US Tax Return Preparation for Expats: London to Dubai

A US citizen moving from London to Dubai files two sets of returns for the move year: a final UK Self Assessment, usually with a split-year claim, and a US Form 1040 on which the foreign tax credit stops doing the work. In Dubai there is no income tax to credit, so the Form 2555 exclusion, not UK tax, now carries the US return.

That shift is why US tax return preparation for expats becomes most technical in the year a high earner leaves London. A banker, fund professional or senior executive who has sheltered a large salary behind UK tax for years now has income that no foreign tax covers. On top of that come elections that are hard to reverse, UK credit carryforwards that may never be used, and UK-source income that keeps arriving after the move. This guide from Jungle Tax works through the move-year and first-full-year returns on both sides of the Atlantic, from a preparation and compliance point of view.

Why does leaving London for Dubai change your US return so much?

In London, most US citizens on high salaries claim the foreign tax credit on Form 1116. UK income tax at 45% on the top slice of income, plus UK National Insurance treated in line with the US-UK totalization agreement, usually meets or exceeds the US liability on the same income. The result is a US return with little or no US tax to pay and, often, a growing pile of excess foreign tax credits carried forward.

The UAE levies no personal income tax on employment income. After the move, the foreign tax credit has nothing to credit. Unless the income is excluded, a Dubai salary is fully taxed in the US at ordinary rates. The US has no comprehensive income tax treaty with the UAE and no totalization agreement with it. For employees who qualify, the Form 2555 foreign earned income exclusion and the housing exclusion become the main relief. Everything above the exclusion is taxed in the US.

For the preparer, this means the move-year Form 1040 is two returns in one. For the London months, UK tax is paid and the credit mechanics apply. For the Dubai months, there is no foreign tax and the exclusion does the work. The two methods interact through allocation rules, so the choice has to be modelled rather than assumed.

The two returns at a glance: US vs UK in the move year

Issue	US (IRS) - Form 1040	UK (HMRC) - Self Assessment
Tax period	Calendar year (1 January - 31 December)	Tax year 6 April - 5 April
Basis of taxation	Worldwide income for every year of citizenship	Worldwide income while resident; UK-source income only once non-resident
Key move-year relief	Form 1116 credit for London months; Form 2555 exclusion for qualifying foreign earned income	Split-year treatment, claimed on the SA109 residence pages
Test that decides the relief	Tax home abroad plus the bona fide residence or physical presence test	Statutory Residence Test and the split-year cases
Main deadline	15 April, automatic extension to 15 June for taxpayers abroad, further extension to 15 October	31 January after the end of the tax year (online return)
Ongoing after the move	Annual 1040, FBAR, Form 8938, and forms for PFICs and foreign companies where relevant	Return needed only if UK income remains (for example rent) or HMRC issues a notice to file
Treaty position with the UAE	No US-UAE income tax treaty	UK-UAE double tax treaty in force

The final UK Self Assessment return

Split-year treatment: which case applies?

Under the Statutory Residence Test, someone who is UK resident for the tax year of departure is, by default, taxed on worldwide income for the whole year. Split-year treatment divides that year into a UK part and an overseas part. In the overseas part, only UK-source income is taxable. HMRC's guidance, RDR3 on the Statutory Residence Test, sets out eight cases. Three of them deal with leaving the UK.

• Case 1 - starting full-time work overseas. This is the usual case for an executive taking a Dubai role. The overseas part begins on the first day of full-time overseas work. The conditions are demanding: sufficient hours worked overseas, no significant breaks from that work, and limits on UK days and UK working days in the rest of the year, prorated from the full-year limits.
• Case 2 - the partner of someone starting full-time work overseas. This case covers a spouse or civil partner who moves with them.
• Case 3 - ceasing to have a UK home. This case may help someone moving without a qualifying overseas employment. It applies only if the person has no UK home from the split date, spends fewer than 16 days in the UK in the rest of the year, and builds sufficient ties to the new country within six months.

Split-year treatment is not automatic. It is claimed on the residence pages of the return (SA109). Where no case is met, the whole tax year is taxed on a resident basis. That affects not only salary but also investment income and gains for the months after arrival in Dubai. Our detailed analysis of the Statutory Residence Test and split-year treatment goes through the day-counting in full.

P85 and the practical exit

Form P85 tells HMRC that you have left and may trigger a PAYE refund. For most senior employees who already file Self Assessment, the final return, not the P85, is the document that settles the position. The mechanics are covered in our guide to leaving the UK, Form P85 and the final Self Assessment return.

Deferred bonuses, share awards and trailing UK income

Financial services leavers rarely leave cleanly. Deferred bonuses, restricted stock units and carried interest can vest or be paid after the move. The UK generally taxes employment income earned from UK duties even if it is paid after departure. Awards that vest over a period spanning the move are usually apportioned by where the work was done during the vesting period. The US applies a similar source analysis to decide whether income is foreign-source and in which category. On a well-prepared return, the UK-taxed portion of a post-move vesting is matched on the US side to a creditable UK tax, and the Dubai portion is assessed separately for the exclusion. If the same apportionment is not used in both countries, the result is double tax or a figure that cannot be supported.

