Targeting both US and UK with same domain?

I don't get It, why do you want these sites to be separate ? You can just ask the user which countries to show prices for . I'm pretty sure having two separate sites won't have positive effect on your SEO

There are a few reasons I'm thinking I should keep these separate:

1. Although the product is the same, the variations of the product are very different depending on UK and US market... in my head it makes sense to split them, but for the potential value of the site, I'd like it on one domain.

3. It would be very hard geo-targetting the site in Google, for example Google will naturally see it as a US site (.com), and if I set geo-target to UK in GWT then obviously that takes the US market out. From what I can tell, this is impossible to get around.

2. If I've got this right, Google will treat a sub-domain as a completely different website, and so you can deal with it in SEO terms on a different level. I will be able to target my SEO perfectly, adding both sites to GWT, submitting different sitemaps, targetting backlinks properly etc.

I'd appreciate any thoughts on this idea and whether it will work, anything I'm missing here etc.

The answer to your question is yes: separate subdomains will be treated by google as 2 different sites and as far as I'm aware you can set up both differently in Webmaster Tools.
For this exact reason I wouldn't recommend this solution, as the SEO will have to be done twice...

I would consider setting it up on one domain and have the customization as suggested. You could detect from where the visitors come from to default to the appropriate country view.

Correct me if I'm wrong, but if you don't set up specific country targeting in GWT at all, the site will still be relevant for all the queries in English regardless of the visitor location...