Understanding the UK Tax Year: A Guide for UK-based U.S. Citizens

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American citizens living in the UK may have reporting requirements in both countries: in the UK, they may need to file a Self-Assessment tax return each year and in the U.S., they'll need to file a tax return and report any income earned both in the U.S. and in the UK.

The tax year in the United Kingdom runs from April 6th to April 5th of the following year, which differs from the fiscal year in the United States (January 1st to December 31st).

American citizens living in the UK therefore may have tax obligations in both countries and understanding the UK tax year is therefore critical for American residents living in the UK to ensure they file their taxes accurately and on time.

In the UK, they may need to pay taxes on any income earned, including wages, rental income, or investment income.

American citizens in the UK who have a green card or who have spent a significant amount of time in the U.S. may also have tax obligations to the U.S. government.

The Foreign Earned Income Exclusion (FEIE) is a tax exclusion that allows American citizens living abroad to exclude a certain amount of foreign-earned income from their U.S. taxes.

For 2021, the FEIE limit is $108,700. This means that if an American citizen living in the UK earns less than this amount, they may not owe any U.S. taxes on their foreign-earned income.

It's important to note that the FEIE only applies to earned income, not investment income. Additionally, to qualify for the FEIE, the American citizen mU.S.t meet certain residency requirements.

They must either be a bona fide resident of the foreign country or be physically present in the foreign country for at least 330 full days in a 12-month period.

The Foreign Tax Credit is another option for American citizens living in the UK to reduce their U.S. tax liability.

This credit allows taxpayers to claim a credit for foreign taxes paid on their foreign-earned income.

The credit is dollar-for-dollar, meaning that for every dollar of foreign taxes paid, the taxpayer can reduce their U.S. tax liability by a dollar.

It's important to note that the Foreign Tax Credit cannot be used to offset U.S. taxes on income that is excluded under the FEIE. Additionally, the credit cannot be used to reduce U.S. taxes on income that is subject to UK tax but not U.S. tax.

American citizens in the UK who have a green card or who have spent a significant amount of time in the U.S. may also have additional reporting requirements, such as filing a Foreign Bank Account Report (FBAR) and reporting their foreign assets on a Form 8938.

To navigate the UK tax year as an American citizen, it's important to plan ahead.

Working with a tax professional who is familiar with both U.S. and UK tax laws can help ensure you're meeting all your tax obligations and taking advantage of any tax benefits available to you, such as the FEIE or Foreign Tax Credit.