US/UK Tax Treaty concerns

Does anyone have any recent experience applying for the US/UK tax treaty? (eg. in the last 2-3 years)
Could anyone give me a general run-down of how it works?

As far as I've been able to find, you only qualify for it after a year of residency in the UK and after that you don't have to pay taxes if you earn less than 6 figures. But do you really have to pay a double tax for the first year?

Also I've found something that said UK spouses of US citizens will have to pay US taxes as well, even if they are not US citizens, which is very concerning, does anyone know anything about that??

Generally, we'd just like to hear of personal experiences with US taxes and how other expats manage to deal with the double taxing, we'd greatly appreciate hearing your stories.

(ps. we will definitely contact a professional about this later on, but we'd like to get an idea of what we're dealing with and what to expect first)

So it's been two years plus some since we left, but here's what I remember (and you'll want to verify the accuracy):

Note that taxable income is generally from all sources world-wide, unless you're going the "remittance" route, which gets complicated. I'm sure someone else here will help you with that option.

In the USA a married couple can file individually or jointly. In the UK it's individually only.

If you are a non-USC spouse of said USC, you would pay tax to the IRS if you file a joint tax return - that is, you get the benefit of the tax break for being married filing jointly, where your income is pooled together.  If said non USA spouse is not IN the USA there's no reason for a non-US spouse to file a US tax return (unless they earned money in the USA - in which case married joint filing is usually a better break than married filing separately, I think?). It may be different if you are a Green-Card holder - not sure.

If you are a USC, you are taxed by the IRS no matter where you are, no matter for how long you are out of the USA - unless your only income is social security and you move to a country that has an agreement with the USA that states it's taxable only in that state (as is the case for the UK). You can use the tax treaty position to offset USA taxes with taxes paid to the UK on other earnings. 

I'm a bit fuzzy,  but I think you have to have lived in the UK for at least six months of the tax year (April to April) to be able to use the treaty on the HMRC side. Not quite sure, but I keep remembering something about six months. Might be on the IRS side... better check!

If you are employed in the UK, your employer will automatically withhold tax for HMRC.  If you are self-employed or of independent means or retired you will want to keep track your income carefully, and pay any anticipated tax that will potentially be owed to HMRC before the end of the calendar year. (Even though HMRC tax year-end is in April following.) That way you can take those payments off your IRS bill for the year in which they were made. You have to have made the payments in the IRS tax year to be able to deduct them in that IRS tax year - even if they're not due to HMRC until April.

The tax-free income allowance you get in the UK (similar to the IRS standard deduction) was, I think?, 12.5K-ish pounds - at least it was in Scotland. The other countries may be slightly different? If you don't have that much income, you pay no UK income tax. Over that amount and it depends on which country in the UK you're in, I believe. (It's a devolved power.)

If you are a USA citizen in the UK and are drawing both a private pension and social security, both are taxable only in the UK. You would report your pension to the IRS, but then claim the tax treaty for credit for the UK taxes you'll pay on it. Same caveat about paying before the end of the calendar year applies. You would reference the treaty regarding SS being non-taxable income on your 1040. (And report the SS to HMRC.)

If it's a public pension, you'd be taxed on it only in the USA, but your SS would be taxed only in the UK. You would reference the treaty regarding SS being non-taxable income on your 1040 and reference the tax treaty regarding public pensions on your HMRC tax forms. Depending on the size of payments for each, you could come out well ahead of having to pay tax on all of it in one place vs the other.

When it comes down to it, if you pay attention to how it works, there are no "double taxes". You pay one government (the UK if you're in the UK) and claim those payments as credits against USA taxes. So you are only paying once. (The UK tax will probably be higher than USA tax, so don't celebrate too soon.)

Again there are others on this board much more knowledgeable than I am. I ran in circles quite a bit at first trying to understand it all.

Good luck!

Does anyone have any recent experience applying for the US/UK tax treaty? (eg. in the last 2-3 years)
Could anyone give me a general run-down of how it works?

As far as I've been able to find, you only qualify for it after a year of residency in the UK and after that you don't have to pay taxes if you earn less than 6 figures. But do you really have to pay a double tax for the first year?

Also I've found something that said UK spouses of US citizens will have to pay US taxes as well, even if they are not US citizens, which is very concerning, does anyone know anything about that??

Generally, we'd just like to hear of personal experiences with US taxes and how other expats manage to deal with the double taxing, we'd greatly appreciate hearing your stories.

(ps. we will definitely contact a professional about this later on, but we'd like to get an idea of what we're dealing with and what to expect first)

This is a deep, dark rabbit hole, but a few high-level points to help you get started

1. You don't have to "apply" for the tax treaty. It's something that's already been ratified by the two governments, it's the law in both countries.

2. A large part of the treaty establishes baseline standards for things each country must do. For example, it requires that the Foreign Tax Credit exist, so that taxes paid in one country can be credited against taxes in the other (very simple version - the FTC is a complicated beast).

