US expat taxes for americans living in the UK

If your income is over US$10,000 (or $400 for self-employed individuals), you must file form 1040. While any tax is still due by April 15th, expats get an automatic filing extension until June 15th. This can be extended still further online until October 15th.

If you have foreign assets worth over US$200,000 (per individual), excluding a home owned in your own name, you also need to file a form 8938 declaring them.

“Aspiration and wealth creation are the key engines of growth and prosperity in our country. It is right though to tighten the law to discourage aggressive tax avoidance.” – David Cameron, UK Prime Minister.

If you had more than US$10,000 in aggregate in one or more foreign bank accounts at any time during the tax year, you also need to file FinCEN form 114, sometimes known as an FBAR (Foreign Bank Account Report).

If you are paying income tax in the UK, there are several mechanisms that prevent you paying tax on the same income to the IRS.

The two primary ones are the Foreign Earned Income Exclusion, which allows you to exclude the first around US$100,000 of foreign earned income from US income tax if you can demonstrate that you are resident in the UK, and the Foreign Tax Credit, which allows you a dollar credit for every dollar of tax you’ve paid in the UK. The Foreign Tax Credit is typically a sensible option if you pay more tax in the UK than you would owe in the US, as you can carry the excess tax credits forward. Don’t forget though, even if you don’t owe any tax in the US, if your income is above US$10,000 (or $400 for self-employed individuals) you still have to file.

The US and British governments share taxpayer info, while British banks pass on their US account holders’ account info to the IRS, so it’s not worth being economical with the truth or burying your head in the sand. The penalties for tax evasion for expats are tough to say the least.

If you’re a US citizen or green card holder (including dual citizens) and you have been living in the UK for some time but didn’t know you should be filing a US return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any fines. It’s better to do this soon though, before the IRS comes to you.