Cross-Border Tax
Form 1040, SA100, Form 1116, Treaty
US and UK returns prepared together from one set of workpapers, so credits, tax years and exchange rates line up across both.
What does Cross-Border Tax involve?
Filing in two countries is more than filing twice. The US and UK use different tax years, different currencies and, often, different views of whether something is income at all. We prepare both returns together so that each credit claimed in one country rests on tax paid in the other.
Forms and filings involved
- Form 1040
The annual federal return for US citizens, green card holders and US residents, reporting worldwide income wherever the filer lives.
- SA100
The main UK Self Assessment return, with supplementary pages for foreign income, property, gains and residence.
- Form 1116
The form that turns UK income tax into a credit against US tax on the same income, with carryovers for unused amounts.
- Treaty
How the US-UK income tax treaty allocates taxing rights, and where its saving clause limits what US citizens can claim.
- US v UK
The structural differences between the US and UK income tax systems that cause most cross-border problems, from tax years to ISAs.
Two returns that have to agree
Most US and UK double taxation is resolved by credit, and credit depends on order.
The country where income arises usually taxes first and the country of residence gives credit. For US citizens in the UK the treaty adds a further step, re-sourcing some US income so that the US return can absorb UK tax. Getting the order wrong does not always produce a bigger bill in the first year. It often leaves credits stranded in the wrong category, which surfaces as tax later.
The two systems also disagree about what is taxable at all. An ISA is tax-free in the UK and fully taxable in the US, and funds held inside one are commonly PFICs. Gains on a UK home may be covered by private residence relief in the UK while the US applies its own section 121 exclusion, with its own tests, and measures the gain in dollars. The 3.8% net investment income tax is generally not creditable under domestic law, and treaty-based claims are contested.
We prepare both returns from a single set of workpapers. UK income is re-cut from the year ending 5 April to the calendar year for the US return, and US income is re-cut the other way for Self Assessment. Exchange rates are applied on one consistent method. Each credit claimed in one country is traced to tax actually paid in the other. Where a decision helps one return and hurts the other, we show the combined figure so the choice is made on the total.
How the two returns are kept in step
- 01
- One income schedule feeding both Form 1040 and the SA100
- 02
- Each credit traced to tax actually paid in the other country
- 03
- Treaty re-sourcing of US income for US citizens resident in the UK
- 04
- UK tax-free accounts reviewed for their US treatment before you invest
- 05
- One exchange rate method applied consistently from year to year
Who this is for
Anyone filing in both countries on the same income
- Couples where one spouse is American and the other British
- People moving between the US and the UK during a tax year
- Americans holding ISAs, UK funds or UK property
Why US UK Tax Returns
Each return is prepared with the other country's return open beside it, so a credit, election or disclosure on one is supported by the other.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
Will I end up paying tax twice on the same income?
Usually not in full. Credits and the treaty are designed to bring the total down to roughly the higher of the two countries' rates. Double taxation does still happen at the edges: where the two countries tax the same item in different years, where a credit falls into the wrong category, or where a tax has no counterpart to credit against. How much of that applies depends on the types of income involved.
Which country gets to tax my income first?
In general the country where the income arises has the first claim, and the country of residence taxes what is left after credit. Employment income follows where the work is done, rent follows the property, and the treaty sets limits on source taxation of dividends and interest. US citizenship complicates this, because the US keeps the right to tax its citizens whatever the treaty says, subject to listed exceptions.
Is my ISA tax-free in the US as well?
No. The US gives an ISA no special status, so interest and dividends inside it are reportable on Form 1040 in the year they are received, and gains in the year they are realised. A cash ISA is usually a modest problem. A stocks and shares ISA holding UK funds is a larger one, because those funds are commonly PFICs with their own reporting and tax rules. Holdings of individual shares are usually simpler, though it depends on the company.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
Last reviewed
Also in Cross-Border
From the Blog
Ready to talk it through?
Tell us where you live, what you hold and which years are outstanding. We will say what applies and what it involves before any work begins.
Contact us