Your American income counts towards the £100,000 line

Figures relate to tax year 2026-27 (UK)

Plenty of Americans in Britain earn a salary below £100,000 and assume the high-earner rules do not touch them. Then the American income gets added in.

Rent from a house in Ohio and interest on dollar savings both count towards the figure HMRC uses. Cross £100,000 on that combined figure and your personal allowance starts to disappear.

This guide starts with what counts towards the limit, including income you might think is outside it. It then covers the 60% band, the reliefs that bring you back, and what the extra UK tax does to your US return.

Key takeaways

• HMRC tests £100,000 against adjusted net income, not salary.
• American rent and interest both count in that figure.
• Income relieved under the FIG regime still counts.
• The £12,570 allowance for 2026-27 is gone by £125,140.
• Income in the band costs an effective 60%, or 62% with National Insurance.
• Pension contributions and Gift Aid bring the figure back down.
• A credit for American tax on the rent does not restore the allowance.
• Excess UK tax becomes US credits that carry forward ten years.

What is adjusted net income?

It is the figure the taper uses, not your salary. GOV.UK describes it as total taxable income before allowances, less certain reliefs. The main reliefs are grossed-up Gift Aid donations, pension contributions that already had basic rate relief, contributions paid gross, and trading losses.

Foreign income counts in the total, including income covered by a foreign income and gains regime claim.

So American rental profit and interest push you towards the loss of personal allowance. Nothing about their source keeps them out.

Does American income push you into the band?

Yes, and it often does so quietly. Profit from a rental home in America and interest on a dollar savings account both count in adjusted net income, and so cost you personal allowance. A salary that sits below the limit offers no protection once American income is added to it, as the worked example below shows.

The UK usually gives credit for American tax already paid on that rent. But the credit reduces UK tax, not adjusted net income, so the allowance is still lost.

Add up every source in pounds, at the rate for each payment, before deciding whether the band applies to you.

Does income relieved under the FIG regime still count?

Yes. GOV.UK's adjusted net income guidance lists foreign income in the total, including income where a claim under the foreign income and gains regime has been made. So a new arrival who claims relief on their American income still has that income counted for the taper and for the child benefit charge.

In practice the point is often academic for the taper itself. GOV.UK says claimants lose their tax-free allowances for the year anyway.

It matters more for the child benefit charge, which a FIG claim does not switch off. New arrivals with children should check both.

What happens to the personal allowance above £100,000?

It is the rule that withdraws the tax-free personal allowance from higher earners. According to GOV.UK, you lose half of every pound of adjusted net income over £100,000 from your allowance. At £125,140 the allowance is zero, so every pound of income is taxable.

The taper applies across the whole UK, including Scotland. Scottish bands differ, but the allowance rule does not.

It also applies whatever your nationality. An American on a British payroll is treated exactly like everyone else.

A worked example of the 60% band

The figures here are illustrative only. A US citizen working in London earns a salary of £92,000 in 2026-27. They also receive £18,000 of rental profit from a house in Ohio. Adjusted net income is therefore £110,000, even though the salary alone sits well below the limit.

First, find the excess over £100,000: £10,000. Halve it: £5,000. So the personal allowance falls from £12,570 to £7,570.

Second, work out the cost. The £10,000 above £100,000 is taxed at 40%, which is £4,000. The £5,000 of lost allowance is also taxed at 40%, another £2,000.

So the top £10,000 of income costs £6,000 in UK income tax, before any credit for American tax on the rent. That is the 60% rate in action.

Why does the taper create a 60% rate?

Because two things happen at once. Each extra pound in the band is taxed at the 40% higher rate. And each extra pound also removes 50p of allowance, which brings another 50p into tax at 40%. So the true cost of the extra pound is 40p plus 20p, or 60p.

The band runs from £100,000 to £125,140. That is £25,140 of income taxed at 60%.

Above £125,140 the rate drops back to 45%, the additional rate. So the marginal rate falls as income rises, which surprises most people.

How the 2026-27 bands fit together

Can a couple share the problem?

Not directly. The UK taxes each person on their own income, so one partner's taper has nothing to do with the other's personal allowance. Transferring income-producing assets to a lower-earning spouse can move investment income out of the band. But gifts between spouses carry their own American rules when the spouse is not a US citizen.

The annual US gift exclusion for a non-citizen spouse is far lower than for a citizen spouse.

So check the US limit before moving large savings into a British spouse's name.

What about Gift Aid?

Gift Aid can rescue the personal allowance in the same way. GOV.UK says that for every £1 you give through Gift Aid, you take £1.25 off your net income. So a gift of £8,000 removes £10,000 from adjusted net income, which can restore the allowance just as a pension contribution does.

Higher rate taxpayers can also claim extra relief on the gift through Self Assessment.

On the American side, gifts to British charities are often not deductible. Our guide to charitable giving across the US and UK explains when they are.

Does the taper affect child benefit as well?

Separately, yes. The High Income Child Benefit Charge also uses adjusted net income, with a starting point of £60,000. So the same pension contribution or Gift Aid that cuts adjusted net income can reduce both charges together. Earners with children can therefore feel two effects from one figure.

Other childcare support has its own income limits.

The point is that adjusted net income controls several British costs at once, which raises the value of reducing it.

Is the taper shown in your tax code?

Often, but not always accurately. HMRC estimates your income for the year and sets your code from that estimate. If a bonus, share vesting or US income was not in the estimate, the code will give too much allowance, and tax will be due later.

Check your code each spring, and again after any bonus.

Where you file Self Assessment, the return settles the true figure. Underpaid tax then falls due on 31 January.