The US return in the move year

Do you qualify for Form 2555 in the year you move?

The foreign earned income exclusion requires a tax home in a foreign country and one of two tests. The IRS guidance on the foreign earned income exclusion sets out both.

• Bona fide residence test. You must be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. A US citizen who has lived in London for years and moves straight to Dubai without re-establishing residence in the US can often show continuous foreign residence across the move. Intent and the facts on the ground matter: whether the UK and UAE residence was indefinite or tied to a fixed short assignment, where the family lived, and what was said to foreign authorities about residence status.
• Physical presence test. You must be physically present in a foreign country or countries for at least 330 full days in any period of 12 consecutive months. The United Kingdom is a foreign country for this purpose. London days and Dubai days both count, and the 12-month window can straddle the move. Days in the US, and days spent partly in transit over international waters, do not count.

For a London-to-Dubai mover, the practical point is that the move itself rarely breaks qualification. The weak spot is usually a long stay in the US between the two postings, such as a summer spent in New York while the Dubai visa is processed. That can push the 330-day count out of reach for the calendar year. Where a qualifying period cannot be shown by the filing deadline, the return can be extended on Form 2350 until the test is met, rather than filing without the exclusion and amending later.

Prorating the exclusion and the housing exclusion

The maximum exclusion is set by the IRS each year. For 2026 it is $132,900 per qualifying individual, up from $130,000 for 2025. Where the qualifying period covers only part of the tax year, the cap is prorated by the number of qualifying days. A married couple who both work abroad can each claim their own exclusion.

The housing exclusion (for employer-paid housing costs) or the housing deduction (for self-employed individuals) is calculated separately. It covers reasonable housing expenses above a base amount, up to a location limit. Dubai is one of the locations for which the IRS publishes a higher-than-standard limit, and the base amount and limit are prorated for a partial year. Rent, utilities and insurance can qualify. The cost of buying a property, furniture and domestic staff cannot. In the move year, London housing costs and Dubai housing costs are both potentially eligible for their respective qualifying days, which is often missed.

The allocation problem: exclusion or credit on the London salary?

Claiming the exclusion is an election, and it applies to qualifying foreign earned income generally. It cannot be pointed only at the Dubai months. Any foreign tax allocable to excluded income is disallowed as a credit. For a banker whose London salary for January to June already exceeds the exclusion cap, electing Form 2555 can exclude income that UK tax already covered while wasting the UK tax attached to it. The more efficient outcome is sometimes a credit-only return for the move year, with the exclusion elected from the first full Dubai year. Sometimes the answer is the reverse. It depends on the size and timing of each income stream, the UK tax actually paid, and the available carryforwards. A competent preparer runs both computations before any election is made, because an election that is later revoked has long-term consequences.

The five-year bar if you have revoked the exclusion before

Many Americans elected Form 2555 in their early years in London and then revoked it once their salary made the foreign tax credit more valuable. A revocation locks the taxpayer out of the exclusion for five tax years unless the IRS consents. For someone now moving to Dubai, that bar can decide whether the Dubai salary can be excluded at all in the first years. Prior-year returns should be checked for an express or implied revocation before the Dubai return is prepared. See our guide on the FEIE revocation five-year bar for how revocation happens and the route back.

What happens to excess UK foreign tax credits after the move?

Unused foreign tax credits can generally be carried back one year and forward ten years, in the same category of income. Years of UK tax at rates above the effective US rate often leave a London-based US citizen with a large balance of excess credits in the general category, which covers wages and bonuses.

After the move, those credits can only be used against US tax on foreign-source general category income that is not excluded. If the Dubai salary is fully covered by the exclusion and housing exclusion, there may be little or no limitation available to absorb them. The credits then expire unused. This is the "stranded credit" problem.

• Income above the exclusion cap. A Dubai package above the exclusion cap produces non-excluded foreign-source general category income. The US tax on that income can be offset by carryforwards, but only after the stacking rule is applied, which taxes the non-excluded income at the rates it would have faced without the exclusion.
• Passive category income. Excess general category credits cannot offset tax on passive income such as UK dividends or interest. The categories stay separate.
• Documentation. Carryforwards must be tracked year by year on Form 1116 Schedule B. That schedule is often missing or inconsistent where returns were prepared by different firms in different years, and it has to be rebuilt before the carryover can be claimed. Details of the credit are on the IRS Form 1116 page.

Whether it is better to use carryforwards against non-excluded income than to elect the exclusion is itself part of the modelling in the section above. A taxpayer with a very large carryforward and a Dubai package well above the cap may, for a period, have more reason to stay on the credit.

