Tax Glossary

Tax terminology can be challenging, and interfacing with multiple tax jurisdictions only increases the number of terms that taxpayers must keep track of. As such, we have created this Tax Glossary to help ease these challenges.

The first section of the Glossary outlines tax terminology relevant for both US and UK tax filings (as well as many other jurisdictions). The second section is specific to the United States, while the third section outlines tax terminology specific to the United Kingdom. We hope that it clearly defines any new terminology that you may encounter while working with our team or reviewing relevant documentation.

You can contact us here if you would like our assistance preparing any returns or assisting with your tax planning/compliance.

US/UK Tax Glossary

Term Description

Assets in-specie Refers to assets that are transferred or distributed in their actual, current form, rather than being sold and converted into cash

Bonus Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.

Capital Gains The profit earned on the sale of an asset that has increased in value over the holding period. It’s calculated from the gain made, typically being the increase in value of the sale price compared to the purchase price, for an asset held for more than one year.

Cryptocurrency/Digital Assets Cryptocurrency and digital assets include assets such as Bitcoin, Ethereum, NFTs, and other blockchain-based tokens. For U.S. and UK tax purposes, transactions involving digital assets (buying, selling, exchanging, or receiving) can give rise to income tax or capital gains tax reporting obligations.

Defined benefit A defined benefit plan is a type of employer-sponsored pension plan that promises employees a fixed, pre-determined retirement benefit (usually based on salary history and length of service). Unlike defined contribution plans (e.g., 401(k)s), the investment risk rests with the employer, not the employee.

Dividend A dividend is a payment a company can make to shareholders if it has made a profit.

Double Tax Double taxation occurs when the same income or gain is taxed by two different jurisdictions. This is typically mitigated through tax treaties, foreign tax credits, or exemptions. US/UK tax preparers focus on preventing double taxation where possible.

Earned income This is wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings.

Investment income Includes taxable and tax-exempt interest, dividends, capital gains, net income, certain rent and royalty income, and net passive activity income.

Realized Gains Realized gains are profits arising from the sale or disposal of an asset. Tax is generally triggered at the point the asset is sold or otherwise disposed of.

Redundancy/Severance payment A redundancy or severance payment is compensation paid when employment ends. In the UK, certain amounts may be tax free, while in the U.S. severance is generally fully taxable and reported as employment income.

Restricted Stock Unit (RSU) A Restricted Stock Unit (RSU) is a promise from an employer to grant an employee company shares at a future date, contingent on meeting certain conditions like length of service. Unlike stock options (please see explanation of Stock Options below), there is no purchase price. When RSUs vest, their market value at that time is treated as income, subject to income taxes at your marginal rate.

Salary Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period worked, such as weekly or monthly.

Stock Options Stock options give an employee the right to purchase company shares at a fixed price after certain conditions are met. Taxation depends on the type of option and the timing of grant, vesting, and exercise.

Tax bracket A tax bracket is a range of income within which taxpayer/s are subject to a specific tax rate.

Tax deduction An amount (often a business expense) that reduces income subject to tax. Most personal expenses are not allowable as a tax deduction.

Tax liability The amount of tax that must be paid. Many taxpayers pay their federal income tax liability through withholding (PAYE in the UK), estimated tax payments, and payments made with the tax forms they file with the government.

Taxable income Taxable income is AGI (please see definition of AGI above) minus deductions. A taxpayer may take the standard deduction or itemize their deductions, but not both.

Unearned income Unearned income is any income that is not derived from work or active participation in a trade, business, or job. In other words, it’s income not earned through labour. This generally means investment income and pension distributions.

Unrealized gains/losses Unrealized gains/losses are the potential profit/loss from an investment that has increased/decreased in value but has not yet been sold.

