Can I use gift card in £ on a USA xbox account?

Unfortunately, you can't sign into your friends account, as his account would still be an UK based account, even if you signed into it from the USA.

Additionally, allowing a third party to access ones account is against the Microsoft Terms of Use, and your friend would risk a suspension on his account if he were to let you access his account.

Since Microsoft can't do currency conversion, your friend can not use the currency code you have in any way.

If you really wish to gift him a currency gift card, you'd better go to
https://www.amazon.co.uk (make sure it's .co.uk, not .com) and buy him a gift card in British Pounds.

You can then use the US Dollar gift card for yourself or another friend in the US.

I see. You can try purchasing a gift card from this link, https://www.microsoft.com/en-us/p/xbox-gift-car....

Once you have the gift card, redeem the code on your account then you can use the account credit to purchase the subscription.

This only works for people residing in the USA. Is there anyway to get the gift card to work in other countries (not using a VPN)

Yes, you can. Xbox gift cards and Windows gift cards all add to your Microsoft account balance which can be used in the Microsoft Store.

Microsoft Store gift cards and Xbox gift cards. They both add funds to your Microsoft account balance which can be used on microsoftstore.com.