UK-source income after you leave

UK rental property

A London flat kept and let after the move remains taxable in the UK. Under the Non-Resident Landlord Scheme, the letting agent or tenant deducts basic rate tax from the rent unless HMRC has approved gross payment. A UK Self Assessment return is still required every year. On the US side, the rent is foreign-source passive category income reported on Schedule E, with US depreciation over 30 years for foreign residential property under the alternative depreciation system. UK tax on UK rent is creditable in the passive category. It creates new credits in that category but does nothing for the stranded general category balance. A later sale brings the UK non-resident capital gains regime and US capital gains reporting on the same disposal, and the two calculations rarely match line by line.

UK dividends, interest, ISAs and funds

For a non-resident, UK tax on most savings and dividend income is generally limited to any tax deducted at source. In practice, that often means no further UK tax on UK dividends. The US taxes the same income in full. ISAs have no special status in US law. Income and gains inside them are reportable each year, and UK collective funds held directly or within an ISA are generally passive foreign investment companies requiring Form 8621. None of this changes because the holder moved to Dubai, but the absence of UK tax to credit makes the US tax on it visible for the first time.

The temporary non-residence rule

If you have been UK resident in at least four of the seven tax years before departure and return to the UK within five years, certain gains and income realised while abroad can be taxed in the UK in the year of return. This covers gains on assets held before leaving and some distributions from closely held companies. A Dubai posting that ends with a return to London inside the window therefore needs the exit-year records kept in good order. Our guide to the UK temporary non-residence rule explains the five-year clock.

The first full year in Dubai: what the return looks like

By the first full calendar year in Dubai, the US return usually has a settled shape.

• Form 2555 with the bona fide residence test (the full-year condition is now met) or the physical presence test, the full-year exclusion, and the housing exclusion calculated against the Dubai limit.
• Form 1116 for passive category income bearing UK tax, such as rent, and to carry forward and track the general category carryover.
• Schedule E for any UK property, and Form 8621 for PFIC holdings.
• FBAR (FinCEN Form 114) for UAE and UK accounts where the combined maximum balances exceed $10,000 at any point in the year, filed electronically, with an automatic extension to 15 October.
• Form 8938 where specified foreign financial assets exceed the thresholds for taxpayers living abroad: $200,000 at year end or $300,000 at any time for single filers, doubled for joint filers.
• Where equity or an interest in a non-US company is held, the information returns for foreign companies, such as Form 5471, which carry separate penalties if missed.

Some points specific to Dubai need care on the return:

• End-of-service gratuity. The statutory gratuity is compensation for services. The portion earned in qualifying periods is generally foreign earned income, but it has to be tracked across years because it is paid on departure.
• Self-employment and partnerships. With no US-UAE totalization agreement, a self-employed American in Dubai owes US self-employment tax even where the exclusion removes the income tax.
• Net investment income tax. The exclusion does not reduce the 3.8% tax on investment income for taxpayers above the thresholds, and the absence of foreign tax means this is often payable in full.
• Former US state. A client who kept a home, driver's licence or voter registration in a US state such as New York or California may still be treated as domiciled there. State tax does not follow the federal exclusion, so ties should be reviewed before the first Dubai return.

If earlier London returns were never filed or were incomplete

A move to Dubai is often the moment when gaps in the London years come to light: UK pension contributions never reported, ISAs left off, FBARs missed, or the US return not filed at all because the UK tax "covered it". For taxpayers whose failures were non-wilful, the IRS Streamlined Foreign Offshore Procedures remain the standard route. They require three years of amended or delinquent returns, six years of FBARs and a non-wilfulness statement, with no miscellaneous offshore penalty for those who meet the non-residency requirement. Dubai residence does not affect eligibility, and the London years usually qualify on the same basis. Our IRS streamlined filing team prepares these submissions, and our FBAR penalty calculator gives a first view of exposure. Clean prior years matter here because the Form 1116 carryforward schedule and any past Form 2555 revocation both depend on them.

A move-year preparation checklist

• Confirm the exact date of departure from the UK and the first working day in Dubai, and reconcile every travel day for both the SRT and the 330-day count.
• Identify the split-year case and gather evidence of full-time overseas work or disposal of the UK home.
• Obtain the P60 or P45, payslips, and award statements showing vesting dates and UK tax withheld on deferred compensation.
• Rebuild the Form 1116 carryover schedule by category for the previous ten years.
• Review prior returns for any Form 2555 election or revocation.
• Model the move year with the exclusion and with the credit only, before any election is made.
• Collect UAE housing costs (tenancy contract, utilities, insurance) for the housing exclusion.
• List every UK and UAE account and investment for the FBAR, Form 8938 and PFIC reporting.
• For any UK property retained, confirm the NRL approval status and gather UK rental accounts.

For the broader context of dual filing, see our US-UK tax accountants page, and our UK tax services for the HMRC side of the exit return.

Speak to a specialist before you file the move-year return

The London-to-Dubai year is where elections are made that shape the next decade of US returns: whether to claim the exclusion, when to claim it, and what happens to credits that took years to build up. Getting it right means preparing the UK and US returns together, with one set of dates, one apportionment of compensation and one view of the carryforwards. If you are planning a move, have already moved, or have found gaps in your London filings, contact our cross-border team for a confidential consultation on your move-year and first-year returns.