Term	Description
Assets in-specie	Refers to assets that are transferred or distributed in their actual, current form, rather than being sold and converted into cash
Bonus	Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.
Capital Gains	The profit earned on the sale of an asset that has increased in value over the holding period. It’s calculated from the gain made, typically being the increase in value of the sale price compared to the purchase price, for an asset held for more than one year.
Cryptocurrency/Digital Assets	Cryptocurrency and digital assets include assets such as Bitcoin, Ethereum, NFTs, and other blockchain-based tokens. For U.S. and UK tax purposes, transactions involving digital assets (buying, selling, exchanging, or receiving) can give rise to income tax or capital gains tax reporting obligations.
Defined benefit	A defined benefit plan is a type of employer-sponsored pension plan that promises employees a fixed, pre-determined retirement benefit (usually based on salary history and length of service). Unlike defined contribution plans (e.g., 401(k)s), the investment risk rests with the employer, not the employee.
Dividend	A dividend is a payment a company can make to shareholders if it has made a profit.
Double Tax	Double taxation occurs when the same income or gain is taxed by two different jurisdictions. This is typically mitigated through tax treaties, foreign tax credits, or exemptions. US/UK tax preparers focus on preventing double taxation where possible.
Earned income	This is wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings.
Investment income	Includes taxable and tax-exempt interest, dividends, capital gains, net income, certain rent and royalty income, and net passive activity income.
Realized Gains	Realized gains are profits arising from the sale or disposal of an asset. Tax is generally triggered at the point the asset is sold or otherwise disposed of.
Redundancy/Severance payment	A redundancy or severance payment is compensation paid when employment ends. In the UK, certain amounts may be tax free, while in the U.S. severance is generally fully taxable and reported as employment income.
Restricted Stock Unit (RSU)	A Restricted Stock Unit (RSU) is a promise from an employer to grant an employee company shares at a future date, contingent on meeting certain conditions like length of service. Unlike stock options (please see explanation of Stock Options below), there is no purchase price. When RSUs vest, their market value at that time is treated as income, subject to income taxes at your marginal rate.
Salary	Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period worked, such as weekly or monthly.
Stock Options	Stock options give an employee the right to purchase company shares at a fixed price after certain conditions are met. Taxation depends on the type of option and the timing of grant, vesting, and exercise.
Tax bracket	A tax bracket is a range of income within which taxpayer/s are subject to a specific tax rate.
Tax deduction	An amount (often a business expense) that reduces income subject to tax. Most personal expenses are not allowable as a tax deduction.
Tax liability	The amount of tax that must be paid. Many taxpayers pay their federal income tax liability through withholding (PAYE in the UK), estimated tax payments, and payments made with the tax forms they file with the government.
Taxable income	Taxable income is AGI (please see definition of AGI above) minus deductions. A taxpayer may take the standard deduction or itemize their deductions, but not both.
Unearned income	Unearned income is any income that is not derived from work or active participation in a trade, business, or job. In other words, it’s income not earned through labour. This generally means investment income and pension distributions.
Unrealized gains/losses	Unrealized gains/losses are the potential profit/loss from an investment that has increased/decreased in value but has not yet been sold.

US Tax Glossary

Term Description

Adjusted Gross Income (AGI) Adjusted gross income (AGI) is a taxpayer’s gross income reduced by certain amounts, such as a deductible IRA contribution (see definition of IRA below) or student loan interest

Alternative Minimum Tax (AMT) Alternative Minimum Tax (AMT) is a type of tax to ensure “high earning” taxpayers pay a minimum level of tax. It is normally present when taxpayers have a large amount of qualified dividends, long term capital gains or certain stock options.

Bona fide residence test This is a test to qualify for the Foreign Earned Income Exclusion (FEIE). To qualify as a bona fide resident, you must be a tax resident of a foreign country for the entire US tax year (normally the calendar year).

Carryback return A carryback return refers to the application of certain tax losses or credits from the current tax year to the prior tax year in order to receive a tax refund. For most US expats the common carryback return relates to foreign tax credits (see definition of foreign tax credits below).

Controlled Foreign Corporation (CFC) A Controlled Foreign Corporation (CFC) is a non-U.S. corporation in which U.S. shareholders (each owning at least 10% of the voting power or value) collectively own more than 50% of the company. These corporations are subject to additional reporting requirements and taxation.

Covered Expatriate A Covered Expatriate is a U.S. citizen or long-term resident who gives up U.S. citizenship or Green Card status and meets certain income, tax liability, or net worth thresholds, triggering the U.S. exit tax regime.

Dependent A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. To be claimed as a dependent, a Social Security Number is required.

E-filing Refers to the transmission of tax return information to the IRS electronically. This is possible for the majority of our clients.

FATCA Foreign Account Tax Compliance Act: This law requires reporting from non-US financial institutions and requires taxpayers who exceed certain thresholds to report all non-US financial accounts and assets on Form 8938.

FBAR Foreign Bank Account Report: This is an annual report separate to the Form 1040 US tax return. The FBAR is a form that reports all of a US taxpayer’s non-US financial accounts to the US treasury. US persons are required to file this form if their accounts cumulatively exceeded $10,000 at any point in the year.

Filing Status - Head of Household This is a U.S. filing status for unmarried (or deemed unmarried) taxpayers who pay more than half the cost of maintaining a household for a qualifying child or dependent. They generally receive preferential tax rates to the Single filing status and Married Filing Separately filing status

Filing Status - Married Filing Jointly This is a U.S. filing status for married U.S. persons. The couple’s combined income is reported and they generally receive preferential tax rates to filing separately.

Filing Status - Married Filing Separately This is a U.S. filing status for married persons. This is normally the filing status if one of the couple is not a U.S. person or if they choose to file separate returns. Filing separately generally receive less preferential tax rates to filing jointly.

Filing Status - Single This is a US filing status for taxpayer who is not married on the final day of the tax year. This includes those in Civil Partnerships.

