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Navigating tax systems is one of the most challenging parts of moving abroad, especially when relocating from the UK to the USA, where the rules differ significantly. As a UK expat, you’re responsible for staying compliant with tax obligations in both countries, and the stakes can be high if you get it wrong.

From understanding state versus federal taxes to managing property income, pensions, and couple taxation, it’s easy to feel overwhelmed. But with the right knowledge and a bit of preparation, you can avoid costly mistakes and stay in control.

This guide will walk you through everything you need to know about taxes as a UK expat in the US—including what to declare, when to file, and which states offer the most tax-friendly environments.

How are UK Expats Taxed in the USA?

Taxes in the USA are complex, even for those born and raised in the country. Unlike at home, you have to pay taxes at both the state and federal levels. Furthermore, the tax rates differ by state, making it even more complex. Some of the taxes you are required to pay at the federal level include:

• Income tax
• Estate tax
• Capital gains tax

Then at the state level, you are taxed on income again, and the amount you pay differs significantly according to the state in which you reside. Even within the same state, certain types of taxes can vary depending on the city in which you live, which is especially true for sales tax. 

Most US residents, including expats, are required to file a federal tax return, but filing requirements depend on factors such as income level, filing status, age, and type of income. Rates vary, but a single filer under age 65 have to file if they earn $13,850 or more, or $400 for self-employed.

Understanding Double Taxation for UK Expats in the USA

Double taxation is often a concern flagged by both American and British expats when they’re living in the UK and the USA. Fortunately, the USA have a with the UK. The UK tax treaty with the USA was signed to prevent double taxation, but in some cases, it doesn’t hold up due to the discrepancies between the two countries’ tax codes.

In practice, this is more of an issue for Americans living in the UK, and the double taxation treaty can be complex for them as it involves understanding which country has ‘first taxing’ rights. As a British citizen living in the USA, you shouldn’t have to worry too much about double taxation.

Your tax adviser will provide you with legal ways to protect your income. A good professional will encourage you to keep clean, organised records to make your tax filing process as smooth as possible. 

What Taxes Do UK Expats Need to Pay in the USA?

• Income tax: There are two types of income tax in the USA, depending on what state you reside. States like California require income tax at the state level and the federal level. However, if you live in an income tax-free state like Florida, then you will only have to pay federal income tax.
• Social Security and Medicare tax: This is a form of tax that finds social programs for services such as health, social security, and support for the elderly. 
• Sales tax: This is a tax applied whenever you purchase something. This should be no cause for concern as it is deducted at the point of purchase. In some places, there is even no sales tax at all.  
• Excise tax: Similar to sales tax, you usually don’t have to concern yourself with excise taxes since they are deducted at the point of purchase. Goods with excise taxes include tobacco, luxury goods, and alcoholic beverages.
• Property tax: This is one of the most complex forms of taxes as it varies greatly from case to case. A qualified tax consultant should be able to help you navigate how much you owe every year on your property holdings. 

Breakdown of Taxes by State for UK Expats in the USA

Taxes play a huge role in choosing which state to reside in, even for Americans. If having low or no income tax is a priority for you, consider states like Alaska, Nevada, Florida, Wyoming, South Dakota, Texas, Washington.

States with Low Income Tax:

State	Top Income Tax Rate
Arizona	2.5% flat
North Carolina	4.5% flat
Indiana	3.15% flat
Utah	4.85% flat

On the other hand, states such as California, New York, New Jersey, and Connecticut tend to have higher income tax burdens – which incorporates all the different taxes you are charged such as income tax, sales and excise etc. 

States with High Income Tax:

State	Top Income Tax Rate
California	13.3%
New York	10.9%
New Jersey	10.75%
Oregon	9.9%
Minnesota	9.85%

States with No Income Tax:

• Texas
• Florida
• Nevada
• Washington
• Tennessee
• Wyoming
• Alaska
• South Dakota

Retirees may want to explore states that offer tax benefits specifically for you. For instance, Florida and Arizona do not tax Social Security benefits and may provide exemptions or deductions for other retirement income.

, with high-tax states like New York and California, and low-tax states like Wyoming and Florida. Rankings differ, so it’s essential to assess income tax, property taxes, sales tax, and excise tax to evaluate the complete tax impact.

Implications of Remote Working for a UK Company While Living in the USA

Working remotely for a UK company while living in the USA can be a great option for many UK expats. However, it is essential to understand the tax implications of this setup.

As a general rule, individuals are tax residents in the country where they spend the most time. This means that UK expats living in the USA may still be considered tax residents in the UK, depending on the amount of time they spend in each country.

The US follows the Substantial Presence Test, which is similar to the Statutory Residence Test in the UK. If you spend more than 31 days during the current tax year and 183 days during the three-year period that includes the current year and the two years before that, you may be required to file a US tax return.

When a foreign employer engages the services of an individual working remotely from the US, the employer may be required to withhold US income and social security taxes, as well as pay unemployment insurances. Registering for an employer identification number (EIN) and complying with state tax authorities may also be necessary.

The advice of a qualified tax professional can help to ensure that you are compliant with both UK and US tax rules and are not paying more than necessary. With the right planning and advice, working remotely for a UK company while living in the USA can be a viable option for you.

