Introduction: Expat Tax Delaware Planning for British Families in Wilmington
Expat tax Delaware planning starts with a surprise for most British arrivals: the state famous as a corporate tax haven charges its own residents income tax of up to 6.6% on their worldwide income, including every pound earned in Britain. Delaware's reputation comes from company law. However, that reputation says nothing about the people who live there.
Wilmington draws senior British talent. Banks, card issuers, chemical groups and law firms cluster in the city, and many transfer executives from London. Consequently, a steady flow of British families settles in Greenville, Hockessin and the Brandywine Valley. They arrive with UK pensions, ISAs, let property and share awards.
Nevertheless, almost nothing published explains how Delaware treats that British income. This expat tax Delaware guide does. It covers the rates, the city wage tax, the pension exclusion and its new domicile condition, and the missing credit for UK tax. TaxYork prepares US federal, state and UK returns for wealthy British families in America, so we deal with these rules in practice.
Expat Tax Delaware Basics for British Residents
Expat tax Delaware in one paragraph
Expat tax Delaware rules rest on four facts. First, a resident pays state income tax on worldwide income at graduated rates that reach 6.6% above $60,000. Secondly, Delaware gives no credit for tax paid to a foreign country. Thirdly, the City of Wilmington adds 1.25% on earnings. Finally, the state has no sales tax, which softens the cost of living but not the tax return.
Who this guide is written for
We write this expat tax Delaware guide for high earners and investors. Specifically, that means British executives on L-1 and H-1B visas, green card holders, dual nationals, and Americans returning from London with British assets. Additionally, it covers British owners of Delaware companies who never set foot in the state. Their position is different, and we explain it below.
How Delaware compares with our neighbouring state guides
Wilmington sits within commuting distance of three other states. Therefore, any expat tax Delaware review should compare them. Our guides to Philadelphia and the Pennsylvania wage tax, New Jersey and Bethesda, Maryland cover those rules. Broadly, Delaware's top rate sits below New Jersey's and Maryland's combined burden, but above Pennsylvania's flat rate.
Delaware Income Tax Rates for 2026
The brackets
Every expat tax Delaware calculation uses a rate schedule unchanged since 2014. The Delaware Code sets it out in section 1102. The first $2,000 of taxable income is free. Rates then rise through 2.2%, 3.9%, 4.8%, 5.2% and 5.55%. Finally, 6.6% applies to everything above $60,000.
For our clients, the lower bands are a rounding error. The tax on the first $60,000 is about $2,944. Thereafter, the rate is flat. Consequently, a British executive earning $700,000 pays Delaware an effective rate of about 6.4%.
A higher-bracket proposal that has not become law
Readers will find websites quoting new top rates of 6.75% and 6.95%. Those figures come from House Bill 13, introduced in the current General Assembly. The bill would add brackets for higher incomes. However, the Delaware Code still shows the single 6.6% top rate with no later schedule. Therefore, base your expat tax Delaware estimates on 6.6% for 2026, and watch the bill.
No lower rate for capital gains
Delaware taxes capital gains as ordinary income. Accordingly, a long-term gain that bears 20% federally bears a further 6.6% in Delaware. Moreover, the federal net investment income tax of 3.8% sits on top. As a result, a British resident in Wilmington pays about 30.4% on a large gain, whatever the UK charged.
The starting point is federal adjusted gross income
Delaware begins with your federal adjusted gross income. That starting point drives most expat tax Delaware outcomes. Specifically, items excluded federally stay excluded in Delaware. For instance, a treaty exemption that removes income from the federal return also removes it from the state return. In contrast, a foreign tax credit reduces federal tax only, so it never reaches Delaware.
Small deductions and a filing quirk for couples
Reliefs are modest. The standard deduction is $3,250 for a single filer and $6,500 for a couple, under subchapter II of the income tax chapter. Additionally, each person receives a $110 credit. Notably, a married couple may file separately on one combined form. Each spouse then uses the lower bands. For a two-income household, that choice saves several hundred dollars a year.
The Wilmington Earned Income Tax
Who pays the 1.25%
Many expat tax Delaware summaries claim that the state has no local income tax. That is wrong for Wilmington. The city charges an earned income tax and net profits tax of 1.25%. City residents pay it on all earnings, wherever they work. Furthermore, non-residents pay it on earnings for work performed inside the city limits.
Therefore, living in Greenville or Hockessin does not avoid the tax. A British executive who commutes to a Wilmington office still pays 1.25% on that salary and bonus. However, days worked outside the city, including days in London, can support a refund claim for a non-resident.
What the city tax does not reach
The city tax covers earnings only. It applies to salaries, bonuses, commissions and the net profits of an unincorporated business. In contrast, it does not apply to pensions, dividends, interest, rent or capital gains. Consequently, a retired British couple living inside the city pays nothing to Wilmington on investment income.
Share awards and the bonus cycle
Share awards deserve care in any expat tax Delaware return. Restricted stock that vests while you work in Wilmington is earnings, and the employer withholds the city tax through payroll. Meanwhile, an award earned partly in London raises an allocation question. In practice, we reconcile the UK and US workdays for every vesting, because the same split drives the federal credit and the UK charge.