Foreign Disregarded Entity (FDE) A Foreign Disregarded Entity is a non-US business entity (like a UK limited company) that's income and expenses are treated as owned directly by the taxpayer and reported on the individual’s annual tax return. This treatment is not the default treatment and can be made via an irrevocable election.

Foreign Earned Income Exclusion (FEIE) Foreign Earned Income Exclusion is an exclusion that can be used to partially or fully offset foreign earned income (see definition of earned income above). This exclusion can be beneficial for taxpayers who do not have sufficient foreign tax credits (see definition of foreign tax credits below)

Foreign Housing Exclusion or Deduction The foreign housing exclusion helps reduce your tax liability by allowing you to exclude certain housing costs from your total foreign earned income. The rules are very specific and in general is not beneficial for most US taxpayers abroad.

Foreign tax credit (FTCs) Foreign tax credits are non-refundable tax credits that you receive for foreign tax paid/due. These credits can offset US tax arising on certain “types” (referred to as baskets) of income which the US does not have the primary taxing rights on. FTCs are used to prevent double taxation.

Foreign Tax Credit basket - General limitation General Limitation is a basket of foreign income (please see explanation in foreign tax credit definition above). It is the normal category for earned income, pension income and income that has been subject to High Tax Kick Out (please see definition of High Tax Kick Out below).

Foreign Tax Credit basket - Passive income This is non-US income that was not actively earned (i.e. not compensation). There are different rules to determine what is viewed as passive income and what losses can be applied to them. In general most investment income is Passive income.

Foreign tax credit - Accrued basis By default foreign tax credits (FTCs) are claimed on the paid basis (see definition below). Taxpayers can elect to claim FTCs on the accrued basis which effectively means claim credits for the tax due for the foreign tax year that ends in the US tax year (i.e. 5 Apr 2025 UK tax year for the TY 2025 US tax year). This is irrevocable and can cause a shortfall of credits if a taxpayer’s situation changes.

Foreign tax credit - Paid basis By default foreign tax credits (FTCs) are claimed on the paid basis (i.e. credits can only be claimed if paid in the US tax year). This treatment allows taxpayers to proactively manage their credit situation by pre-paying UK tax in order to claim sufficient tax credits to prevent double taxation. Please see our article on this here

Form 1040 Form 1040 is the main U.S. individual income tax return used to report worldwide income, claim deductions and credits, and calculate U.S. federal income tax liability. This form is used by US citizens, US residents and green card holders.

Form 1040NR Form 1040NR is the US individual income tax return for Non-resident aliens (see definition of Non-resident Aliens below). Generally, just US sourced income is reported on this form.

Form 1099 Form 1099 is used to report certain types of non-employment income to the IRS such as dividends from a stock or pay you received as an independent contractor.

Form 5471 Form 5471 is an annual information return that US taxpayers need to prepare if they have significant ownership in a non-US company (i.e. UK Limited Company). Normal situations include: incorporating or dissolving a company or if the company is a CFC (please see definition of a CFC above)

Global Intangible Taxed Income (GILTI) Global Intangible Low-Taxed Income (GILTI) is a U.S. tax concept introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. It is an annual tax on the net profits of Controlled Foreign Corporations (Please see definition of Controlled Foreign Corporations above) in low-tax jurisdictions.

High Tax Kick Out (HTKO) HTKO is a U.S. foreign tax credit rule under which certain Passive income that has foreign tax paid above the highest US tax rate is reclassified into the General Limitation basket. (See definitions of Passive and General Limitation above). This includes the reclassification of any excess foreign tax credits.

Identity Protection PIN (IP PIN) An Identity Protection PIN (IP PIN) is a six-digit number issued by the IRS to help prevent tax related identity theft. It must be entered on a U.S. tax return to verify the taxpayer’s identity. Details about it can be found here

Individual Retirement Account (IRA) IRAs are effectively a specific type of US pensions. There are different types of IRAs that allow different types of tax treatment.

IRS (Internal Revenue Service) The US federal agency that collects income taxes at the federal level for the US.

Itemized Deduction Itemized deductions are specific deductible expenses a U.S. taxpayer may claim instead of the standard deduction, such as mortgage interest, state and local taxes (subject to limits), and charitable contributions.

Long term resident A long-term resident is an individual who has held a U.S. Green Card for at least 8 of the last 15 tax years. Long-term residents may be subject to U.S. exit tax rules if they surrender their green card.

Majority support Majority support generally refers to which parent provides more than half (over 50%) of the child’s total financial support during the relevant tax year. This is a test as to whether a child qualifies as a “Qualifying Child” and as a “Dependent”.

Net Investment Income Tax (NIIT) The Net Investment Income Tax (NIIT) is a U.S. tax applied to certain investment income (including interest, dividends, and capital gains) when income exceeds specified thresholds.

Non-resident alien (NRA) You're considered a non-resident alien for any period that you're neither a U.S. citizen nor a resident alien (i.e. green card holder or physical resident) for tax purposes.

