Setting up for UK tax obligations 

As a new UK tax resident with foreign income, you will certainly need to file a UK tax return under Self-Assessment.  

To file under Self-Assessment, you will need a Unique Taxpayer Reference (UTR) from HMRC which can be requested by way of a Form SA1. 

If your employer is to put you onto the UK payroll, a common mistake is that you will be given a tax code that allocates you a Personal Allowance. This is a tax-free amount of income of £12,570. For every £2 of income that you earn over £100,000 in the tax year, the Personal Allowance is reduced by £1. If you are to elect to be taxed under the FIG regime (discussed in the next section), then you would lose the Personal Allowance. Therefore, there is the likelihood that you would not have the Personal Allowance, and so your tax code should reflect this. 

Assignees are frequently assigned incorrect tax codes, often granting them a Personal Allowance they may not be entitled to. This can result in under-withholding of tax on their employment income throughout the year, leading to a larger-than-expected tax bill due by 31 January—the deadline for both filing and paying UK taxes following the end of the tax year on 5 April. 

Under an Appendix 4 agreement (which relates to Short Term Business visitors), HMRC would allow an employer to not withhold tax via PAYE for the employee if the employee meets strict conditions. The Appendix 6 agreement (which related to modified payroll), allows the employer to operate PAYE on a modified basis. This can be more practical for short-term secondees. 

There is also a social security agreement between the US and UK, whereby the employee can stay within the home country social security system if the assignment is for less than five years. This could be valuable and practical for the employer and employee.  A Certificate of Coverage would need to be applied for to achieve this treatment. 

Four-year Foreign Income and Gains (FIG) regime 

From 6 April 2025 (the start of the 25/26 UK tax year), significant tax reforms have been introduced, with one of them (the FIG regime) presenting a great opportunity for those coming to the UK for four years or less. 

If you have had a period of ten consecutive years of non-UK tax residence before your UK arrival, you qualify for this regime. For your first four years of UK tax residence, the regime exempts Foreign Income and Gains from being subject to UK Income Tax and Capital Gains Tax (CGT). 

Furthermore, unlike the former Remittance Basis, it doesn’t matter whether this income is brought into the UK or not. It is exempt and is therefore tax-free regardless. 

Whilst the Foreign Income and Gains would be tax-free, they would, however, still need to be disclosed on the UK tax return. In any case, this presents a much more attractive position for those coming to the UK on short-term assignments, whereby previously they would have had to be more careful about their structuring of foreign accounts and bringing overseas funds to the UK. 

Overseas Workday Relief (OWR) 

Do you expect to have significant workdays outside the UK after becoming a UK tax resident? If so, then the OWR is a tax relief that ought to be considered and claimed on your Self-Assessment tax return. 

While changes apply from 6 April 2025, OWR's core principle remains. You can now benefit for an additional year, aligning with eligibility for the four-year Foreign Income and Gains (FIG) regime. 

The relief works by apportioning your employment income for the days that were worked overseas and excluding this amount from being subject to UK income tax. In other words, if 30% of your total workdays in the year are related to overseas duties (your overseas workdays), then up to 30% of your employment income could be exempt from UK income tax under an OWR claim.  

Under the new rules, since 6 April 2025, the overseas portion of your earnings can be paid onshore without affecting the claim. Under the previous rules, this was not the case, and the overseas earnings had to remain offshore in a qualifying account. If brought into the UK, they would have become taxable.  

In addition to the benefit of being able to have the overseas earnings paid onshore, an OWR claim can be made for four years now (coinciding with the FIG regime), whereby previously this was only allowed for three years. 

 Maintaining clear records of workdays is essential, should HMRC challenge OWR claims.

Temporary Workplace Relief (TWR) 

For assignments of 24 months or less, TWR can significantly reduce the amount of employment income subject to UK Income Tax for new UK tax residents.  

To qualify, the assignment agreement must clearly state a secondment duration for 24 months or less, and the location of the secondment is away from their regular place of work. Generally, the domestic employer will have a UK branch and office which the employee would be seconded to. 

The relief allows you to deduct certain living expenses from your employment income, thereby reducing the taxable employment income. 

Examples of living expenses that would be deductible under this relief include accommodation (rent), utility expenses, and daily travel to and from your new office. Food expenses can also be deducted, although for them to be considered reasonable, a fixed weekly sum may need to be considered. In any case, you should keep a record of all relevant costs that you intend to make a TWR claim for. 

For a new UK tax resident with an assignment of 24 months or less, this relief can reduce the UK Income Tax due. 

Assignment from the US to the UK of less than six months 

If your assignment to the UK is expected to only last an approximate 6 months or less, then it is worth considering taking a treaty position. The US/UK double taxation treaty, Article 14 would exempt employment income from UK income tax for short-term visitors (those who have been present in the UK for no more than 183 days in any 12-month period that begins or ends in the relevant calendar year). For assignments to the UK from countries other than the US, the respective tax treaties with the UK should be looked at, as many of them would have this same 183-day rule.  