How Delaware Taxes Your UK Income
UK pensions and the pension exclusion
A UK pension paid to a Delaware resident is taxable in the state whenever it is taxable federally. HMRC's guidance on tax on your pension explains the British side. The treaty then gives the residence country the main right to tax periodic payments. Therefore, most British retirees in Delaware pay tax there, not in the UK.
Delaware softens this with an exclusion. A person under 60 may exclude up to $2,000 of pension income. A person aged 60 or over may exclude up to $12,500. Importantly, the statute refers to pensions from employers and does not confine the relief to American plans.
For those aged 60 or over, the exclusion is wider still. It also covers eligible retirement income, which includes dividends, interest, capital gains and net rental income. Consequently, a British retiree can shelter $12,500 of mixed UK income each year, and a couple can shelter $25,000.
The new domicile condition
Here is the expat tax Delaware point that older guides miss. The statute now ties the age 60 exclusion to how long you have been domiciled in Delaware. A person domiciled in the state before 1 January 2027 needs at least three years of domicile. A person who becomes domiciled on or after that date needs at least five years.
Therefore, a British couple retiring to the Delaware beaches cannot assume the exclusion from year one. The timing of the move now matters. In particular, establishing domicile before 2027 shortens the wait by two years. We document the domicile date carefully for that reason.
UK rental income
Rent from a UK property is taxable in Delaware at up to 6.6%. Britain taxes it too, usually through the non-resident landlord rules. The federal return relieves that double charge through the foreign tax credit. However, Delaware does not. As a result, the expat tax Delaware charge on rent is an additional cost on top of the higher of the UK and US federal rates.
ISAs, UK funds and dividends
An Individual Savings Account has no status in America. Therefore, its interest, dividends and gains are taxable federally and in Delaware. Furthermore, most UK funds and investment trusts are passive foreign investment companies, reported on Form 8621. The punitive federal computation flows into state income as well.
No credit for UK tax, but a deduction that few claim
Delaware's credit for tax paid elsewhere is narrow. Section 1111 allows it only for income tax imposed by another state of the United States or the District of Columbia. Accordingly, UK income tax and capital gains tax earn no Delaware credit at all.
However, one expat tax Delaware relief exists. The state's itemised deduction schedule carries a line for foreign taxes paid. Broadly, a resident who claimed the federal credit can still deduct foreign taxes actually paid when itemising for Delaware. Therefore, UK tax of $50,000 can cut the Delaware bill by about $3,300. Notably, Delaware lets you itemise even where you took the federal standard deduction. Few returns we review have claimed this line.
Treaty benefits flow through, but only partly
Delaware is not a party to the US-UK double taxation convention. Nevertheless, because the state starts from federal income, a treaty exclusion on the federal return carries through. In contrast, treaty relief that works by credit does not. Hence, in expat tax Delaware work, the form of the relief decides whether the state respects it.
Property, Sales Tax and Everyday Costs
No sales tax
Delaware charges no state or local sales tax. For a household relocating from London, that is a real saving on cars, furniture and renovation. However, it is not free. The state funds itself partly through a gross receipts tax on businesses, which a British-owned trading business in Delaware must register for and pay.
Buying a home: the realty transfer tax
Income tax is not the whole expat tax Delaware picture, so buyers should budget for the realty transfer tax. The combined state and local charge is generally 4% of the price, among the highest in America. By custom, buyer and seller split it equally. Therefore, a $2,000,000 home in Greenville usually costs the buyer about $40,000 at closing. First-time buyers receive a limited reduction.
Property tax
Annual property tax is low by regional standards. Nevertheless, New Castle County completed a general reassessment in 2025, and many higher-value homes saw sharp increases. Hence, do not rely on a seller's historic bill. For federal purposes, state income tax and property tax together fall under the cap on state and local tax deductions.
Residency, Part-Year Returns and Delawareans in London
The two residency tests
Residency decides everything in expat tax Delaware work, and the state treats you as a resident under either of two tests. First, you are a resident if you are domiciled in the state. Secondly, you are a resident if you maintain a place of abode there and spend more than 183 days of the year in the state. Consequently, a British executive who keeps a home in Wilmington and works there most of the year is a resident, whatever the visa says.
Federal residency is a separate question. It turns on the green card test and the substantial presence test, which IRS Publication 519 explains. Meanwhile, UK residence follows the statutory residence test. In an arrival year, all three can give different dates.
The part-year election
Delaware offers an unusual choice in the year you arrive or leave. A part-year resident may file either a resident return or a non-resident return, whichever produces less tax. A resident return taxes the whole year's worldwide income but allows full deductions. In contrast, a non-resident return taxes Delaware-source income on a prorated basis.
Therefore, the answer depends on what happened before the move. If you sold UK shares or received a London bonus before arriving, the non-resident return usually wins. We model both returns for every expat tax Delaware arrival and departure year.
The 495-day rule for Delawareans working abroad
The expat tax Delaware question also runs in reverse, because Americans who leave Wilmington for London often stay domiciled in the state. Normally, domicile alone keeps them resident. However, section 1103 contains a specific exception. You are not a resident while you are present in a foreign country for at least 495 full days in any consecutive 18 months.
