THE TRANSATLANTIC MAGAZINE
THE TRANSATLANTIC MAGAZINE
Despite weeks of rumoured tax changes, many of which will be familiar to Americans, of gift taxes, real estate taxes and exit taxes, these did not come to fruition in Rachel Reeves’ budget speech. What we are left with are freezes, uplifts and increased taxes across the board for most UK taxpayers.
The UK Budget is one of the biggest financial events of the year, it sets out the government’s plans for taxes, spending, and priorities for the months and years ahead. This year’s statement comes against a backdrop of slow economic growth and pressure to balance the books.
But what matters most for Americans living, working, or investing in the UK?
As expected, the personal tax thresholds will continue to be frozen from 2028/29 through to 2030/31. The result of this will be ever greater numbers of people pulled into the tax system or into higher tax rates. This fiscal drag has been ongoing since these rates first came into effect in 2021/22.
The next big headline is the increase in tax on property income, dividends and savings – these rates will increase by 2%.
From 6 April 2026, the tax rates on dividends will increase:
| Band | Current tax rate | New tax rate |
|---|---|---|
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
Twelve months later from 6 April 2027, the tax rates on property income (any income from letting land and/or buildings) and savings income will increase:
| Band | Current tax rate | New tax rate |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
*Note the 2% increase on property income does not apply to Scottish taxpayers.
For UK/US taxpayers, these UK tax increases further widen the gap to the corresponding US Federal tax rates. This will likely result in additional excess Foreign Tax Credits (FTCs) accumulating in the United States. These can be carried forward for ten years. However, the opportunities to utilise these may be limited to specific individuals with certain facts and dependent on future plans.
Council tax is an annual tax on domestic properties. Effective April 2028, in England, properties worth over £2 million (using 2026 prices) will be subject to a new high value council tax surcharge. There will be four price bands, with the surcharge starting at £2,500 for a property valued in the lowest £2 million to £2.5 million band. This rises to £7,500 for a property valued in the highest band of £5 million or more. The bands will be uprated by CPI (Consumer Price Index) inflation each year. The owner of the property will be liable for this payment, not the occupants. Unlike standard council tax, the surcharge amounts will flow to central government, rather than local government.
For Americans, this is generally far lower than US real estate taxes that apply to US properties. Unfortunately, for Americans owning UK property, there is no option to deduct non-US taxes paid on real estate.
Over the years, the gap between the US and UK tax rules for UK property rental income has widened.
In the US, taxpayers are allowed generous depreciation deductions and full expensing of mortgage interest, which reduces the profits subject to US tax. Meanwhile in the UK, there are strict limits on finance costs and other property expenses that can be deducted, which leaves more profit liable to tax.
In practice, these differences can lead to the same UK property showing a taxable loss in the US but a taxable profit in the UK. When a property is in the UK, HMRC will tax those profits. The US will allow a credit for UK tax paid, but that is only useful to taxpayers who have US tax to offset. Often, there isn’t.
These differences can decrease over time, when there may be a recapture of depreciation when the property is ultimately sold. However, while the foreign tax credits can be carried forward for up to 10 years, that may not be long enough if the property is held for many years. The additional two percent UK tax on property income exacerbates this issue.
The UK continues to be home to many entrepreneurs. UK corporation tax remains the lowest in the G7 at 25%. However, for entrepreneurs, the gap between the UK rates of tax for dividends (39.35%) and capital gains (24%) encourages re-investment of corporate profits.
The Budget included increases to the thresholds and investment limits for UK companies to raise investment via the Enterprise Investment Scheme (EIS). This gives UK investors tax relief when subscribing for shares in qualifying trades. This further encourages entrepreneurs to grow their business with a view to a full or partial exit, realising a capital gain return.
During this time, for the business owners to extract profits, the additional two percent tax on dividends will affect the decision of whether to take a salary and/or extract dividends. For some US owners, particularly in trades with lower working capital demands and excess cash, this change may result in more US entrepreneurs electing to treat their UK companies as pass-through businesses (by making a check-the-box election). Profits are taxed as if they personally arise for US tax, but with a credit for UK corporate and personal taxes. This requires planning and may not be suitable for all businesses. However, this can be a powerful tax planning tool for US owners of UK companies.
UK employers can offer employees the option to sacrifice part of their salary to a pension scheme without National Insurance Contributions (NIC) being due. Many employers and employees have taken advantage of this benefit. From April 2029, NICs will apply to employee salary-sacrificed pension contributions above £2,000. Any amount over this threshold will be treated as a standard employee pension contribution and subject to both employer and employee NICs.
While not a specific UK/US cross-border tax issue, it’s important to note the impact on UK living costs. For individuals, this change increases the cost of pension saving. For business owners, it raises employment costs, making it more expensive to operate and hire staff in the UK. Possible planning should be considered for accelerating pension contributions ahead of the changes coming in in 2029. Pensions remain an important item for US/UK taxpayers as they continue to grow tax-free.
The Autumn Budget always brings a mix of headlines and hard numbers, but the real question is how these changes affect you personally. For Americans in the UK, that means thinking about the cross-border impact—how UK rules interact with US obligations and what steps you might need to take to stay compliant and financially savvy.
As the details settle, take time to review your situation before making any big decisions. A little planning now can help you avoid surprises later. So, as you carve the turkey this Thanksgiving, consider carving out a moment for your taxes too.
Libby Cade is a Director at leading audit, tax and business advisory firm, Blick Rothenberg.
