What the US-UK Treaty Means When Taking a London Job Package
Understanding the US-UK treaty when taking a London job package matters because the treaty determines who taxes your salary, bonus, and equity. Still, it does not prevent the United States from taxing you. Relief comes through credits and exclusions, not a treaty exemption, so planning before you sign protects your pay.
By the TaxYork Cross-Border Tax Team — reviewed by a US-UK dual-qualified adviser (CPA / Enrolled Agent).
Does the US-UK treaty stop the US taxing my London salary?
No. If you are a US citizen or green card holder, the savings clause in the treaty allows the United States to continue taxing your worldwide income as if the treaty did not exist. You still file a US return every year and rely on credits or the earned income exclusion to avoid paying tax twice.
This is the single biggest misunderstanding people bring when moving to London. The treaty is a coordination tool, not an off-switch. Knowing what the treaty means when taking a London job package starts with accepting that two tax systems will treat the same pay differently.
Where the saving clause lives
The saving clause sits in Article 1(4) of the 2001 US-UK income tax convention. It reserves each country's right to tax its own citizens and residents under domestic law, overriding most other treaty articles. A handful of provisions are carved out in Article 1(5), but employment income for a US citizen is not among the protections that survive.
You can read the treaty text and the US Treasury technical explanation through the IRS United Kingdom tax treaty documents page. For a plain-language route into the wider network, the IRS tax treaties overview is a sensible starting point.
Which country taxes the work I physically do in London?
The United Kingdom taxes employment income for duties you perform on UK soil. This flows from the dependent personal services rules in Article 14 of the treaty, and in practice, your UK employer operates PAYE from your first payday. The US then taxes the same income as well, and you clear the overlap with a foreign tax credit or an exclusion.
The 183-day rule and why it rarely saves a relocating hire
Article 14 contains a familiar exception: an employee can work in another country for up to 183 days without local tax if a non-resident employer bears the cost and no local permanent establishment collects the salary. That relief is built for short business trips. Someone relocating to London on a permanent contract, paid by a UK entity, is UK-taxable on day one, so the 183-day carve-out does not apply. See GOV. UK guidance on tax on foreign income for the residence angle.
How do I avoid being taxed twice on the same pay?
You use one of two US mechanisms, and often both. The Foreign Tax Credit on Form 1116 gives you a dollar-for-dollar US credit for UK tax paid. The Foreign Earned Income Exclusion on Form 2555 lets you exclude a slice of earned income entirely. Because UK rates on higher earnings sit above US rates, most London hires lean on the credit.
Foreign Earned Income Exclusion (FEIE)
For the 2025 tax year, the maximum FEIE is $130,000 per qualifying person, and it is claimed on Form 2555. You must meet either the bona fide residence test or the physical presence test of 330 full days abroad in a 12-month window. Full details are on the IRS foreign earned income exclusion page, with the mechanics in the instructions for IRS Form 2555.
Foreign Tax Credit (FTC)
The FTC usually wins for London packages because UK income tax and National Insurance on a senior salary tend to exceed the equivalent US liability, generating excess credits you can carry over. The IRS foreign tax credit page explains eligibility, and Form 1116 is where the numbers land. Many clients combine a modest exclusion with the credit; getting the interaction wrong wastes relief.
Feature
Foreign Earned Income Exclusion (Form 2555)
Foreign Tax Credit (Form 1116)
What it does
Excludes up to $130,000 (2025) of earned income
Credits UK tax paid against US tax due
Best when
Lower-tax location or modest income
High-tax locations such as the UK
Covers investment income
No, earned income only
Yes, with separate baskets
Carryover of unused relief
No
Yes, one year back and ten forward
Typical London outcome
Partial use
Primary relief
Do I pay US Social Security and UK National Insurance on the same salary?
Generally, no, and this is where the treaty's companion agreement helps. The US-UK Social Security Totalization Agreement means you pay into only one country's system for a given period of work. A certificate of coverage is the document that proves which system applies and switches off the other.
How the certificate of coverage works
For a genuine relocation to a UK employer, you normally pay UK National Insurance and are exempt from US Social Security and Medicare, provided a certificate is in place. A US employer sending you on assignment for five years or less can keep you in the US system instead. The rules and the coverage-assignment logic are set out in the SSA US-UK totalization agreement pamphlet, with the wider framework on SSA's certificate of coverage page. Without the certificate, you risk paying twice, so request it early.
How are my signing bonus, RSUs, and relocation allowance taxed?
