiciled.

The tax paid on worldwide income will depend on your residency and domicile status in the U.K. If you are considered a resident of the U.K., you are taxed on all of your investment income, no matter the location. This will be the same income reported on your U.S. expat taxes.

If you are a resident but not domiciled in the U.K., you can file using the remittance basis for foreign income and capital gains. If you are a domiciled resident but are not ordinarily resident, you can use remittance only for your foreign income, not capital gains. Remittance basis allows you to elect to be liable to pay U.K. tax on investment income remitted in the U.K. Income must be remitted if brought to the U.K. or paid to you in the U.K. Contacting a tax advisor regarding overseas bank accounts is good to avoid costly mistakes for non-UK domiciled residents.

For the 2023-2024 tax year, the national income rates from HMRC are as follows:

Note: Personal Allowance can be used to earn interest tax-free if you have not used it up on your wages, pension, or other income. You can also see the rates and bands without the Personal Allowance. You do not get a Personal Allowance on taxable income over £125,140. For more information, refer to How much U.K. tax you pay (2023).

The U.K. tax year differs from that of the U.S. It spans from April 6 to April 5.

Paper tax returns must be submitted to HMRC by October 31 of the tax year. This deadline contrasts with the April deadline for U.S. expat taxes.

E-filed tax returns must be submitted by January 31 following the tax year. HMRC does not grant extensions.

Regarding payments, the U.K. operates on a withholding system (PAYE) through your employer's payroll. For non-wage income without withholding, payments are due on January 31 of the tax year, with completion required by July 31 following the tax year.

We use prorated earnings and taxes paid from two consecutive years, encompassing the entire calendar year.

For example, to calculate figures for the 2023 U.S. tax year, we take three months from the U.K. 2022-2023 tax year and nine months from the U.K. 2023-2024 tax year. To do this, we would typically use your paystubs or run the calculation for obtaining these numbers.

There are three Pay As You Earn (PAYE) tax forms: P45, P60, and P11D:

Please provide us with every PAYE form you receive; we request this on the Wages tab of the Tax Questionnaire.

Most U.K. taxpayers are taxed at source, meaning tax is deducted before they receive income, like wages under the PAYE system or U.K. bank interest. They typically do not need to complete a Self Assessment tax return.

However, individuals with income not taxed at source or not taxed at the correct rate and on which tax is due are required to inform H.M. Revenue & Customs about the income within six months of the tax year's end in which the payment is received (that is by October 5th following the end of the tax year). Such income includes rental income, self-employment income, savings income for higher rate taxpayers, and occasional untaxed income like eBay sales or freelance earnings. HMRC will send you a notice to file a tax return, either by post or electronically. If HMRC sends you a notice to file a return, even if you are an employee with all income taxed under PAYE, you must complete and submit the return to HMRC.

In addition to income tax on salaries paid, other forms of income are taxed in the U.K.

Non-cash compensation is considered taxable. This includes housing stipends, relocation expenses, meal and clothing allowances, commuting costs, club memberships, education reimbursement, or home leave payments. There are exceptions, but in general, expats can expect to pay taxes on non-cash compensation in the U.K., including the National Insurance.

Any capital gains will also be taxed, including the sale of your only or primary residence, life insurance policies, corporate bonds, motor cars, gifts of assets to charity, gains from ISA accounts, and U.K. government bonds. If you are a resident or ordinarily resident and domiciled in the U.K., this includes worldwide capital gains. If you are not domiciled, it will only be on capital gains earned in the U.K., allowing for election by the remittance basis for overseas gains.

For estate taxes, you can expect to pay inheritance tax to worldwide assets if you are domiciled in the U.K. HMRC deems you responsible for inheritance taxes if you have been resident in the U.K. for 17 or more of the last 20 years. If you are domiciled in the U.S., you are only responsible for inheritance on assets inside the U.K.

The U.K. Tax Declaration is called a Self Assessment tax return. You must send it to HMRC if, in the last tax year, any of the following applied:

You can easily check if you need to send a Self Assessment tax return online. You usually won't need to send a return if your only income is your wages or pension.

❗ Important note: if you submitted the Self Assessment form for the period covered by the U.S. tax year (either January 1 - April 5 or April 6 - December 31), please provide it (or both of them) to your tax preparer at TFX. We ask for it in the Tax Questionnaire section Personal Details > Logistics > Refund and the question Do you have an annual tax return from any non-U.S. country?

Before opening a local business in the U.K., you must first possess the right to reside and work in the U.K. legally. Also, you will need to decide on your business structure and register your business with the appropriate U.K. agency. There are several U.K. agencies where you may need to register your business, such as the Companies House and Her Majesty's Revenue and Customs (HMRC).

Contributions to the U.K. National Insurance system withheld from your paycheck or made on self-employment income are not deductible from the U.S. taxable income and do not qualify for the foreign earned income credit. You can check your National Insurance record online.

An agreement between the United States and the United Kingdom improves Social Security protection for people who work or have worked in both countries. It helps people who, without the agreement, would not be eligible for retirement, disability, or survivor benefits under the Social Security system of one or both countries. It also helps many people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

The agreement's provisions eliminate double Social Security taxation and permit dual residents to use their work in both countries to qualify for benefits.