Passive Foreign Investment Company (PFIC) Passive Foreign Investment Company are non-US funds that are subject to punitive taxation on certain income and gains. In practice this is almost any ETF or fund that is not domiciled in the US. For a more detailed explanation our article on PFICs should be viewed.

Physical Presence Test (PPT) This is a test to qualify for the Foreign Earned Income Exclusion (FEIE). To qualify through the PPT, you must be physically present in a foreign country or countries for at least 330 full days during a consecutive 12 months. The 330 days spent abroad do not need to be consecutive nor do they all need to be in the US tax year.

Renunciation Renunciation refers to the formal process of giving up U.S. citizenship. This can trigger U.S. exit tax rules depending on the individual’s financial circumstances. It is important that anyone thinking about renunciation is fully aware of the relevant steps and risks. Please see our article relating to this

Resident alien You're considered a resident alien for a calendar year if you are a non-US citizen and meet the Green Card Test or the Substantial Presence Test for the year.

Section 121 exclusion Section 121 exclusion is the US tax rule that allows individuals to exclude up to $250,000 ($500,000 for married filing jointly) of capital gains from the sale of their main home, subject to ownership and use tests.

Streamlined Foreign Offshore Procedures (SFOP) The Streamlined Foreign Offshore Procedure is a program explicitly designed for taxpayers residing outside the US who are not compliant with their US tax filing obligations.

Social Security Number A Social Security Number is a U.S. taxpayer identification number issued to U.S. citizens and eligible residents. It is required for employment and U.S. tax filing.

Social Security Tax The US tax equivalent to National Insurance Contributions (NICs). Generally not due for US taxpayers abroad depending on the US totalization agreement with the country of residence.

Standard deduction Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency. US equivalent to the Personal Allowance.

Subpart F Subpart F income refers to certain types of income earned by a Controlled Foreign Corporation (CFC) that must be included in the U.S. shareholder’s taxable income, even if that income has not been distributed as a dividend.

Substantial Presence Test (SPT) The Substantial Presence Test is the test to determine if an individual is a resident for tax purposes. It is also used for US persons to determine taxing rights for tax treaty positions.

Tax credit A reduction in the tax. Can be deducted directly from taxes owed. The most commonly mentioned tax credit for US expats is foreign tax credits (please see explanation of foreign tax credits above).

US Permanent Resident A US permanent resident, also known as a Green Card holder, is a foreign national authorized to live and work permanently in the United States. They are subject to US tax on their worldwide income.

W-2 Officially called the ‘Wage and Tax Statement,’ the W-2 form is an IRS tax form used in the US to report wages paid to employees and the taxes withheld from them. This is the US equivalent of the UK Form P60

