Figures relate to tax year 2025 (US)
Most writing about American tax assumes you are American. But Form 1040NR exists for people who are not, and plenty of British taxpayers owe the IRS something.
They file on a different basis, and the rules barely resemble the ones citizens follow.
Usually it starts with a property, a share portfolio, some royalties, or a few weeks of work on American soil.
Key takeaways
- Nonresident aliens file a different return from citizens.
- Only US-source income is taxed, not worldwide income.
- Investment income faces a flat 30% withholding.
- The treaty cuts that rate on dividends, interest and royalties.
- Business and rental income is taxed at graduated rates instead.
- The deadline can be June rather than April.
- You usually need a US tax number to file.
- A W-8BEN given to the payer prevents over-withholding.
What is Form 1040NR?
The United States income tax return for a nonresident alien. According to IRS guidance on nonresident aliens, somebody who is neither a citizen nor a resident files it instead of the ordinary return. It reports American source income and nothing else.
Our guide to a dual status tax return covers the year you change status.
Worldwide income is simply irrelevant to it.
Who files a Form 1040NR?
Somebody with no American passport, no green card, and too few days there. A British citizen living in Britain almost always qualifies. In practice it only gets complicated for people who spend months there each year.
Our guide to the substantial presence test covers the day count.
Count visits over three years, not one.
What does Form 1040NR tax?
Only income with an American source, and the category decides the rate. Dividends from American companies, interest from some American sources, royalties, rent from American property and pay for work physically done there all qualify. British income is outside it entirely.
Our guide to US withholding tax for UK investors covers investment income.
Where the work happened decides where the pay is sourced.
Two baskets, two rates
| Income | Treatment | Rate |
|---|---|---|
| US dividends | Withheld at source | 30%, or 15% by treaty |
| US bank interest | Often exempt | Usually nil |
| Royalties | Withheld at source | 30%, or nil by treaty |
| US rental profit | Can elect net basis | Graduated |
| Work done in America | Effectively connected | Graduated |
| Gain on US property | Always taxable | Graduated, with withholding |
What is the flat 30% charge?
A withholding tax applied to passive American income before it reaches you. The payer deducts it and sends it on, so you simply get the net amount. Many British investors never realise it has happened.
Our guide to a W9 form request covers the American equivalent form.
It applies to the gross payment, not to a profit.
How does the treaty reduce it?
By cutting the rate for residents of Britain, often sharply. Dividends commonly drop from thirty per cent to fifteen, and royalties can fall to nothing. According to IRS guidance on treaties, you claim the reduction by certifying your residence to the payer.
Our guide to the US-UK tax treaty covers the articles.
The reduction is not automatic and must be claimed.
What is a W-8BEN for?
Telling the payer you are not American and claiming the treaty rate. Without it the full thirty per cent comes off. Then recovering the excess means filing a return. The form takes minutes and saves months.
Our guide to a FATCA letter from a UK bank covers the British side of these questions.
It usually needs renewing every three years.
A worked example
Take an illustrative case. A British investor holds American shares through a London platform and receives dividends each quarter.
He has filed no certification, so thirty per cent comes off every payment.
One form would have cut that to fifteen, the rate the treaty allows.
He can reclaim the excess by filing a return, which is far more work than the form.
What is effectively connected income?
Income from a trade or business carried on in America. It goes on the return at graduated rates after deductions, instead of facing flat withholding. So it is usually the better basket to be in.
Our guide to permanent establishment covers the business threshold.
Rental income can be moved into this basket by election.
Should you elect the net basis on rent?
Almost always, because the alternative is thirty per cent of gross rent with no deductions at all. The election lets you deduct mortgage interest, repairs, management fees and depreciation, which on a typical property turns a large charge into a small one.
Our guide to US property for UK residents covers American letting.
Make the election on the first return and it continues.
When is Form 1040NR due from Britain?
April where you had wages subject to withholding, and June otherwise, which catches people out in both directions. An extension to October is available on request. The June date exists for nonresidents with no American employment.
Our guide to US tax deadlines for expats covers the citizen deadlines.
Check which date applies before assuming April.
Do you need a US tax number?
To file, yes, and most British people have none. An individual taxpayer identification number is the usual answer, and the application is slow and documentary. Start it well before the return is due.
Our guide to ITIN applications from the UK covers the process.
The application can go in with the return itself.
Can you claim a personal allowance?
No, and this surprises everybody. The standard deduction is unavailable to most nonresidents, so tax is charged from the first dollar of effectively connected income. Itemised deductions are limited to a short list.
Our guide to the UK personal allowance covers the British equivalent.
Students from some countries are a narrow exception.
What about selling US property?
The gain is taxable whatever your status. Also, the buyer has to hold back a slice of the gross price at completion. That often far exceeds the eventual tax, so you reclaim the difference by filing. Nobody enjoys the wait.
Our guide to Form 926 and property transfers covers moving assets.
Apply for a reduced withholding certificate before completion.
Does Britain tax the same income?
Yes, because a British resident is taxed on worldwide income. So you claim credit here for the American tax properly due, which usually prevents a double charge. But the credit stops at the treaty rate, not at any excess withheld.
Our guide to registering for Self Assessment covers the British return.
HMRC will not credit tax you could have reclaimed.
What if too much was withheld?
You file to reclaim it, which is one of the commonest reasons a British person files at all. The refund claim has a time limit of a few years, so old over-withholding eventually becomes unrecoverable. Check your statements.
Our guide to Form 843 refund claims covers claims generally.
Years of small over-withholding add up quietly.
Does a US pension count?
Usually the treaty taxes an American pension only here, though lump sums are an exception. Still, you need certification to stop the withholding at source. Without it the payer deducts anyway.
