Cross-border · Journal
US-UK Tax Treaty: How to Avoid Double Taxation (2026 Guide)
How the US-UK tax treaty really works for Americans in Britain: the saving clause, Article 24 credits, FEIE, pensions, social security and a worked example.
How the US-UK tax treaty really works for Americans in Britain: the saving clause, Article 24 credits, FEIE, pensions, social security and a worked example.
The US-UK tax treaty does not stop the United States taxing its citizens who live in Britain. What it does is decide which country taxes each type of income first, and then oblige the other country to give relief, almost always as a credit for the tax already paid. For a US citizen resident in the UK, that usually means HMRC taxes UK salary and savings first, and the IRS then allows a foreign tax credit (Form 1116) or the foreign earned income exclusion (Form 2555) so the same income is not fully taxed twice.
The UK taxes mainly on residence, which is decided each year under the Statutory Residence Test (see our UK residency guide). A UK resident is generally taxed on worldwide income and gains.
The US taxes on citizenship. A US citizen or green card holder is taxable on worldwide income wherever they live. A US citizen in London is therefore taxed in full by both countries.
The treaty cannot remove either country's domestic claim. It allocates taxing rights by type of income (Articles 6 to 22), caps withholding on investment income (Articles 10 to 12), breaks residence ties (Article 4) and requires relief where both countries still tax the same income (Article 24).
Article 1(4) overrides most of the treaty for a country's own residents and citizens. Each country "may tax its residents ... and by reason of citizenship may tax its citizens, as if this Convention had not come into effect."
In practice, a US citizen resident in the UK usually cannot use an article such as Article 14 (employment) or Article 13 (gains) to avoid US tax. The US keeps its full domestic claim, and relief has to come through the credit.
Article 1(5) lists the benefits the saving clause does not override. Under Article 1(5)(a), these apply to everyone, including US citizens:
Article 1(5)(b) keeps some further benefits (including Article 18(2) pension contributions and Articles 19 and 20) only for people who are neither citizens nor green card holders. Article 1(6) extends the saving clause for 10 years to former citizens and long-term residents who gave up their status mainly to avoid tax, for income from that country's sources.
Article 4(1) treats a person as resident where they are liable to tax because of domicile, residence, citizenship or similar criteria. Article 4(2) narrows this for Americans abroad. A US citizen or green card holder counts as a US resident for treaty purposes only if they have a substantial presence, permanent home or habitual abode in the US.
Where someone is resident in both countries, Article 4(4) applies these tests in order:
1. Permanent home available to you.
2. Centre of vital interests, if you have a home in both: where personal and economic relations are closer.
3. Habitual abode.
4. Nationality.
5. Mutual agreement between the tax authorities, if you are a national of both or neither.
For a US citizen, the tie-breaker rarely changes the US bill, because the saving clause preserves taxation by citizenship. It matters more to green card holders. Under the Form 8833 instructions, a dual resident claiming UK residence under the treaty files Form 1040-NR with Form 8833. A long-term resident (a green card holder in at least 8 of the last 15 tax years) who does so is treated as ending US tax residency, which can trigger the expatriation tax rules and Form 8854. Take advice first.
Article 24(1) requires the US to credit UK income tax paid by its citizens and residents, "subject to the limitations" of US law. In practice that means Form 1116 and the rules in IRS Publication 514:
Article 24(4) requires the UK to credit US tax on US-source income, claimed through Self Assessment as Foreign Tax Credit Relief and, as GOV.UK explains, limited to the UK tax on that income.
Article 24(6) deals with US citizens resident in the UK:
HMRC's treaty guidance (DT19853) says the UK will not relieve US tax charged only because of the saving clause.
Treaty re-sourced income normally needs its own Form 1116, but the IRS instructions exempt re-sourcing under relief rules that apply only to US citizens resident in the treaty country, which is the Article 24(6) situation.
Illustrative figures only. The tax amounts are round numbers chosen to show the mechanics. They are not calculated from current UK or US rates.
Olivia is a US citizen who is UK resident all year and works for a UK employer. For the 2025 US tax year, her income converted to dollars is:
| Item | Amount (illustrative) |
|---|---|
| UK salary | $120,000 |
| UK bank interest | $4,000 |
| UK income tax on salary | $30,000 |
| UK income tax on interest (part sheltered by the Personal Savings Allowance) | $400 |
| US tax before credits | $20,000 |
Step 1: the UK taxes first. Both items are UK-source and Olivia is UK resident, so HMRC taxes them in full. Under Article 24(6)(a), the UK gives no credit for US tax on this income.
Step 2: the US taxes by citizenship. The saving clause lets the US tax the same $124,000. Assuming, for simplicity, that all her taxable income is foreign-source, the $20,000 splits in proportion: about $19,355 to salary (general category) and $645 to interest (passive).
Step 3: credit by category.
Result: Olivia still owes $245, despite $10,645 of spare general-category credit, because the categories are ring-fenced. Cash ISA interest makes the gap wider: the UK exempts it under domestic law, but no treaty article carries that exemption across, so there is no UK tax to credit.