How are Overseas Investments and Bank Accounts Taxed for UK Expats in the USA?

When moving to the USA, it’s crucial to understand the tax implications of maintaining UK savings accounts, ISAs, and current accounts. 

Other investments in the UK such as mutual funds can also be taxed heavily in the US if they are considered Passive Foreign Investment Companies, so it is important to check these and be aware of whether you will owe tax on them. Failure to report overseas investments and bank accounts in (FBAR) can result in significant penalties. 

The FBAR used to report these accounts to the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The purpose of the FBAR is to combat money laundering, tax evasion, and other financial crimes by ensuring that US taxpayers disclose their foreign financial accounts.

The (IRS) does not recognise ISAs as a tax-proofing wrapper, and they will apply tax as if the investments held inside the account were not within an ISA. Seeking advice from a specialist investment advisor before leaving the UK can help to mitigate these issues. 

One possible course of action is to switch investments within an ISA into new holdings that meet the IRS’s requirements. It’s crucial to seek advice to ensure that any new investments still meet your risk criteria and long-term objectives.

Tax Implications for UK Expats Selling Property in the UK

If you are permanently moving to the US from the UK and decide to sell your house, there are tax considerations that must be taken into account. Even if the property is not subject to (CGT) in the UK, it may be subject to it in the USA. The exception to this would be if the property sale qualified for the ‘Home Sale Tax Exclusion’ rule, which enables individuals up to $250,000 and married couples up to $500,000 of tax-free gain. 

The vary depending on your taxable income for the year and range from 0% to 20%. The specific rate you will be subject to depends on your income level. Since the average property price in the UK is over both thresholds, it is highly likely that US capital gains tax would apply to any UK property sale.

It is also essential to understand that capital gains tax may still apply as a ‘non-UK taxpayer’ if you are to return to the UK at some point. In general, you are only fully in scope of UK capital gains tax if you are resident in the UK. However, if you dispose of an asset while temporarily non-resident in the UK, you may be liable to CGT when you return. This may apply to you if you decide to live abroad for a few years or if you are posted overseas.

Non-resident individuals are also liable to CGT on disposals of UK land or property. If you have been resident in the UK for at least four tax years out of the seven tax years prior to departure, and you leave the UK and become non-resident, you will be temporarily non-resident in the UK. However, if you then return to the UK after a period of non-residence lasting five years or less, you may still be liable for CGT on any disposals of assets located in the UK. 

If you decide that you’d prefer to rent out your property in the UK, remember that rental income will need to be reported to the IRS. Additionally, when you sell your UK property in the future, you may incur capital gains tax liabilities under the US tax regime. This means you could potentially have capital gains tax liabilities in both the UK and the US.

How Are UK Pensions Taxed in the USA?

The IRS requires you to declare your overseas investments and bank accounts, and you could face significant penalties if you fail to do so.

While ISAs are tax-free in the UK, the IRS doesn’t recognise them as tax-proof, which means you may be subject to tax on the interest earned. The same goes for UK pension funds, and unfortunately, there is no legal way to transfer them to the US. However, you can transfer your pension to a (ROPS) via an offshore location like Malta.

ROPS has some limitations, but it provides you with more control and flexibility over your pension funds. If you have your pension in a Self-Invested Personal Pension (SIPP), keep in mind that many of the UK’s major SIPP providers may not work with US residents, even if they were originally UK customers. 

Additionally, it’s worth noting that the IRS does not automatically recognise a SIPP as a pension structure entitled to favourable tax treatment. However, it is possible to apply to the IRS to have your SIPP recognised as a pension, which would protect its tax-advantaged treatment. 

You should also be aware of the new overseas transfer charge, which could affect many ROPS transfers requested after March 9, 2017.

National Insurance Contributions for UK Expats in the USA

It’s worth considering paying National Insurance contributions if you’re planning on moving to the USA but might return to the UK or claim a UK pension in the future. 

Depending on where you’re working and for how long, you might have to pay National Insurance in the UK while you’re abroad. And in the USA, you will also be expected to pay social security. However, paying social security only in the country you’re working in could affect your entitlement to UK benefits and healthcare when you return.

If you’re working abroad temporarily, you’ll usually continue to pay National Insurance in the UK, and you might be able to make voluntary National Insurance contributions while you’re paying social security abroad. 

These payments will protect your benefit entitlement if you return to the UK, as well as your State Pension, whether you choose to return to the UK or stay living abroad. If you work for the UK government or armed forces, you’ll usually pay National Insurance while you’re working abroad.

Planning Your Move to the USA as a UK Expat

Moving abroad can be a daunting task, especially when it comes to tax-related planning and customs clearance. However, with proper research and preparation regarding your tax obligations in the USA, you can make the right choice for you financially, whether that is choosing the right state or ensuring your investments are properly declared, making the process much smoother. 

At 1st Move International, we can take one thing off your mind. We provide expert international moving services that can handle your shipping most effectively, with faster and safer weekly shipping services and expert packing methods. 

We’ll ensure your possessions are safely and securely packed and help you with customs clearance forms so your move goes smoothly. Simply get a quote on our website or contact 1st Move International today for a stress-free move overseas.