Term	Description
Adjusted Gross Income (AGI)	Adjusted gross income (AGI) is a taxpayer’s gross income reduced by certain amounts, such as a deductible IRA contribution (see definition of IRA below) or student loan interest
Alternative Minimum Tax (AMT)	Alternative Minimum Tax (AMT) is a type of tax to ensure “high earning” taxpayers pay a minimum level of tax. It is normally present when taxpayers have a large amount of qualified dividends, long term capital gains or certain stock options.
Bona fide residence test	This is a test to qualify for the Foreign Earned Income Exclusion (FEIE). To qualify as a bona fide resident, you must be a tax resident of a foreign country for the entire US tax year (normally the calendar year).
Carryback return	A carryback return refers to the application of certain tax losses or credits from the current tax year to the prior tax year in order to receive a tax refund. For most US expats the common carryback return relates to foreign tax credits (see definition of foreign tax credits below).
Controlled Foreign Corporation (CFC)	A Controlled Foreign Corporation (CFC) is a non-U.S. corporation in which U.S. shareholders (each owning at least 10% of the voting power or value) collectively own more than 50% of the company. These corporations are subject to additional reporting requirements and taxation.
Covered Expatriate	A Covered Expatriate is a U.S. citizen or long-term resident who gives up U.S. citizenship or Green Card status and meets certain income, tax liability, or net worth thresholds, triggering the U.S. exit tax regime.
Dependent	A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. To be claimed as a dependent, a Social Security Number is required.
E-filing	Refers to the transmission of tax return information to the IRS electronically. This is possible for the majority of our clients.
FATCA	Foreign Account Tax Compliance Act: This law requires reporting from non-US financial institutions and requires taxpayers who exceed certain thresholds to report all non-US financial accounts and assets on Form 8938.
FBAR	Foreign Bank Account Report: This is an annual report separate to the Form 1040 US tax return. The FBAR is a form that reports all of a US taxpayer’s non-US financial accounts to the US treasury. US persons are required to file this form if their accounts cumulatively exceeded $10,000 at any point in the year.
Filing Status - Head of Household	This is a U.S. filing status for unmarried (or deemed unmarried) taxpayers who pay more than half the cost of maintaining a household for a qualifying child or dependent. They generally receive preferential tax rates to the Single filing status and Married Filing Separately filing status
Filing Status - Married Filing Jointly	This is a U.S. filing status for married U.S. persons. The couple’s combined income is reported and they generally receive preferential tax rates to filing separately.
Filing Status - Married Filing Separately	This is a U.S. filing status for married persons. This is normally the filing status if one of the couple is not a U.S. person or if they choose to file separate returns. Filing separately generally receive less preferential tax rates to filing jointly.
Filing Status - Single	This is a US filing status for taxpayer who is not married on the final day of the tax year. This includes those in Civil Partnerships.
Foreign Disregarded Entity (FDE)	A Foreign Disregarded Entity is a non-US business entity (like a UK limited company) that's income and expenses are treated as owned directly by the taxpayer and reported on the individual’s annual tax return. This treatment is not the default treatment and can be made via an irrevocable election.
Foreign Earned Income Exclusion (FEIE)	Foreign Earned Income Exclusion is an exclusion that can be used to partially or fully offset foreign earned income (see definition of earned income above). This exclusion can be beneficial for taxpayers who do not have sufficient foreign tax credits (see definition of foreign tax credits below)
Foreign Housing Exclusion or Deduction	The foreign housing exclusion helps reduce your tax liability by allowing you to exclude certain housing costs from your total foreign earned income. The rules are very specific and in general is not beneficial for most US taxpayers abroad.
Foreign tax credit (FTCs)	Foreign tax credits are non-refundable tax credits that you receive for foreign tax paid/due. These credits can offset US tax arising on certain “types” (referred to as baskets) of income which the US does not have the primary taxing rights on. FTCs are used to prevent double taxation.
Foreign Tax Credit basket - General limitation	General Limitation is a basket of foreign income (please see explanation in foreign tax credit definition above). It is the normal category for earned income, pension income and income that has been subject to High Tax Kick Out (please see definition of High Tax Kick Out below).
Foreign Tax Credit basket - Passive income	This is non-US income that was not actively earned (i.e. not compensation). There are different rules to determine what is viewed as passive income and what losses can be applied to them. In general most investment income is Passive income.
Foreign tax credit - Accrued basis	By default foreign tax credits (FTCs) are claimed on the paid basis (see definition below). Taxpayers can elect to claim FTCs on the accrued basis which effectively means claim credits for the tax due for the foreign tax year that ends in the US tax year (i.e. 5 Apr 2025 UK tax year for the TY 2025 US tax year). This is irrevocable and can cause a shortfall of credits if a taxpayer’s situation changes.
Foreign tax credit - Paid basis	By default foreign tax credits (FTCs) are claimed on the paid basis (i.e. credits can only be claimed if paid in the US tax year). This treatment allows taxpayers to proactively manage their credit situation by pre-paying UK tax in order to claim sufficient tax credits to prevent double taxation. Please see our article on this here
Form 1040	Form 1040 is the main U.S. individual income tax return used to report worldwide income, claim deductions and credits, and calculate U.S. federal income tax liability. This form is used by US citizens, US residents and green card holders.