3. For a typical US citizen living in the UK and earning a UK wage, you will have your UK taxes withheld from your paycheque (a system called Pay As You Earn, PAYE). That may be literally the only interaction you have with HMRC, unless you need to file a Self Assessment (the UK version of a tax return: https://www.gov.uk/check-if-you-need-tax-return)

4. You will also need to file a US tax return, but rarely do you need to actually pay any US taxes. You have two options,  which one is better will depend on your specific circumstances (and they may get you to the same result). They are:

a. The Foreign Tax Credit: all your foreign (UK) taxes are credited against your US taxes, on income in the same bucket (for example, "general" is mostly earned income, "passive" is interest, dividends, and capital gains, etc.). For the simple case of just earned income from a job, that means that all your UK taxes count against all your US taxes on earned income. Since UK tax rates are higher than US ones, you'll owe nothing, and you'll build up credits you can carry forward (but unless your situation changes, you'll never use).

b. The Foreign Earned Income Exclusion: You can exclude up to $108,700 (increases each year, indexed to inflation) of foreign earned income. It has to be foreign (UK in this case, but if you make any money in the US as well it doesn't count) and has to be earned (interest, dividends, capital gains, and so on don't count). If you earn less than the exclusion, you pay no US tax on any of this foreign earned income. If you only have foreign earned income to report, your US tax is now zero.

There are lots of caveats around both of those - FEIE doesn't let you contribute to an IRA or receive the refundable child tax credit, FTC can get pretty complicated if you have multiple sources of income and especially if they're in multiple countries, or you're a high enough earner to have to calculate Alternative Minimum Tax, and so on. But that's the gist.

Key outcome there is that you should NOT be double taxed. The downside is that you will typically be taxed at the higher rate of the two countries. So you might pay 40% income tax to the UK, and have some investments in an ISA where there's no UK tax due but you pay US tax on the dividends and capital gains (don't invest in an ISA without plenty of research on PFICs! Just for illustration).

5. Spouses - assuming your spouse is not a US citizen or otherwise tax resident in the US (e.g. a green card holder who has not abandoned it, etc.), they do not have to be in the US tax system. You would have to file as Married Filing Separately or Head of Household (if you qualify), but they don't need to file a return. Those are less advantageous filing statuses, but can be worth it to keep them out of the US system, which would also allow you to have any investments in their name, etc. You can also elect to bring them into the US system so you can file as Married Filing Jointly - it's rare that this makes much sense to do, but there are cases.

For example, we've deliberately not removed my wife from the US system (she could abandon her green card but hasn't), because it's more advantageous to us to have MFJ than to get her out of the system, due to her low income (basically a side hustle, she's mostly a SAHM) and my relatively income, and her side hustle lets her continue to build Social Security credits prior to the 90% bend point.

6. Big picture, our US/UK tax picture works out like this:
-I pay plenty of UK tax on my earned income, significantly more than US tax would be
-My wife pays no UK tax on her self-employed income, because it's under the UK Personal Allowance (and there's no filing jointly in the UK)
-I use the Foreign Tax Credit to wipe out US tax on both of our earned incomes
-We have kids, so we get the refundable portion of the Child Tax Credit back - the US pays us to file our taxes. The Child Tax Credit also wipes out the little bits of US tax on savings account interest and the like.
-We do pay a little self-employment tax for my wife (which is less than the CTC, so on balance we're still getting paid). This will get her to the 10 years needed to get anything from SS, and it's very efficient retirement savings because she has a low US earnings history. She's also getting UK National Insurance credits via Child Benefit.
-We don't have to mention the US/UK tax treaty anywhere, because we're not using it on top of existing HMRC/IRS regulations. For example, I include my and my employer's UK pension contributions in my earned income - the tax treaty would allow me to exclude it, but that doesn't help me at all. The UK tax on my earned income, excluding pension contributions, is still higher than the US tax on my earned income INCLUDING pension contributions. So the treaty is there, I could use it, but I don't need to, so there's no need to mention it. The treaty requires the Foreign Tax Credit to exist, but that's already written into IRS rules, so again, I can just follow those rules and not mention the treaty.

Does anyone have any recent experience applying for the US/UK tax treaty? (eg. in the last 2-3 years)
Could anyone give me a general run-down of how it works?

As far as I've been able to find, you only qualify for it after a year of residency in the UK and after that you don't have to pay taxes if you earn less than 6 figures. But do you really have to pay a double tax for the first year?

Also I've found something that said UK spouses of US citizens will have to pay US taxes as well, even if they are not US citizens, which is very concerning, does anyone know anything about that??

Generally, we'd just like to hear of personal experiences with US taxes and how other expats manage to deal with the double taxing, we'd greatly appreciate hearing your stories.

(ps. we will definitely contact a professional about this later on, but we'd like to get an idea of what we're dealing with and what to expect first)

Some good answers above that answer your questions but I will attempt to summarize a couple of your questions.

As far as I've been able to find, you only qualify for it after a year of residency in the UK and after that you don't have to pay taxes if you earn less than 6 figures. But do you really have to pay a double tax for the first year?

What you are thinking of here is the Foreign Earned Income Exclusion (FEIE) which is what my son uses to exclude his UK earnings, and for tax year 2022 it is $112,000.  You do have to be living outside of the USA for at least 330 days before you can claim the full exclusion amount. For example, my son moved to the UK in September, 2017 and started earnings from a UK job in October. To apply for the full exclusion it meant that he had to have been out of country for 330 days so in 2018 when he came to file his taxes he filed for an extension so that when he did file his IRS 2017 return he had met this "Physical Presence" test. We did this ourselves using TurboTax which would not let us file and claim the FEIE until the 330 days out of country had been met. I expect a tax pro would know how to easily do a part year exclusion

Also I've found something that said UK spouses of US citizens will have to pay US taxes as well, even if they are not US citizens, which is very concerning, does anyone know anything about that??

See the answer from the replies above. You cannot file as an individual in the USA if you are married but you can file as "Married Filing Separately" and will exclude your UKC, UK resident spouse from having to declare any UK income (I'm assuming she has no US income)