The US-UK Tax Treaty: Key Provisions for Expats

The US-UK tax treaty is one of the most detailed bilateral tax agreements in the world and contains important provisions for US citizens living in the UK and UK residents living in the US. One of the most valuable provisions for US expats is the pension article: contributions to UK workplace pension schemes (like those under auto-enrollment) are generally deductible on your US return, and earnings inside the pension accumulate tax-deferred for US purposes as well. The treaty also provides reduced withholding rates on dividends (typically 15%) and certain favorable provisions for government employees, students, and professors. ISAs (Individual Savings Accounts) are popular tax-free savings vehicles in the UK, but they are not recognized as tax-free by the IRS — interest and gains inside an ISA are still taxable in the US. US expats in the UK should also be aware that their UK funds and investment trusts may qualify as PFICs, requiring careful planning.