Conditions apply. During that period, you must not be present in Delaware for more than 45 days. Additionally, you must not keep a permanent home in the state where your spouse, children or parents are present for more than 45 days. Government employees are excluded. Therefore, a Delaware banker on a two-year London posting can stop paying Delaware tax, provided the family moves too and visits stay short.
British Owners of Delaware Companies Who Live in the UK
Forming a company does not make you a resident
Many British founders own a Delaware company and never visit. For them, expat tax Delaware exposure is close to nil at the personal level. Delaware taxes non-residents only on Delaware-source income. Consequently, a UK-resident member of a Delaware LLC that operates entirely outside the state owes no Delaware personal income tax.
What such owners do pay
The company still has obligations. A Delaware LLC pays a flat annual tax of $300, and a corporation pays franchise tax. Furthermore, the federal and UK position is far more demanding than the state one. Our guides to getting an EIN from the UK and to the US LLC as a hybrid entity for UK residents cover those rules.
Foreign Account Reporting and Catching Up
Why gaps are common among new arrivals
British arrivals rarely learn about American foreign account reporting from their employer. Yet a resident with more than $10,000 across non-US accounts must file an FBAR with FinCEN. Additionally, larger holdings go on Form 8938. UK current accounts, ISAs and personal pensions all count.
Consequently, missed FBAR filings and missed reporting of UK investment accounts are the most common problems we find. The income is often missing from the Delaware return as well, because the state copies the federal figures.
Putting missed years right
The remedy depends on the facts, and it forms part of many expat tax Delaware engagements. Where the failure was not wilful, the IRS offers a structured route, which our IRS Streamlined filing service page explains. Importantly, a federal correction changes federal adjusted gross income. Therefore, amended Delaware returns must follow. Our FBAR and FATCA compliance service handles the account reporting itself.
Case Study: A British Managing Director in Wilmington
The income
This illustrative expat tax Delaware example uses 2026 rates. Oliver is a British national and green card holder. He is single, aged 48, and runs a division of a bank in Wilmington. He lives in Greenville, outside the city limits. His salary and bonus total $700,000, all for work in the city.
Oliver also has British income. A let flat in Bristol produces net rent of $40,000, on which he pays UK tax of $8,000. His ISA and UK shares pay dividends of $30,000. Finally, in March 2026 he sold UK-listed shares for a gain of $200,000. As a non-resident, he paid no UK tax on that gain.
The Delaware and Wilmington bill
His federal adjusted gross income is $970,000. After the $3,250 standard deduction, Delaware taxable income is $966,750. The tax on the first $60,000 is about $2,944. The balance of $906,750 bears 6.6%, which is $59,846. After the $110 credit, Oliver owes Delaware about $62,680.
Wilmington adds 1.25% of his $700,000 earnings, which is $8,750. Therefore, his state and city bill is about $71,430. Of that, roughly $17,820 relates to British income. Delaware gives no credit for the $8,000 of UK tax on the rent.
The lessons
Three expat tax Delaware lessons stand out. First, itemising for Delaware and claiming the foreign taxes line would have saved Oliver about $530. Secondly, timing mattered far more. Had he sold the UK shares before becoming a Delaware resident, he would have saved $13,200 of state tax, plus the federal charge. Thirdly, his UK pension will not qualify for the $12,500 exclusion until he is 60 and meets the domicile condition.
How TaxYork Can Help
Expat tax Delaware returns prepared as one file
TaxYork provides comprehensive tax preparation and compliance for wealthy British families in America and Americans in Britain. For expat tax Delaware clients, we prepare the federal return, the Delaware return, the Wilmington filings and the UK Self Assessment return together. Consequently, the same income figures, workday counts and exchange rates run through every return.
Executives, investors and returning Americans
We also prepare the calculations that surround a move. That includes arrival-year and departure-year returns, share award allocations and foreign tax credit claims. Our cross-border planning service covers that preparation work, and our tax treaty optimisation service covers treaty claims.
Conclusion
Expat tax Delaware rules reward preparation. The state is gentle on spending and harsh on income. It taxes UK pensions, rent, dividends and gains at up to 6.6%, and it gives no credit for British tax. Additionally, Wilmington takes 1.25% of earnings from anyone who works in the city.
However, the expat tax Delaware reliefs are real. The part-year election, the foreign taxes deduction, the pension exclusion and the 495-day rule each save money for those who use them. Therefore, time large UK disposals before you arrive, record your domicile date, and prepare the federal, state and UK returns as one exercise.
Contact Us
If you are moving to Wilmington, or already live in Delaware with British income, the first return sets the pattern for your expat tax Delaware position. To have your US and UK returns prepared together, contact us today. You can also email hello@taxyork.com or call 020 3488 8606.
Disclaimer
This article provides general information only and reflects US, Delaware and UK rules as understood in October 2026. It is not tax or legal advice for your circumstances. State law changes frequently, and proposed bracket changes may be enacted after publication. The case study is illustrative and uses rounded figures. Always obtain professional guidance from a qualified specialist before you move, sell assets or file.