Form 1040NR	Form 1040NR is the US individual income tax return for Non-resident aliens (see definition of Non-resident Aliens below). Generally, just US sourced income is reported on this form.
Form 1099	Form 1099 is used to report certain types of non-employment income to the IRS such as dividends from a stock or pay you received as an independent contractor.
Form 5471	Form 5471 is an annual information return that US taxpayers need to prepare if they have significant ownership in a non-US company (i.e. UK Limited Company). Normal situations include: incorporating or dissolving a company or if the company is a CFC (please see definition of a CFC above)
Global Intangible Taxed Income (GILTI)	Global Intangible Low-Taxed Income (GILTI) is a U.S. tax concept introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. It is an annual tax on the net profits of Controlled Foreign Corporations (Please see definition of Controlled Foreign Corporations above) in low-tax jurisdictions.
High Tax Kick Out (HTKO)	HTKO is a U.S. foreign tax credit rule under which certain Passive income that has foreign tax paid above the highest US tax rate is reclassified into the General Limitation basket. (See definitions of Passive and General Limitation above). This includes the reclassification of any excess foreign tax credits.
Identity Protection PIN (IP PIN)	An Identity Protection PIN (IP PIN) is a six-digit number issued by the IRS to help prevent tax related identity theft. It must be entered on a U.S. tax return to verify the taxpayer’s identity. Details about it can be found here
Individual Retirement Account (IRA)	IRAs are effectively a specific type of US pensions. There are different types of IRAs that allow different types of tax treatment.
IRS (Internal Revenue Service)	The US federal agency that collects income taxes at the federal level for the US.
Itemized Deduction	Itemized deductions are specific deductible expenses a U.S. taxpayer may claim instead of the standard deduction, such as mortgage interest, state and local taxes (subject to limits), and charitable contributions.
Long term resident	A long-term resident is an individual who has held a U.S. Green Card for at least 8 of the last 15 tax years. Long-term residents may be subject to U.S. exit tax rules if they surrender their green card.
Majority support	Majority support generally refers to which parent provides more than half (over 50%) of the child’s total financial support during the relevant tax year. This is a test as to whether a child qualifies as a “Qualifying Child” and as a “Dependent”.
Net Investment Income Tax (NIIT)	The Net Investment Income Tax (NIIT) is a U.S. tax applied to certain investment income (including interest, dividends, and capital gains) when income exceeds specified thresholds.
Non-resident alien (NRA)	You're considered a non-resident alien for any period that you're neither a U.S. citizen nor a resident alien (i.e. green card holder or physical resident) for tax purposes.
Passive Foreign Investment Company (PFIC)	Passive Foreign Investment Company are non-US funds that are subject to punitive taxation on certain income and gains. In practice this is almost any ETF or fund that is not domiciled in the US. For a more detailed explanation our article on PFICs should be viewed.
Physical Presence Test (PPT)	This is a test to qualify for the Foreign Earned Income Exclusion (FEIE). To qualify through the PPT, you must be physically present in a foreign country or countries for at least 330 full days during a consecutive 12 months. The 330 days spent abroad do not need to be consecutive nor do they all need to be in the US tax year.
Renunciation	Renunciation refers to the formal process of giving up U.S. citizenship. This can trigger U.S. exit tax rules depending on the individual’s financial circumstances. It is important that anyone thinking about renunciation is fully aware of the relevant steps and risks. Please see our article relating to this
Resident alien	You're considered a resident alien for a calendar year if you are a non-US citizen and meet the Green Card Test or the Substantial Presence Test for the year.
Section 121 exclusion	Section 121 exclusion is the US tax rule that allows individuals to exclude up to $250,000 ($500,000 for married filing jointly) of capital gains from the sale of their main home, subject to ownership and use tests.
Streamlined Foreign Offshore Procedures (SFOP)	The Streamlined Foreign Offshore Procedure is a program explicitly designed for taxpayers residing outside the US who are not compliant with their US tax filing obligations.
Social Security Number	A Social Security Number is a U.S. taxpayer identification number issued to U.S. citizens and eligible residents. It is required for employment and U.S. tax filing.
Social Security Tax	The US tax equivalent to National Insurance Contributions (NICs). Generally not due for US taxpayers abroad depending on the US totalization agreement with the country of residence.
Standard deduction	Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency. US equivalent to the Personal Allowance.
Subpart F	Subpart F income refers to certain types of income earned by a Controlled Foreign Corporation (CFC) that must be included in the U.S. shareholder’s taxable income, even if that income has not been distributed as a dividend.
Substantial Presence Test (SPT)	The Substantial Presence Test is the test to determine if an individual is a resident for tax purposes. It is also used for US persons to determine taxing rights for tax treaty positions.
Tax credit	A reduction in the tax. Can be deducted directly from taxes owed. The most commonly mentioned tax credit for US expats is foreign tax credits (please see explanation of foreign tax credits above).
US Permanent Resident	A US permanent resident, also known as a Green Card holder, is a foreign national authorized to live and work permanently in the United States. They are subject to US tax on their worldwide income.
W-2	Officially called the ‘Wage and Tax Statement,’ the W-2 form is an IRS tax form used in the US to report wages paid to employees and the taxes withheld from them. This is the US equivalent of the UK Form P60

