Double Taxation Relief Between the US and UK: How the Treaty and Credits Work Together

Double taxation relief between the US and the UK is delivered in two layers: the 2001 income tax convention decides which country may tax each item of income first, and each country then gives a credit for the other country's tax on that same income. Neither layer is automatic. The relief has to be claimed, in both countries, on the right forms and in the right order.

How does double taxation relief between the US and the UK actually work?

Two tax systems reach the same income, and relief works by deciding, in a set order, which one stands down. The US taxes its citizens on worldwide income wherever they live — the IRS is explicit that a US citizen abroad is "subject to tax on worldwide income from all sources" and must still file a US return. The UK taxes its residents on worldwide income too. An American in London therefore faces two live claims on the same salary, rental profit and dividend.

The convention signed on 24 July 2001 resolves this in two moves. First it allocates: each income article states which country may tax that type of income, and sometimes that only one of them may. Then Article 24, Relief from Double Taxation, requires the other country to credit the first country's tax. Allocation is the treaty's job; the arithmetic is domestic law's, through Form 1116 in the US and Foreign Tax Credit Relief in the UK.

That split is why the treaty disappoints on first reading. It rarely removes a country from the picture; it decides who goes first and makes the second country absorb the cost. Our double taxation relief service for US and UK taxpayers starts with that allocation, and our guide to US filing requirements for Americans in the UK covers what has to be filed before any relief is claimed.

What does Article 24 of the US/UK treaty actually say?

Article 24 is the engine of double taxation relief in the US/UK treaty, and it rewards reading rather than paraphrase. Paragraph 1 requires the United States, subject to the limitations of its own law, to allow a resident or citizen of the United States a credit against US income tax for "the income tax paid or accrued to the United Kingdom". Paragraph 4 is the mirror image: subject to UK law on credit for overseas tax, US tax on profits, income or chargeable gains "from sources within the United States" is allowed as a credit against the UK tax computed on the same amounts.

Two supporting paragraphs do the quiet work. Paragraph 2(a) provides that an item of gross income derived by a US resident that, under the convention, may be taxed in the UK is deemed to be income from sources in the UK, and paragraph 5 does the same for a UK resident in relation to income the US may tax. Without those sourcing rules a credit would often fail on a technicality: the income would be domestic-source under the crediting country's own rules, leaving nothing foreign for the credit to attach to.

Why the saving clause does not kill it

Article 1(4) is the saving clause. Notwithstanding any other provision, a contracting state may tax its residents and, "by reason of citizenship", its citizens as if the convention had not come into effect. That sentence is why a US citizen in Manchester still files a US return on worldwide income. But Article 1(5)(a) lists what the saving clause does not affect, and Articles 24, 25 and 26 are named there, alongside Article 17(1)(b), Article 17(3), Article 17(5) and Article 18(1). Relief from double taxation, non-discrimination and the mutual agreement procedure survive intact for US citizens. Our post on how UK pensions are taxed on a US return works through what the surviving pension paragraphs do in practice.

Claiming relief on the US side: Form 1116 and its separate baskets

The US credit is claimed on Form 1116. Publication 514 sets out four tests a foreign tax must meet to be creditable: "1. The tax must be imposed on you. 2. You must have paid or accrued the tax. 3. The tax must be the legal and actual foreign tax liability. 4. The tax must be an income tax (or a tax in lieu of an income tax)." UK income tax and UK capital gains tax clear those tests. A UK charge you paid but did not legally owe does not.

Form 1116 is filed per category of income, not per country. The instructions list the categories: section 951A category income, foreign branch category income, passive category income, general category income, section 901(j) income, certain income re-sourced by treaty, and lump-sum distributions. A UK salary sits in the general category; UK bank interest and dividends sit in the passive category. The split matters, because excess credit in one category cannot be used against US tax on income in another. Three mechanical points then decide most outcomes:

• The small-credit election. The Form 1116 instructions allow the credit to be claimed without filing Form 1116 where all foreign source gross income was passive category income reported on a qualified payee statement and total creditable foreign taxes are not more than $300, or $600 on a joint return.
• Carry-back and carry-forward. Publication 514 allows unused foreign tax to be carried back to the preceding year and then forward for "10 years following the year in which they arose". Credits that fall outside that window are lost.
• Paid or accrued. A cash-basis taxpayer credits foreign tax in the year of payment unless they elect on a timely filed Form 1116 to credit it in the year it accrues. Once made, that election governs later years as well.

