The US side, explained.
The United States taxes its citizens on worldwide income wherever they live. That single fact drives almost every complication on this page.
Citizenship, not residence
Almost every country taxes you on where you live. The US taxes on who you are. If you hold US citizenship or a Green Card you file a return every year, reporting worldwide income, regardless of how long ago you left or whether you have ever worked there.
The obligation is to file, not necessarily to pay. Most people abroad owe little or nothing once reliefs are applied — but the reliefs only work if you claim them, and claiming them requires the return you might not know you owe.
Two reliefs, not interchangeable
The Foreign Earned Income Exclusion removes a band of employment income from the US calculation entirely. Foreign tax credits instead give you credit for tax already paid to HMRC. Both reduce the bill; they do very different things to your position over time.
Choosing one can close off the other in later years, and revoking an exclusion locks you out for five. This is a decision worth making deliberately rather than defaulting into whichever your software suggested first.
- Form 2555 — Foreign Earned Income Exclusion
- Form 1116 — foreign tax credits
- Form 8833 — treaty-based positions
- Form 1040 — the annual return itself
The forms that carry the penalties
The expensive part of US expat compliance is rarely the tax. It is the disclosure forms — FBAR, FATCA, PFIC and foreign trust reporting — which raise no liability at all but carry severe penalties when missed.
FBAR alone is triggered by the combined high balance of your non-US accounts crossing $10,000 at any point in the year. It is aggregate, it counts the peak rather than the closing balance, and people cross it without noticing.
Related pages
- Pillar guide
Accountants for US and UK
How to choose accountants for US and UK tax: what each credential permits, how to verify it, what drives the fee, and when you do not need a specialist.
- Pillar guide
Tax specialists for US and UK
What US and UK tax specialists handle that a general accountant does not: residence tests, treaty relief, FBAR, PFICs, pensions, property and catch-up filings.
- Guide
FBAR & FATCA thresholds
FBAR and FATCA thresholds explained: which accounts count, how the $10,000 aggregate works, Form 8938 limits and fixing missed filings.
- Guide
Your first year abroad
First-year expat tax guide: residence tests, split-year treatment, first filings in both countries and the elections to get right.
- Service
US federal returns
Form 1040 preparation for Americans abroad: FEIE, foreign tax credits, treaty positions and every schedule your situation requires.
- Glossary
FBAR: definition
The Foreign Bank Account Report — FinCEN Form 114 — and its $10,000 aggregate trigger.
Further reading
- The foreign housing exclusion: two numbers people keep confusing
Rent in London is high enough that the foreign housing exclusion is worth claiming. It is also worth understanding, because the ceiling on qualifying expenses and the amount you can actually exclude are different numbers.
- FBAR filing cost: what's free, what isn't, and what drives fees
The government charges nothing to file an FBAR. So where do the fees come from, when is paying someone worth it, and what does skipping it cost?
- Self-employment tax: the 15.3% the exclusion does not touch
The foreign earned income exclusion wipes out the income tax and leaves self-employment tax standing. For an American freelancing in Britain, the answer is a certificate of coverage.
Last reviewed . Thresholds and rates change annually — check figures against the current tax year before relying on them.
Not sure which of these apply to you?
Describe your position and we will tell you exactly which returns and disclosures are required, with a fixed fee to handle them.