UK Tax Glossary

Term Description

Arising basis An individual who is resident and domiciled (or deemed domiciled) in the UK will be automatically taxed on the arising basis. This means they will pay UK tax on their worldwide income and gains regardless of whether they bring the income or gains to the UK. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here

Domiciled Domicile, for UK tax purposes, is a general legal concept that is distinct from nationality, citizenship or residence. While the determining factors can be complex, your domicile is generally considered to be the country where you consider your "roots" to be, or where you intend to live out your dying days. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here

Foreign Income & Gains Regime (FIG) The Foreign Income & Gains Regime (FIG) is the new UK tax regime replacing the remittance basis from 6 April 2025. It allows qualifying individuals to exclude foreign income and gains from UK taxation for a limited period, subject to specific conditions. You can read about this in our article here.

Gift Aid contributions When UK taxpayers make charitable donations they can apply Gift Aid (as long as they qualify). The charity claims basic rate tax relief from HMRC, and higher or additional rate taxpayers can claim further relief through their UK tax return.

HMRC (His Majesty’s Revenue and Customs) HMRC is the UK government department responsible for collecting taxes and enforcing tax compliance.

Marriage Allowance Marriage Allowance allows a UK taxpayer with income below the Personal Allowance to transfer a portion of their unused allowance to their spouse or civil partner, reducing the recipient’s taxable income. It is only allowable if the partner’s income is taxed at the basic rate (up to £50,270)

Married Couples Allowance Married Couples Allowance is a UK tax relief available where one spouse or civil partner was born before 6 April 1935. It reduces the tax liability rather than taxable income.

National Insurance Contributions (NICs) National Insurance Contributions are UK taxes paid by employees, employers, and self-employed individuals on compensation income. It is the UK equivalent of Social Security taxes.

Non-domiciled A person residing in the United Kingdom who is considered under British law to be domiciled (i.e., their “true home”) in another country. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here

Non-reporting funds This is a UK tax concept. A non-reporting fund is an offshore investment fund that has not been granted “reporting fund” status by HMRC. This means the fund does not provide HMRC with annual reports of income attributable to UK investors. Gains from this are called Offshore Income Gains and taxed punitively at income rates.

Offshore funds An offshore fund is a collective investment scheme based outside the UK, such as a mutual fund or exchange-traded fund (ETF), that is domiciled in another country. For UK tax purposes, offshore funds are categorised as either reporting funds (which meet HMRC reporting requirements, allowing gains to be taxed as capital gains) or non-reporting funds (where gains are taxed as income).

Offshore Income Gains (OIGs) An Offshore Income Gain arises when an investor disposes of an interest in a non-reporting fund (please see explanation of a non-reporting fund above). Instead of being taxed as a capital gain, any profit from the disposal is treated as income and taxed at income tax rates, which are usually higher than capital gains tax rates.

Overseas Workday Relief (OWDR) Overseas Workday Relief (OWDR) allows non-UK domiciled individuals (subject to transitional rules from April 2025) to exclude earnings relating to duties performed outside the UK from UK tax for a limited period, provided certain conditions are met.

P11D Your employer might submit a P11D to tell HMRC if you receive ‘benefits in kind’ (for example, a company car or interest-free loan) and the tax is not withheld on your payslips. This income needs to be reported on your UK tax return and potentially your US tax return.

P45 You receive a P45 from your employer when you cease working for them. Your P45 shows how much income you were paid and how much tax was withheld during the tax year.

P60 Your P60 shows how much income you were paid and how much tax was withheld by your employer during the tax year. This form is for those that continue to be employed on the final day of the tax year

Personal Allowance The Personal Allowance is the amount of income an individual can earn in the UK before paying income tax. It may be reduced or withdrawn for higher earners.

Payments on Account Semi-annual UK tax pre-payments for the next tax year. These payments are the UK equivalent of the US quarterly estimated tax payments.

Relief at source Relief at source is a method of giving tax relief on pension contributions. Under this system, an individual pays pension contributions net of basic rate tax, and the pension provider then claims back the basic rate of Income Tax from HMRC on the individual’s behalf. If the individual is a higher or additional rate taxpayer, they can claim the extra relief through their annual UK tax return.

Remittance basis By filing on the remittance basis of taxation, you pay UK tax on UK-sourced income and gains, but only pay UK tax on foreign income and gains if they are brought into (remitted) to the UK in that tax year. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here

SA100 The SA100 is HMRC’s main Self-Assessment Income Tax return form. Taxpayers report their taxable income, claim eligible tax reliefs, and declare capital gains to the UK.

Self-Invested Personal Pension (SIPP) A SIPP is a type of UK pension that a taxpayer can set up themselves. There is differing opinions about the treatment of SIPPs for US tax purposes. It is recommended to speak to tax professionals before setting one up.

Statutory Residency Test (SRT) The Statutory Residence Test determines an individual’s UK tax residence status based on days spent in the UK and connections such as work, family, and accommodation.

Temporary Repatriation Facility (TRF) The Temporary Repatriation Facility (TRF) is a UK transitional relief allowing individuals to tax previously untaxed foreign income and gains to the UK at a reduced rate for a limited period following the April 2025 regime changes. You can read about these changes here.

Unique Taxpayer Reference (UTR) number A Unique Taxpayer Reference (UTR) number is a 10-digit number issued by HMRC to taxpayers registered for Self-Assessment.

