Foreign tax credits: what UK tax is actually worth to the IRS.
Every pound of UK tax paid can offset US tax on the same income — up to a limit, within a basket, on the right form. The mechanics are where refunds are won and lost.
The limitation is the whole game
The credit is capped at the US tax attributable to your foreign income, computed separately for each basket — general, passive, and a special one for treaty-resourced income. UK tax above the cap isn't lost: it carries back one year and forward ten.
Because UK rates usually exceed US ones, most UK-resident Americans build excess credits year after year — a stockpile that can wipe the US tax on a later move or windfall if the baskets are managed deliberately.
- Form 1116, computed per income basket
- Excess credits carry back 1 year, forward 10
- Timing UK payments can shift credits between US years
Credit, limitation and carryover, estimated
A quick orientation, not advice — real positions have edges this cannot see.
Enter both figures to see the credit position.
Questions we get about this
Income taxes paid or accrued to a foreign government generally qualify. Social security contributions and most indirect taxes do not.
UK National Insurance is a common thing people try to credit, and it usually does not qualify.
Treat it as a starting point. If it says an obligation applies, the next question is what the filing actually involves and whether earlier years are affected.
If it says nothing applies, it is worth re-running whenever your circumstances change - a move, a property, a new account.
Not always. The credit is limited by how much US tax was attributable to that foreign income, so excess credit can be left unused.
Unused amounts can generally be carried back or forward, which is why the multi-year picture matters more than any single return.
Partly, but not on the same income. Income excluded under the FEIE cannot also generate a credit, and mixing them carelessly strands credits you cannot use.
The interaction is worth modelling rather than approximating.
It covers the common cases and will tell you reliably whether the basics apply to you. It is a guide, not a filing position.
Edge cases - trusts, business ownership, unusual residence patterns - can change the answer, which is why the result flags when a position is worth checking properly.
Related pages
- Free tool
PFIC checker
Work out whether your fund is a PFIC, what Form 8621 then requires each year, and which elections make the treatment survivable for a UK-based investor.
- 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.
- Service
Foreign tax credit (Form 1116)
Form 1116 foreign tax credit explained: income baskets, the limitation formula, carryback and carryforward, and when credits beat the exclusion.
- Service
UK Self Assessment
UK Self Assessment prepared alongside your US return: residence, remittance planning, and reliefs claimed in the right country.
- Glossary
FEIE: definition
The Foreign Earned Income Exclusion — Form 2555 and the choice against foreign tax credits.
- Who we help
Green Card holders
Green Card tax obligations at home and abroad: worldwide filing, treaty positions, and surrendering the card without exit tax.
Further reading
- How to avoid double taxation between the US and UK, mechanism by mechanism
Both countries can tax the same income - yet almost nobody should actually pay twice. Four mechanisms do the work, and the order you apply them matters.
- Form 2555 or Form 1116: choosing your relief from the UK
Both reliefs can zero your US tax on a UK salary. Only one keeps your refundable credits and IRA room - and switching back later is not quick.
Official sources
Last reviewed . Thresholds and rates change annually — check figures against the current tax year before relying on them.
Got your answer and it looks complicated?
These tools are deliberately simple, and real positions rarely are. Send us what you found and we will confirm it properly.