Claiming relief on the UK side: Foreign Tax Credit Relief and the SA106

On the UK side the relief is Foreign Tax Credit Relief, set out in HMRC's helpsheet HS263 for the 2025/26 tax year. The credit is the lower of the foreign tax paid, or allowed by the double taxation agreement, and the UK tax liability on that income or gain. It never repays foreign tax: where the US charged more on an item than the UK does, the excess is not recoverable from HMRC. GOV.UK makes the same point in its guidance on being taxed twice — you get back less if "the income would have been taxed at a lower rate in the UK".

The income and the claim go on the SA106 foreign pages of the Self Assessment return. There is an alternative, deduction relief, where the foreign tax reduces the foreign income or gains chargeable in the UK instead of reducing the tax; it is usually worth less, but it helps where there is little UK tax to credit against. HS263 also makes the frequently missed point that where the agreement gives exclusive taxing rights to one country, there is no foreign tax to relieve at all.

Scale explains why relief usually runs in one direction. For the 2026/27 tax year the standard Personal Allowance is £12,570, the basic rate of 20% runs to £50,270, the higher rate of 40% applies to £125,140 and the additional rate is 45% above that. UK rates on employment income at professional salary levels typically generate enough credit to remove the US tax on that income entirely, which is why many Americans in the UK owe the IRS nothing on their salary and still have to file. Our UK Self Assessment service handles the SA106 side of the claim.

Who taxes what first? A reference table

The table below shows the usual allocation for an individual under the 2001 convention. Treat it as the start of the analysis rather than a substitute for it, because every article carries conditions.

Income	Treaty article	First taxing right	Where relief is claimed
Salary for work done in the UK	Article 14	UK, where the employment is exercised	Form 1116 or Form 2555 on the US return
Salary for work done in the US by a UK resident	Article 14	US, subject to the 183-day test in Article 14(2)	Foreign Tax Credit Relief on the SA106
Rent from UK property	Article 6	UK, where the property is situated	Form 1116 on the US return
Rent from US property	Article 6	US	Foreign Tax Credit Relief on the SA106
Periodic pension payments	Article 17(1)(a)	Country of residence only	No credit needed where the article applies cleanly
Lump sum from a pension scheme	Article 17(2)	The country where the scheme is established	Depends on where the scheme sits
Social security paid by one country to a resident of the other	Article 17(3)	Country of residence only, and this survives the saving clause	No credit needed where the article applies

Retirement income is where these rows collide most often, and we have worked the combinations through in how US and UK taxes both reach your retirement income.

What happens when a US citizen lives in the UK and the income is US-source?

This is the case most guides skip, and it produces the surprise bills. A US citizen resident in the UK holding US dividends, US rental property or gains on US assets is taxed by the US on domestic-source income and by the UK on worldwide income. The UK cannot simply credit all of that US tax, because much of it arises only from citizenship. Article 24(6) sets out the sequence in four steps:

1. The UK "shall not be bound to give credit" for US tax on profits, income or gains from sources outside the United States as determined under UK law. Citizenship-based US tax on UK income is not the UK's problem to relieve.
2. For income from sources within the United States, the UK takes into account only the amount of US tax the convention would allow the US to impose on a UK resident who is not a US citizen.
3. The US then allows a credit against US tax for the UK income tax and capital gains tax paid after the credit in step 2 — and that credit cannot reduce the portion of US tax that step 2 made creditable in the UK.
4. For the exclusive purpose of that US relief, the income in step 2 is deemed to arise in the UK to the extent necessary to avoid double taxation of it.

Step 4 is the re-sourcing rule, and it is what makes a US foreign tax credit possible on income that is, in every ordinary sense, American. On the return it lands in the "certain income re-sourced by treaty" category of Form 1116, which means a separate Form 1116 for that basket. Taking the position is a treaty-based return position, and Form 8833 warns on its face that failure to disclose one "may result in a penalty of $1,000 ($10,000 in the case of a C corporation) (see section 6712)".