Our guide to US retirement accounts in the UK covers drawdown.
Lump sums are treated differently from periodic payments.
What about working in America briefly?
Pay for days physically worked there has an American source, even on a short trip. But a treaty article exempts short visits where the employer is not American and does not bear the cost there. In practice that covers most business travel.
Our guide to a US secondment and tax covers longer postings.
Keep a diary of American working days.
Do states have their own rules?
They do, and they ignore the treaty entirely. A state can tax rental income or days worked there whatever the federal treaty says. So a property in California brings a state return as well as a federal one.
Our guide to state tax for expats covers the states.
No treaty protection exists at state level.
What if you never file a Form 1040NR?
For withheld income, often nothing visible, because the payer already collected the tax. But for rental or business income it is worse, because failing to file can forfeit the right to deductions. That turns a small bill into a large one.
Our guide to the statute of limitations covers open years.
Late elections on rental income are sometimes allowed.
What records does a Form 1040NR need?
Every statement showing American tax withheld, your certification forms, property records and a travel diary. Those four support both the American return and the British credit claim. Nobody can rebuild them afterwards.
Our guide to exchange rates on a US return covers conversion.
Platforms issue an annual statement showing the withholding.
Does a Form 1040NR cover a spouse?
No, because nonresidents cannot file jointly. Each person files their own return on their own income. So a couple who both hold American shares end up with two returns rather than one.
Our guide to joint accounts for US-UK couples covers shared holdings.
Split jointly held income by beneficial ownership.
What if you later become American resident?
Then the year of the change is a split one, and you file on both bases. The first part of the year follows the nonresident rules and the rest follows the citizen ones. It is the most awkward return anybody files.
Our guide to the first year choice election covers that year.
Get the date of the change fixed with evidence.
Do US bank deposits get taxed?
Usually not, because ordinary bank interest paid to a foreign person is generally exempt. That surprises people who expect the same thirty per cent as dividends. Still, the bank may ask for certification before it stops withholding.
Our guide to UK savings interest covers the British side.
Certificates of deposit can follow different rules.
What about US mutual funds?
Distributions face the usual withholding, and some are treated as dividends while others are capital gains. The fund tells you which. Meanwhile Britain taxes you on the whole thing wherever it came from.
Our guide to UK reporting fund status covers the British treatment.
Check the fund's reporting status before buying.
Are capital gains on shares taxable?
Generally not for a nonresident, which surprises people. A gain on American shares is usually outside the American net unless you spent a long time there that year. Property is the big exception, and it is always taxable.
Our guide to US estate tax for UK investors covers another trap on the same shares.
But Britain taxes the gain in full as your residence country.
Does estate tax work the same way?
No, and it is far harsher. American estate tax reaches a nonresident's American shares and property with an exemption of only sixty thousand dollars. The treaty helps, and plenty of British investors have no idea the exposure exists.
Our guide to US-UK inheritance tax covers the estate side.
A share portfolio alone can breach that figure.
Can an agent file it for you?
Yes, with authority on record, and most people use one. The return itself is short, so the work is in classifying the income and claiming the right treaty rate. Those two decisions set the whole bill.
Our guide to IRS power of attorney covers the authority.
Ask whether they file these regularly.
Is a Form 1040NR hard to complete?
The form is short. The hard part is deciding which box each item of income goes in, because that choice sets the rate. Once the income is sorted, the sums are simple and the return is brief.
Most people get the sorting wrong, not the arithmetic.
So start with the income list, not the form.
What does it cost to file?
Far less than a citizen's return, because there is less in it. A single rental property or a share portfolio is a modest job. The cost rises only when a sale or a business is in play.
Our guide to choosing a US-UK tax accountant covers fees.
Weigh the fee against the tax you may reclaim.
Can you file it online?
Sometimes, and many British filers still post it. Software support for this return is patchy, and a first filing with a tax number application attached has to go by post anyway. Allow for the transit time.
Our guide to paying the IRS from the UK covers settling any balance.
Send it with tracking, because proof of posting matters.
Who should not worry about this?
Anybody with no American income at all. A British saver with British funds owes the IRS nothing and files nothing. The duty starts with the income, not with owning a share in a global index.
Check what your fund actually holds and where it sits.
A UK fund that buys US shares is still a UK fund.
Does a US ETF change that?
It can, because the fund itself is American. Holding one directly brings American source dividends and the usual withholding. Many British investors hold the Irish version of the same fund for exactly this reason.
Our guide to UK REITs for US investors covers the mirror case.
Ask where the fund is domiciled before buying.
How to file Form 1040NR from Britain
- Confirm you are a nonresident alien on the day count.
- List every item of American source income you received.
- Separate passive income from effectively connected income.
- Give a certification form to every American payer.
- Elect the net basis if you let American property.
- Apply for a tax number if you do not already hold one.
- Check whether your deadline is April or June.
- Claim credit for the treaty rate on your British return.
Mistakes and penalties we see with Form 1040NR
The first is never certifying residence to a payer and losing half the income to withholding for years.
The second is paying thirty per cent of gross rent because nobody made the net basis election.
The third is claiming British credit for over-withheld tax that should have been reclaimed instead.
The fourth is assuming an April deadline when the return was not due until June, or the reverse.
How US UK Tax Accountants helps
We sort the income into the right baskets first, because the rate difference between passive and effectively connected income is usually larger than anything else on the return.
Then we make sure the British credit matches what was properly due. Our US federal returns service covers the filing.
If an American payer has been deducting tax from you, get in touch.
Last reviewed 30 October 2026. This article is general information and not personal tax advice, and treaty rates depend on the income.
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Official guidance from the IRS, FinCEN and GOV.UK. Thresholds and rates on those pages are updated annually — check the current tax year before relying on a figure.