Potential pitfalls for a US person on a short-term assignment to the UK 

Accrued basis 

Being subject to tax in both the US and UK presents new challenges for a short-term assignee (or for any US person in the UK, for that matter) because of the different tax years. The US tax year is based on a calendar year, whilst the UK is from 6 April to 5 April. 

Generally, on the US tax return, foreign tax credits (such as UK tax payments) are reported on the “paid” basis, meaning that the timing of the tax payment ultimately decides what US tax year can claim that foreign tax credit (if paid in 2025, it can be claimed on the 2025 US tax return). 

Assuming you qualify for the FIG regime, the majority (if not all) of the UK tax due would likely be in relation to your employment income. The “paid” basis would not be an issue here, as tax is withheld via PAYE, and so there is alignment between when the income arises and the tax paid. 

Alternatively, you can elect the accrued basis for foreign tax credits for US tax purposes. Here, the timing of the tax payment is less important. It is rather the period during which the income accrues that is key. For example, for the UK tax year ending 5 April 2026, tax payments in relation to this income period would accrue to 2026.  

This can be problematic as the income is still accounted for on a paid basis. In short, you could be reporting income for nine months (April to December 2025) on a 2025 US tax return, but the UK tax on this income could only be claimed on the 2026 US tax return. 

Therefore, this could lead to a shortfall of foreign tax credits available on the US side, meaning that you are having to pay both US and UK tax on the same income.  

In addition to considering the foreign tax credit position, there is also the Foreign Earned Income Exclusion, which allows a US person to exclude up to $130,000 (as at 2025 rates) of employment income from US taxation. For those earning more than this amount (including the foreign house exclusion), foreign tax credits can also be claimed. However, these would be restricted as a result of claiming the Foreign Earned Income Exclusion. Therefore, the Foreign Earned Income Exclusion offers limited benefit to high earners on short-term assignments who file on the accrued basis. 

If there is an excess of foreign tax credits in the subsequent year, this excess can be carried back to the shortfall year by filing an amended Federal tax return. This can resolve the double tax issue, but there would be cash flow considerations as you would only receive a refund from the Internal Revenue Service (IRS) once the subsequent year (and amended shortfall year) tax returns have been filed. 

Short-term assignees to the UK from the US should check whether you have ever claimed the accrued basis on your Federal tax return as the claim is irrevocable. The accrued basis could be even more harmful for a short-term assignee, as there may not be enough subsequent years of UK residence to generate sufficient excess foreign tax credits to carry back to the shortfall year.  

To prevent issues in relation to the accrued basis, you should consider asking your employer to time certain larger payments (such as your bonus) to take place before 6 April. If paid in Q1 of the calendar year, this would mean that the tax on that income would better align between the UK and US tax year. 

Case Study 

Max was seconded to the UK by his employer in October 2023. His UK employment income amounted to $110,000 for the three months (October, November and December 2023). There was UK tax withheld on this income through PAYE, but as Max filed on the accrued basis in the US, none of this could be claimed on his 2023 Federal tax return. It could only be claimed on the 2024 Federal tax return. Consequently, as Max was a 37% taxpayer in the US (the highest ordinary income tax rate), he owed approximately $41,000 on his 2023 Federal tax return.  

For 2024, his bonus -which made up a significant proportion of his employment income - was paid in January. This meant that UK tax withheld in January 2024 could be claimed on the 2024 Federal tax return, helping to align the US and UK tax years for that large bonus payment. 

While preparing Max’s 2024 Federal tax return, it became apparent that there was sufficient UK tax accrued to 2024 to cover the 2024 Federal tax, as well as sufficient excess ($41,000) to carry back to the 2023 year. This allowed Max to file an amended 2023 Federal tax return to claim the carry back and receive a refund of $41,000. 

Had his bonus only been paid in December 2024 (or after 5 April 2024), the UK tax on that bonus would have accrued to 2025. This would not have provided sufficient excess in foreign tax credits to carry back to 2023, and would have also resulted in another shortfall in foreign tax credits for 2024.

Foreign Bank Account Report (FBAR) 

Many US taxpayers are not required to file an FBAR (Foreign Bank Account Report) as a filing requirement is only triggered if, during the year the combined maximum balances of their non-US financial accounts exceeds $10,000. 

If you are on a short-term assignment in the UK and have a UK bank account, you should check whether you are expected to file this form. It does not generate any tax but is still important. The civil penalty for not filing is $10,000 per form (as clarified by the Supreme Court). Please refer to this article for more information. 

How can we help? 

With the recent UK tax changes effective from 6 April 2025, and new reliefs now available, it is crucial to understand how they can benefit you.  

For US taxpayers relocating to the UK – whether on a short-term assignment or longer - we can prepare both US and UK tax returns, while providing tailored advice to ensure tax-efficient positions are taken and potential pitfalls avoided. 

Our global mobility team can also assist with payroll structuring, modified payroll, and advice on the structuring assignments, including tax equalisation and tax protection policies. 

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