US vs UK income tax: two systems that agree on very little.
Understanding what each country taxes, and when, explains most cross-border surprises. The systems differ on the trigger, the calendar, the treatment of investments and the definition of a household.
Figures on this page are stated for tax year 2025/26 UK · 2025 US. Thresholds change annually.
Citizenship versus residence
The United States taxes its citizens and Green Card holders on worldwide income wherever they live — one of only a couple of countries to do so. The United Kingdom taxes on residence, determined by the statutory residence test, with domicile historically affecting how foreign income was treated.
The tax years do not line up either: the US runs the calendar year, the UK runs 6 April to 5 April. That mismatch is why UK tax on a given period can fall due after the US return covering it has already been filed, and why credit planning across the two calendars matters.
- US: worldwide income by citizenship, calendar year, 15 April
- UK: income by residence, 6 April to 5 April, 31 January online
- Married couples file jointly in the US, independently in the UK
Where the two genuinely clash
UK rates generally sit above US rates at similar income levels, which is why foreign tax credits usually eliminate the US bill for employees. But the clashes are elsewhere: ISAs are tax-free in the UK and fully taxable to the IRS; UK funds are punitively taxed as PFICs; the 25% tax-free pension lump sum has no US equivalent; and the UK's capital gains allowance and rates diverge sharply from the US long-term rates.
National Insurance and US Social Security taxes are handled separately again, under the totalization agreement, which assigns you to one system rather than both — but only with a certificate of coverage in hand.
Questions we get about this
You should not. Either the Foreign Earned Income Exclusion removes a slice of it from the US calculation, or foreign tax credits offset the US liability with the UK tax already paid.
Since UK rates are typically higher, most employees end up owing nothing to the IRS - but only if the return claiming it is filed.
Both, on their own calendars. The US return covers January to December; the UK return covers 6 April to 5 April.
Apportioning income between the two, and timing payments so credits land in the right year, is a routine part of preparing both returns together.
Generally no. Social security contributions are dealt with under the totalization agreement rather than the tax treaty, and they are not usually creditable against US income tax.
The agreement's job is to stop you contributing to both systems at once, which requires a certificate of coverage.
For employment income at most levels, yes - which is why credits typically wipe out the US bill.
It reverses for some investment income, capital gains and retirement withdrawals, which is exactly where cross-border planning earns its keep.
Last reviewed · Figures stated for tax year 2025/26 UK · 2025 US. Thresholds and rates change annually — check figures against the current tax year before relying on them.
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