U.S. Green Card holders residing in the U.K. may elect to apply what is known as the tie-breaker rule of the U.S.-U.K. tax treaty and be deemed a resident only of the State (i.e., country) with which their personal and economic relations are closer (U.K.).

Under such an election, the individual would file Form 1040NR and report only income derived from U.S. sources. The requirement to provide full disclosure of foreign bank accounts remains, and the tax on income from U.S. sources will be higher than the tax on the same income when applied to U.S. residents filing Form 1040.

You will need four pay stubs for the year. All of them are for the calendar year you are filing U.S. tax returns (Jan-Feb-Mar and Dec). Add the amounts printed online to Total Payment for January, February, and March. Then add the amount from line Taxable Pay YTD from the December paystub (because the U.K. tax year is Apr-Mar, the Gross to Date value on the December paystub will reflect your pay for Apr-Dec).

A more straightforward way is this: If your salary has not changed over the year, you can multiply one monthly Total Payment amount by 12. Enter the result in the Tax Questionnaire:

It is a turnover of your unincorporated business. To report the gross income from self-employment or business income, navigate to Income > Self-employment and enter the amount under the question Gross Income from self-employment.

Each type of income is reported as the gross amount before any deductions allowed in the U.K., for example, before contributions to the National Insurance. 

To report contributions to the National Insurance while being self-employed in the Tax Questionnaire:

If you received redundancy pay, add the gross amount as additional wages.

Similarly to income, the tax must be reported separately for each type of income on which tax was paid. Add the amounts printed online Tax (Section Deductions of paystub) for January, February, and March. Then add the amount from line Tax Paid YTD from December paystubs. Enter the result in the Tax Questionnaire:

If there was additional tax payment during the calendar year (i.e., HMRC issued a tax bill for tax underpaid in the prior year), add that amount to the tax withheld during the filing year.

The payor may withhold taxes on unearned income (i.e., bank-withheld income from dividends), or you may owe tax upon completing the tax assessment form. Report each type of tax paid during the filing year in the respective section, even if it applied to income received in prior years.

To calculate the taxes paid during the selected year, use the income calculator. Provide the figures in your resident country calendar (for individual months or the whole year), then copy the calculated amount earned during the tax year.

To report property tax:

❗ Important note: foreign property taxes are not deductible for tax years 2018 through 2025.

Reporting council tax depends on whether you rent or own a flat.

❗ Important note: foreign property taxes are not deductible for tax years 2018 through 2025.

We will take specific deductions allowed for U.K. residents by the U.S.-U.K. tax treaty, for example, we can deduct contributions made to the employer pension scheme. You will report contributions to the employer pension separately from the gross income. We will take this deduction if this improves your tax position (in some cases, you may benefit from not taking this deduction now).

Further, the Taxes And Deductions > Deductions section of the TQ offers you questions related to various additional deductions. Such deductions include mortgage interest, alimony payments, and investment advisor fees. Similarly to personal allowance in the U.K., the U.S. tax system also applies a concept of "Standard deduction": $12,950 per single person and $25,900 for the married couple for the 2022 tax year. For most U.K. residents filing a U.S. tax return standard deduction option is more tax efficient than "itemized deductions" - grossing up individual deductions.

To report employer contributions and your contributions to the pension scheme:

To report payouts from foreign pensions of all types: the National Insurance, employer pension, and Bereavement Allowance (previously Widow's Pension):

Stocks and shares ISAs are investment accounts with the preferential U.K. tax treatment of dividends and capital gains. Individual tax-deferred savings accounts (ISAs) do not qualify for income deferral in the U.S. Income earned on these accounts must be reported on U.S. tax returns. 

Report distributions from individual pension accounts as income from regular investments in the Tax Questionnaire:

A: National Insurance payment is not deductible from your salary. Contributions made to N.I. entirely on the U.S. tax returns. Likewise, you do not "deduct" income tax. We need to report gross salary and then take the foreign tax credit for income tax (not for the National Insurance tax). 

Another example of non-deductible taxes is VAT.

The Foreign Account Tax Compliance Act (FATCA) is a piece of legislation introduced by the United States government in 2010 to avoid double taxation and prevent fiscal evasion concerning taxes, allowing the exchange of tax-related information. The U.K. incorporated FATCA principles into its local law, obligating U.K. financial institutions to provide information on U.S. accounts to the local tax authority, H.M. Revenue and Customs (HMRC). Further, it becomes subject to the Intergovernmental Automatic Exchange of Information that took effect on July 1, 2014. Subsequently, U.K. banks reported account balances with reviews based on account value. Accounts with balances over $1 million were reviewed by June 30, 2015, and those with lower values ($50,000 - $1 million for individuals and $250,000 - $1 million for entities) by June 30, 2016.

To comply with U.S. FATCA regulations, U.K. financial institutions search their data for indications (indicia) that an account holder may be a U.S. person (U.S. Specified Persons or foreign entities in which U.S. taxpayers hold a substantial ownership interest). These indications include:

Even though FATCA will provide relief in reporting scope to many U.K. retirement plans considered "deemed compliant," the FATCA rules applying to individuals were not relaxed. Form 8938 requires reporting by U.S. taxpayers participating in foreign pension plans.

U.K. financial assets exempt from FBAR/FATCA reporting are limited to National Insurance, Real Estate Holding, precious metals held directly, and collectibles.