Illustrative example: an American who has lived in Bristol for six years holds a portfolio of US shares. The dividends are US-source, the US taxes them, and the UK taxes them as the worldwide income of a UK resident. Under Article 24(6)(b) the UK credits only the tax the US could have charged a UK resident who is not a US citizen. The remaining US tax is then relieved on the US return by crediting the UK tax on those same dividends, with the income re-sourced to the UK under Article 24(6)(d) so the credit fits inside the Form 1116 limitation. Two credits, in a fixed order, on one dividend. This is illustrative only; the numbers depend on the portfolio, the rest of the return and the elections made.

Should you claim the foreign tax credit or the foreign earned income exclusion?

For earned income, Americans abroad choose between crediting the foreign tax and excluding the income on Form 2555. The IRS confirms the exclusion is "$132,900" for tax year 2026, "up from $130,000 for tax year 2025". In a low-tax country the exclusion usually wins. In the UK it often does not.

The reason sits in Publication 54: you "can't deduct or exclude any item, or take a credit for any item, that is related to amounts you exclude as foreign earned income or foreign housing amounts". Exclude the income and the UK tax paid on it stops generating credits, including the carry-forward credits available for ten years against US tax on other income. Where UK tax on a salary already exceeds the US tax on it, the credit clears the US liability and banks the excess.

The choice is also stickier than it looks: revoke the exclusion and you must apply to the IRS for a ruling to claim it again within five tax years. Model both routes before the first return of a UK assignment rather than after the third. We run that comparison for Americans living in the UK as a matter of course.

The two tax years do not line up, and that changes the claim

The UK tax year runs from 6 April 2026 to 5 April 2027; the US tax year is the calendar year. Every credit claim therefore apportions one country's tax across two of the other country's years. Three consequences follow.

Payment timing drives the US credit. A cash-basis taxpayer credits UK tax in the year it is paid, so UK tax on 2025/26 income settled by the balancing payment falls into the 2027 US tax year unless the accrual election is in place.

Deadlines have to be sequenced, not merely met. For 2025/26 the online Self Assessment return and the tax are both due by 31 January 2027. On the US side the IRS states that the regular due date is 15 April, that for a taxpayer abroad "the automatic extended due date would be June 15", and that a further extension to 15 October can be requested on Form 4868 — while interest still runs on any tax not paid by the regular due date.

Excess credits need somewhere to go. When UK tax lands in the wrong US year, the one-year carry-back and ten-year carry-forward are the safety net. They only work if the credits are computed and reported, which is an argument for filing Form 1116 even in years when the US liability is already nil.

What people get wrong about double taxation relief

• Assuming the treaty is self-executing. GOV.UK is blunt about the UK side: you "can usually claim Foreign Tax Credit Relief when you report your overseas income in your tax return". Report it and claim it, or you do not have it.
• Assuming the saving clause cancels everything. It does not touch Article 24, Article 25, Article 26, Article 17(3) or Article 18(1), among others. Reading Article 1(5) turns "the treaty does not help Americans" into a list of the places where it does.
• Treating National Insurance and US Social Security taxes as creditable income taxes. They are neither income taxes nor part of this convention. Contributions are handled by the separate US/UK social security agreement, in force since 1 January 1985, through certificates of coverage.
• Crediting tax that was not legally owed. The third of Publication 514's four tests requires the tax to be the legal and actual liability. US tax over-withheld at source and recoverable by filing a US return is not a UK credit; it is a refund claim from the IRS.
• Using the exclusion and the credit on the same pound of income. Publication 54 rules it out, and the error usually surfaces years later, when a credit carry-forward is examined.

The bottom line

Double taxation relief between the US and the UK is not a single relief, it is a sequence: allocate the income under the income articles, credit under Article 24, claim on Form 1116 in the US and on the SA106 in the UK, disclose the treaty positions that need disclosing, and carry what is left into the years where it can be used. Getting the sequence right is usually worth more than any individual election inside it.

US/UK Cross Border Tax — US CPAs and UK tax advisers working as one team; London, Manchester, New York, San Francisco. If you are paying tax in both systems and are not certain the credits are landing where they should, talk to us about your position.