Common Tax Mistakes Americans Make in the UK

At first glance, it feels like it should be simple. You move to the UK, pay UK taxes, and move on. That’s how most countries work.

Then the US stays in the picture.

Why US Expats in the UK Often Get Taxes Wrong

Because the Internal Revenue Service taxes based on citizenship, not residency, Americans abroad end up dealing with two systems at once. Add in the UK’s rules under HM Revenue & Customs, plus different tax years, and it’s not just complicated. It’s easy to misunderstand in ways that don’t show up until later.

Mistake #1: Assuming You Don’t Need to File US Taxes

A lot of people quietly drop off the US system after a few years abroad.

You settle into life in the UK. You’re paying tax locally. No one’s sending reminders from the US. It feels… optional. It isn’t.

The US still expects you to file a tax return each year if you meet the thresholds. Even if you don’t owe anything. Even if all your income is earned in the UK.

Mistake #2: Thinking UK Taxes Replace US Taxes

This one sounds logical, which is probably why it’s so common.

“If I’m already paying UK tax, why would I owe anything to the US?”

In most cases, you won’t owe additional US tax. But that’s because of relief mechanisms, not because the obligation disappears.

The Foreign Tax Credit and the US-UK Tax Treaty help prevent double taxation. They don’t remove the need to file or report income in both places.

Mistake #3: Using the Wrong Tax Strategy (FEIE vs FTC)

Somewhere along the way, many expats hear about the Foreign Earned Income Exclusion and treat it as the default option.

And sometimes it works.

But in the UK, where tax rates are often higher than in the US, the Foreign Tax Credit tends to be more effective. It allows you to offset US tax with UK tax already paid, and in many cases, it leaves you in a better long-term position.

Choosing between the two isn’t always obvious. Still, treating them as interchangeable can lead to missed opportunities.

Mistake #4: Ignoring UK Investment Rules (ISAs & Funds)

Here’s where things get a bit counterintuitive.

In the UK, ISAs are tax-free. That’s the whole appeal. You can invest, earn interest or gains, and not worry about UK tax.

From a US perspective, though, that protection doesn’t carry over.

Income inside an ISA can still be taxable in the US. And if the ISA holds UK-based funds, you may run into PFIC rules, which come with their own reporting requirements and, frankly, a fair amount of complexity.

It’s one of those areas where doing the “right” thing locally creates unexpected issues elsewhere.

Mistake #5: Missing FBAR and FATCA Reporting

This one catches people off guard more than it probably should.

If your combined foreign account balances exceed $10,000 at any point during the year, you may need to file an FBAR with the Financial Crimes Enforcement Network.

Not your highest balance at year-end. Not your average. At any point.

There’s also FATCA reporting, depending on your asset levels. These aren’t tax payments, but reporting requirements. Still, the penalties for missing them can be significant, even when no tax is owed.

Mistake #6: Misunderstanding UK Tax Residency

A visa doesn’t determine your tax residency. Neither does simply “living” in the UK in a general sense.

Instead, the UK uses the Statutory Residence Test, which looks at your days and your ties. You could spend less than half the year in the UK and still be considered a resident, depending on your situation.

Even if you’re a US-UK dual citizen, the rules don’t change. Residency is still based on days and connections to the UK, not your passport. And on the US side, you still file annually with the Internal Revenue Service.

That disconnect between expectation and reality tends to cause problems.

Mistake #7: Overlooking Tax Year Differences

The UK tax year runs from April 6 to April 5. The US sticks to January through December.

It sounds like a small detail. In practice, it can create timing issues, especially when you’re claiming credits or aligning income across both systems.

You might pay UK tax in one period and report the income in another on your US return. It doesn’t break anything, but it does require some careful handling.

Mistake #8: Not Planning Before Moving to the UK

Looking back, this is often where the biggest opportunities are missed.

Say someone sells investments shortly after arriving in the UK, without thinking about how those gains are treated across both systems. Or they move assets into UK accounts without considering US reporting.

None of these decisions feel like mistakes at the time. But with a bit of planning beforehand, the outcome could have been different.

How to Avoid These Tax Mistakes

There isn’t a single fix, but a few habits go a long way:

• Keep track of how many days you spend in the UK
• Understand your residency status early on
• Choose your tax strategy deliberately, not by default
• Stay on top of reporting requirements like FBAR
• Think ahead before making big financial moves

It’s less about mastering everything and more about avoiding the obvious traps.

Need Help Filing US Taxes from the UK?

For most people, the difficulty isn’t one specific rule. It’s how all the rules overlap.

You’ve got UK residency, US filing obligations, different timelines, and decisions that carry forward from year to year. It adds up.

Expat Tax Online works with Americans in the UK dealing with exactly these kinds of situations. If you’re unsure where you stand or just want to get it right the first time, having someone walk through it with you can make the whole process feel a lot more manageable.