Cash bonuses and relocation allowances are taxable employment income under both systems, usually in the period in which they are paid. Equity is more complex: RSUs and stock options are sourced by workday allocation across the period from grant to vest, so pre-move US workdays and post-move UK workdays split the income between the two countries. This is the trap that catches most relocating employees.
Why RSU sourcing bites
Suppose an RSU tranche was granted while you worked in New York and vests eighteen months after you land in London. The gain is apportioned based on where you performed the work during that vesting window. The US taxes its slice, the UK taxes its slice, and the credit system reconciles the overlap. Payroll on either side doesn't automatically get this right, so equity often requires a manual reconciliation on both returns.
Signing bonuses and relocation allowances
A signing bonus tied to future UK work is generally UK employment income, taxed through PAYE, and also reportable in the US. Relocation allowances are broadly taxable, though some specific UK reliefs and US exclusions may narrow the charge. Treat any "tax equalization" clause in your offer carefully; it changes who ultimately bears the bill. Our note on RSU and stock option tax for US-UK movers goes into more detail.
Package element
UK treatment
US treatment
Main trap
Base salary
PAYE on UK duties
Worldwide, relieved by FTC/FEIE
Tax-year mismatch
Signing bonus
Employment income, PAYE
Taxable, reportable
Timing of payment
RSUs / options
Workday-sourced to UK duties
Workday-sourced, US portion taxed
Grant-to-vest split
Relocation allowance
Broadly taxable, limited reliefs
Broadly taxable
Equalisation clauses
Employer pension
Tax-relieved contributions
May not be deferred without treaty relief
Reporting and PFIC risk
Do the tax-year mismatch and split-year treatment affect my move?
Yes, and it changes the maths in your first year. The US runs a calendar tax year, while the UK runs from 6 April to 5 April, so UK tax paid and US tax due fall in mismatched periods, which complicates the timing of the foreign tax credit. The UK's split-year treatment can also carve your arrival year into a non-resident part and a resident part.
The Statutory Residence Test
The Statutory Residence Test determines your UK residence and whether split-year treatment applies. It counts days, ties, and work patterns rather than intentions. Read the official GOV.UK Statutory Residence Test guidance before you assume your status, because getting the split-year date wrong can shift thousands of pounds of income into the wrong year. Our Statutory Residence Test explainer walks through the day-count tables.
What happens to my pension and savings under the treaty?
UK employer pensions receive UK tax relief, but the US does not automatically treat those contributions as tax-deferred; treaty relief under the pension articles may be needed to align the two systems. Investment wrappers are a separate hazard. An ISA is not tax-free for a US person, and its funds are often treated as PFICs, resulting in punitive US reporting requirements.
Watch the PFIC problem.
Most UK-domiciled funds and investment trusts are passive foreign investment companies in the US's eyes, taxed harshly and reported on Form 8621. Auto-enrolment into a workplace pension is usually fine with correct treaty positions, but ISAs, general investment accounts and UK fund platforms need care from day one. See our ISA and PFIC guide for US persons, as well as the broader US-UK pension tax treaty overview.
Case study: a US executive moving to a London role
Maya, a US citizen, accepts a London package: a £180,000 salary, a £40,000 signing bonus, and RSUs worth roughly £120,000 that vest over the two years following her move. She relocates in September, midway through the UK tax year.
Her adviser applies UK split-year treatment, so only her post-arrival income is UK-taxed for the year of the move. UK PAYE is applied to her salary and bonus, and she obtains a certificate of coverage so she pays UK National Insurance and is exempt from US Social Security. On her US return, she claims a Foreign Tax Credit for the UK tax, which more than covers her US liability on the salary and generates carryover. Her RSUs are split by workday: about 30% of the first tranche relates to pre-move US work and stays US-sourced, while the UK-worked portion is credited. By modeling this before signing, Maya avoids a five-figure double-tax exposure that automatic payroll would have missed. Figures are illustrative and rounded.
Talk to TaxYork before you sign your London offer.
A London job package is one of the few moments when a short planning conversation genuinely changes your take-home pay. TaxYork models the US-UK treaty for a London job package, including salary, bonus, equity, pension, and social security, so you know your real net before you accept. We prepare both US and UK returns and coordinate the credit timing that catches so many movers out.
Get in touch: hello@taxyork.com | 020 3488 8606 | taxyork.com. Bring your offer letter and RSU schedule, and we will map the tax before you commit.