The FEIE alternative. For 2025 Olivia could instead exclude up to $130,000 of foreign earned income on Form 2555 (the 2026 cap is $132,900). Her salary would drop out of the US calculation. However:
The IRS guidance on figuring the exclusion has the detail. Where UK tax is higher than US tax, as in this example, the credit often gives a similar result without these costs. Our global tax calculator can help you compare the two approaches before you speak to an adviser.
The table assumes a US citizen who is UK resident.
| Income type | Taxed first by | Relief on the other side | Article |
|---|---|---|---|
| Salary for work done in the UK | UK | US: foreign tax credit (general) or FEIE | 14, 24(1), 24(6)(a) |
| UK bank interest | UK | US: foreign tax credit (passive) | 11, 1(4), 24(1) |
| UK dividends | UK (the UK deducts no tax from dividends) | US: foreign tax credit (passive) | 10, 24(1) |
| US dividends (portfolio) | US, capped at 15% | UK credits 15%; US credits the remaining UK tax, with the income re-sourced | 10(2)(b), 24(4), 24(6) |
| US bank interest | UK (residence country) | US credits UK tax, with the income re-sourced | 11, 24(6)(b)-(d) |
| Gains on shares and other non-real-estate assets | UK | US: foreign tax credit | 13(5), 24 |
| US real estate: rent or gains | US | UK: credit for US tax | 6, 13(1), 24(4) |
| UK periodic pension | UK | US: foreign tax credit (exempt at source amounts: Art 17(1)(b)) | 17(1), 1(5)(a) |
| US Social Security | UK only | Exempt from US tax | 17(3), 1(5)(a) |
Real property gains may be taxed where the property is, including US real property interests and certain UK land-rich shares. Most other gains are taxable only in the seller's country of residence (Article 13(5)), though the saving clause still lets the US tax citizens, with UK tax credited. Article 13(6) also lets a country tax gains of anyone resident there in the six years before the sale.
Periodic pensions. Article 17(1)(a) taxes these only in the country of residence. Article 17(1)(b), which the saving clause does not override, exempts in the residence country any amount that would be exempt in the scheme's country if the recipient lived there.
Lump sums. Article 17(2) gives lump sums from a pension scheme to the scheme's own country, but it is not on the Article 1(5) exceptions list. HMRC's manual notes that the US can tax lump sums received by US citizens from UK schemes. How Articles 17(1)(b) and 17(2) interact for UK tax-free lump sums is technical and depends on the facts.
Pension growth and contributions. Article 18(1) defers tax on growth inside a pension scheme in the other country until benefits are paid, including for US citizens. Article 18(5), written for US citizens employed in the UK by a UK employer, allows UK scheme contributions to be deducted or excluded for US purposes, capped at comparable US relief and only where the US competent authority accepts the scheme corresponds to a US plan.
Social security benefits. Under Article 17(3), these are taxable only in the recipient's country of residence. IRS Publication 915 confirms that US citizens resident in the UK are exempt from US tax on their US Social Security benefits.
Social security contributions are a different matter. The treaty's taxes-covered article excludes US social security taxes, and National Insurance is not listed. Contributions are governed by the US-UK Totalization Agreement, in force since 1 January 1985. Under that agreement, an employee sent temporarily to the other country by the same employer normally stays in the home system for up to five years, on a certificate of coverage.
Form 8833. You must file Form 8833 when a treaty position overrides or modifies the Internal Revenue Code and reduces your tax, such as a treaty-based residence claim. Reporting is waived for common positions, including treaty benefits on employment income, pensions and social security, Totalization Agreement positions, and reduced withholding where the owner is an individual. The penalty for failing to disclose is $1,000 per position for individuals ($10,000 for a C corporation).
Deadlines.
If you have fallen behind on US filings while living in the UK, see our guide to missed US tax returns.
New arrivals. The UK remittance basis was abolished from 6 April 2025 and replaced by the four-year foreign income and gains (FIG) regime for people arriving after at least ten consecutive years of non-residence. FIG relief on US income leaves no UK tax for the US to credit.
1. Confirm your residence in each country: UK under the Statutory Residence Test, and US by citizenship or green card. Apply Article 4 only if you are a dual resident who is not a US citizen.
2. List every income item with its source country and the treaty article that covers it.
3. Work out UK tax first on UK-source and worldwide income, claiming UK credit only for the US tax Article 24(6)(b) allows.
4. Choose credit or exclusion with carryovers and the five-year revocation rule in mind.
5. Complete Form 1116 by category, converting UK tax at the correct exchange rates and allowing for the mismatch between the UK tax year (6 April to 5 April) and the US calendar year.
6. Check your disclosures: Form 8833 where required, the FBAR, Form 8938 and any trust or foreign company forms.
7. Keep records of UK tax paid (P60s, SA302s, tax year overviews) to support credits and carryovers.
The treaty is logical, but the numbers depend on your income mix, the two tax years and choices that bind later years. With pensions, equity awards, a business or property in both countries, or missed filings, an adviser who works in both systems is worth considering. At Next Tax Source, a licensed CPA or Enrolled Agent reviews and signs off every US return, and an ACCA-qualified accountant reviews UK work. See our US-UK expat tax service, our cross-border business tax service, or book a consultation. This guide is general information, not advice for your circumstances.