Does National Insurance make it worse?

Yes, slightly. Employees on category A pay 2% National Insurance on weekly earnings above £967, according to GOV.UK. So a salaried worker in the band pays 60% income tax plus 2% National Insurance, a combined 62% on each extra pound. Bonuses usually carry the same charge.

National Insurance is also not creditable on the US return. IRS Publication 514 says no credit is allowed for social security taxes paid to a country that has a social security agreement with America, and Britain has one.

So that 2% is a pure cost, with no American offset at all.

Why does the extra UK tax matter for the US return?

Most Americans on high British salaries claim the foreign tax credit rather than the exclusion. The UK tax on the same income becomes a credit against US tax. A 60% band produces far more UK tax than America would charge, so the credit easily exceeds the US tax on that income.

The excess does not vanish. But you may not be able to use it soon.

So the taper creates a pile of foreign tax that sits on your US return without reducing anything this year.

What happens to excess foreign tax credits?

According to IRS Publication 514, unused qualified foreign taxes can carry back one year and then forward ten years. They stay within their category, so excess credit from UK salary sits in the general category. It can only offset US tax on foreign income in that same category.

For a London salary earner with no other foreign income, the credit may simply expire unused.

Our guide to foreign tax credit carryover rules shows how the carryover is tracked.

When can you actually use the carryover?

Usually in a year when your UK tax falls below the US rate on foreign income in the same category. That can happen after a career break, in a year with UK income taxed lightly, or in retirement while UK pension income continues. Excess credit from the taper can then reduce US tax that would otherwise be due.

Keep the Form 1116 schedules for every year. Without them you cannot prove the carryover later.

In our practice we see carryover lost simply because nobody kept the earlier schedules.

What happens when you move back to America?

The move does not unlock the carryover as easily as people hope. Once you live in America, your salary is US-source income. Foreign tax credits, including carried-over ones, can only reduce US tax on foreign-source income. So credits built up in London rarely offset tax on a New York salary.

They can still help against UK pension income, UK rents or other foreign income you keep after the move.

Plan the final UK tax year carefully. Split-year treatment may take part of that year's income out of UK tax, which can also lift you out of the band.

Does the exclusion change the picture?

The foreign earned income exclusion is $130,000 for 2025 and $132,900 for 2026. A salary near the £100,000 taper often exceeds that in dollars. So many earners in the band end up on the credit instead, or on both, with the credit covering income above the exclusion.

The exclusion and the credit cannot both apply to the same dollar.

Which mix works best depends on your other income. US investment income and US rental profit change the answer.

How does a pension contribution fix it?

A pension contribution reduces adjusted net income. In the example, a contribution of £8,000 into a relief-at-source personal pension is grossed up to £10,000 by the provider. That takes the full £10,000 off adjusted net income, which drops back to £100,000 and restores the full allowance.

The higher rate relief then comes through Self Assessment or a tax code change.

The net cost of a £10,000 gross contribution in the band can fall to around £4,000. That is why UK advisers recommend it so often.

Does the same contribution help on the US return?

Not necessarily. America decides for itself which pension contributions to recognise, and it applies the treaty rules rather than the UK reliefs. A contribution that removes British tax may leave US taxable income unchanged. For many Americans the US position on a personal pension is the weak point.

That does not make the pension wrong. It means the saving is British, and the American return needs separate thought.

Our guide to salary sacrifice for US citizens covers the workplace version of this trade-off.

Do bonuses and share vesting push you into the band?

Yes. A bonus or a vesting of restricted shares counts as employment income in the year it is paid or vests. A salary of £95,000 with a £20,000 bonus lands squarely in the 60% band. Because the income arrives in one lump, it often catches people by surprise.

A pension contribution made in the same tax year can still pull the total back down.

Our guide to UK bonus payments and US tax covers timing in more detail.

What records should you keep?

Keep payslips, P60s, pension contribution statements and Gift Aid records for every tax year. On the American side, keep each year's Form 1116 and its carryover schedule. Those two sets of papers together show how the taper turned into foreign tax and where that tax went.

Record exchange rates for each payment too. The IRS works in dollars, HMRC in pounds.

These records cost nothing to keep and are very hard to rebuild later.

Mistakes and penalties with the personal allowance

The first mistake is assuming the 60% band only matters to Britons. Americans pay it too, and then carry the excess UK tax on their US return.

The second is making a pension contribution without checking the American treatment.

The third is losing the Form 1116 carryover schedules and with them years of credit.

The fourth is ignoring a wrong tax code. HMRC charges interest on tax paid late, and penalties can follow an inaccurate return.

How to manage the personal allowance taper as an American

1. Estimate your adjusted net income for the tax year, including US income.
2. Check whether it falls between £100,000 and £125,140.
3. Model a pension contribution or Gift Aid to bring it to £100,000.
4. Check how America treats that contribution before you make it.
5. Claim higher rate relief through Self Assessment.
6. Decide between the exclusion and the foreign tax credit.
7. Record any excess foreign tax on Form 1116 for carryover.
8. Review your tax code after every bonus or vesting.

How US UK Tax Accountants helps

We prepare both returns for Americans on high British incomes. On the UK side that means adjusted net income, the personal allowance, pension and Gift Aid relief, and the Self Assessment return. On the US side it means the exclusion or credit choice and a carryover schedule that survives a move home.

Our UK Self Assessment service is built around the overlap between the two systems.

If a raise or bonus is about to take you past £100,000, ask us to model both returns before the year ends.

Last reviewed 29 October 2026. This article is general information and not personal tax advice. UK figures apply to 2026-27 and US figures to 2025 and 2026.