Why Americans Living in London Still Need to File US Taxes

Every year, Americans move to London believing that once they start paying UK taxes, their obligations to the IRS end. While this assumption is understandable, it is incorrect. The United States is one of the few countries that taxes its citizens regardless of where they live, meaning US tax responsibilities continue even after relocating abroad.

At Jaffe & Co, specialist tax advisors in London with extensive experience in US and UK taxation, we regularly help American expatriates understand and meet their cross-border tax obligations. This guide explains why US tax filing requirements continue after moving to the UK and what steps you should take to remain compliant.

Table of Contents

• The Fundamental Rule: US Taxation Follows Citizenship

• Income You Must Report to the IRS While Living in London

• Essential IRS Forms Many Americans Overlook

• Why ISAs Can Create Unexpected US Tax Issues

• What To Do When You Arrive in London
  

The Fundamental Rule: US Taxation Follows Citizenship

Most countries tax individuals based on residency. Once you move abroad, your tax obligations generally shift to your new country of residence. The United States operates differently.

US citizens and Green Card holders are taxed on their worldwide income, regardless of where they live or work. Moving to London, paying UK taxes through PAYE, or becoming a long-term UK resident does not remove your US tax filing responsibilities.

Understanding this principle is the foundation of successful cross-border tax planning and a key reason many Americans seek guidance from specialist tax advisors in London.

Income You Must Report to the IRS While Living in London

As a US citizen residing in the UK, you must report your worldwide income to the IRS, including:

• UK salary and employment income

• Freelance and self-employment earnings

• Rental income from UK property

• Interest and dividends from UK bank accounts and investments

• Capital gains from property sales and investments

• UK pension distributions and certain pension contributions
  

Even if this income has already been taxed by HMRC, it must still be disclosed on your US tax return.

Fortunately, many Americans can use the Foreign Tax Credit (FTC) to offset UK taxes paid against their US tax liability, often reducing or eliminating additional US tax. However, the filing requirement itself remains.

Essential IRS Forms Many Americans Overlook

For many Americans in London, filing Form 1040 is only one part of their compliance obligations. Additional reporting requirements frequently apply.

FBAR (FinCEN Form 114)

An FBAR must be filed if the combined value of your non-US financial accounts exceeds $10,000 at any point during the year.

This may include:

• UK current accounts

• Savings accounts

• ISAs

• Workplace pensions

• Digital banking accounts

Failure to file can result in substantial penalties, even when no tax is owed.

Form 8938 (FATCA)

Depending on your filing status and asset levels, you may also need to file Form 8938 to report foreign financial assets.

Importantly, filing an FBAR does not satisfy FATCA reporting requirements. These are separate obligations with different thresholds and reporting rules.

Form 8833

If you are relying on provisions within the US-UK Tax Treaty, such as pension contribution or distribution benefits, Form 8833 may be required. Treaty positions generally must be disclosed to the IRS and are not applied automatically.

As experienced international tax advisors in London, we often find that missed FBAR and FATCA filings are among the most common compliance issues affecting newly arrived Americans.

Why ISAs Can Create Unexpected US Tax Issues

The Individual Savings Account (ISA) is one of the UK's most popular investment vehicles. However, its tax advantages do not automatically extend to US taxpayers.

While ISA income is generally tax-free in the UK, the IRS does not recognise the ISA as a tax-exempt account. As a result:

• Interest earned within the ISA may be taxable in the US

• Dividends may need to be reported on your US return

• Capital gains may be subject to US taxation
  

Additionally, if your ISA contains UK-based investment funds, they may be classified as Passive Foreign Investment Companies (PFICs), triggering complex reporting requirements and potentially unfavourable tax treatment.

Professional advice can help avoid costly mistakes and ensure your investments remain tax-efficient across both jurisdictions.

What To Do When You Arrive in London

Addressing your tax position early can help prevent future compliance problems.

Review Your Financial Affairs

Assess all bank accounts, investments, pensions, retirement plans, and income sources in both the US and UK to determine your reporting requirements.

Develop a Foreign Tax Credit Strategy

For many Americans living in the UK, the Foreign Tax Credit provides the most effective way to avoid double taxation. Proper implementation from the outset is essential.

Understand Your UK Filing Obligations

You may need to register for Self Assessment if you receive rental income, self-employment income, or other taxable income outside PAYE.

Resolve Any Prior Filing Gaps

If previous US tax returns or information forms have not been filed, it is often beneficial to address the issue before IRS contact occurs. Available compliance programmes may help reduce or eliminate penalties.

Expert US and UK Tax Advice for Americans in London

Navigating both US and UK tax systems requires specialist knowledge. Working with experienced tax advisors in London can help ensure compliance, minimise risk, and identify tax planning opportunities.

At Jaffe & Co, we provide specialist American tax services for individuals and families throughout London and the UK. Our team combines decades of experience in international tax planning and compliance, helping clients manage their obligations confidently across both jurisdictions.