Term	Description
Arising basis	An individual who is resident and domiciled (or deemed domiciled) in the UK will be automatically taxed on the arising basis. This means they will pay UK tax on their worldwide income and gains regardless of whether they bring the income or gains to the UK. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here
Domiciled	Domicile, for UK tax purposes, is a general legal concept that is distinct from nationality, citizenship or residence. While the determining factors can be complex, your domicile is generally considered to be the country where you consider your "roots" to be, or where you intend to live out your dying days. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here
Foreign Income & Gains Regime (FIG)	The Foreign Income & Gains Regime (FIG) is the new UK tax regime replacing the remittance basis from 6 April 2025. It allows qualifying individuals to exclude foreign income and gains from UK taxation for a limited period, subject to specific conditions. You can read about this in our article here.
Gift Aid contributions	When UK taxpayers make charitable donations they can apply Gift Aid (as long as they qualify). The charity claims basic rate tax relief from HMRC, and higher or additional rate taxpayers can claim further relief through their UK tax return.
HMRC (His Majesty’s Revenue and Customs)	HMRC is the UK government department responsible for collecting taxes and enforcing tax compliance.
Marriage Allowance	Marriage Allowance allows a UK taxpayer with income below the Personal Allowance to transfer a portion of their unused allowance to their spouse or civil partner, reducing the recipient’s taxable income. It is only allowable if the partner’s income is taxed at the basic rate (up to £50,270)
Married Couples Allowance	Married Couples Allowance is a UK tax relief available where one spouse or civil partner was born before 6 April 1935. It reduces the tax liability rather than taxable income.
National Insurance Contributions (NICs)	National Insurance Contributions are UK taxes paid by employees, employers, and self-employed individuals on compensation income. It is the UK equivalent of Social Security taxes.
Non-domiciled	A person residing in the United Kingdom who is considered under British law to be domiciled (i.e., their “true home”) in another country. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here
Non-reporting funds	This is a UK tax concept. A non-reporting fund is an offshore investment fund that has not been granted “reporting fund” status by HMRC. This means the fund does not provide HMRC with annual reports of income attributable to UK investors. Gains from this are called Offshore Income Gains and taxed punitively at income rates.
Offshore funds	An offshore fund is a collective investment scheme based outside the UK, such as a mutual fund or exchange-traded fund (ETF), that is domiciled in another country. For UK tax purposes, offshore funds are categorised as either reporting funds (which meet HMRC reporting requirements, allowing gains to be taxed as capital gains) or non-reporting funds (where gains are taxed as income).
Offshore Income Gains (OIGs)	An Offshore Income Gain arises when an investor disposes of an interest in a non-reporting fund (please see explanation of a non-reporting fund above). Instead of being taxed as a capital gain, any profit from the disposal is treated as income and taxed at income tax rates, which are usually higher than capital gains tax rates.
Overseas Workday Relief (OWDR)	Overseas Workday Relief (OWDR) allows non-UK domiciled individuals (subject to transitional rules from April 2025) to exclude earnings relating to duties performed outside the UK from UK tax for a limited period, provided certain conditions are met.
P11D	Your employer might submit a P11D to tell HMRC if you receive ‘benefits in kind’ (for example, a company car or interest-free loan) and the tax is not withheld on your payslips. This income needs to be reported on your UK tax return and potentially your US tax return.
P45	You receive a P45 from your employer when you cease working for them. Your P45 shows how much income you were paid and how much tax was withheld during the tax year.
P60	Your P60 shows how much income you were paid and how much tax was withheld by your employer during the tax year. This form is for those that continue to be employed on the final day of the tax year
Personal Allowance	The Personal Allowance is the amount of income an individual can earn in the UK before paying income tax. It may be reduced or withdrawn for higher earners.
Payments on Account	Semi-annual UK tax pre-payments for the next tax year. These payments are the UK equivalent of the US quarterly estimated tax payments.
Relief at source	Relief at source is a method of giving tax relief on pension contributions. Under this system, an individual pays pension contributions net of basic rate tax, and the pension provider then claims back the basic rate of Income Tax from HMRC on the individual’s behalf. If the individual is a higher or additional rate taxpayer, they can claim the extra relief through their annual UK tax return.
Remittance basis	By filing on the remittance basis of taxation, you pay UK tax on UK-sourced income and gains, but only pay UK tax on foreign income and gains if they are brought into (remitted) to the UK in that tax year. Please note the UK government made significant changes to this effective from 6th April 2025. You can read about this here
SA100	The SA100 is HMRC’s main Self-Assessment Income Tax return form. Taxpayers report their taxable income, claim eligible tax reliefs, and declare capital gains to the UK.
Self-Invested Personal Pension (SIPP)	A SIPP is a type of UK pension that a taxpayer can set up themselves. There is differing opinions about the treatment of SIPPs for US tax purposes. It is recommended to speak to tax professionals before setting one up.
Statutory Residency Test (SRT)	The Statutory Residence Test determines an individual’s UK tax residence status based on days spent in the UK and connections such as work, family, and accommodation.
Temporary Repatriation Facility (TRF)	The Temporary Repatriation Facility (TRF) is a UK transitional relief allowing individuals to tax previously untaxed foreign income and gains to the UK at a reduced rate for a limited period following the April 2025 regime changes. You can read about these changes here.
Unique Taxpayer Reference (UTR) number	A Unique Taxpayer Reference (UTR) number is a 10-digit number issued by HMRC to taxpayers registered for Self-Assessment.

Return To Info & FAQS

Tax info & FAQs

US/UK Tax Glossary

US Tax Glossary

UK Tax Glossary