US/UK Pensions
Treaty, Form 8833, Form 8938, FinCEN 114
How workplace pensions, SIPPs, 401(k)s and IRAs are taxed and reported when the saver and the scheme are in different countries.
What does US/UK Pensions involve?
A pension is tax-favoured only in the country that designed it. Whether the other country respects that treatment depends on the treaty, and the answer differs for growth, for contributions and for withdrawals. We take each question separately, for UK schemes held by Americans and for US plans held by UK residents.
Forms and filings involved
- Treaty
How the US-UK income tax treaty allocates taxing rights, and where its saving clause limits what US citizens can claim.
- Form 8833
The disclosure required when a US return relies on the US-UK treaty to override or modify the ordinary US tax rules.
- Form 8938
The FATCA asset statement attached to the tax return, with higher thresholds for filers who live abroad than for those in the US.
- FinCEN 114
The annual report of foreign accounts filed with FinCEN, separate from the tax return, once combined balances pass the threshold.
- Form 3520
Reporting for US persons who receive large gifts or inheritances from abroad or who deal with a foreign trust.
Growth, contributions and withdrawals are separate questions
Two treaty questions apply to a UK pension held by a US citizen, and they have different answers.
Growth inside the scheme is generally protected: under Article 18(1) the US does not tax income earned within a UK pension scheme until it is paid out, and that paragraph survives the saving clause. Relief for contributions is narrower. It is available to a US citizen only under the specific conditions of Article 18(5), is limited by reference to US plan limits, and other contribution provisions are shut off by the saving clause.
Withdrawals raise a third question. Periodic pension payments to a UK resident are generally taxable in the UK, and a US citizen reports them on Form 1040 with a foreign tax credit. The UK tax-free lump sum is a known difficulty. The treaty's lump sum paragraph is not among the saving clause exceptions, so for a US citizen the treaty text alone does not settle the US position. We set out the competing readings and the figures under each before a withdrawal is made.
The treaty works in the other direction as well. A UK resident with a 401(k) or traditional IRA can generally rely on it so that growth is not taxed in the UK year by year, and Roth distributions that would be exempt in the US are generally exempt in the UK. Reporting is a separate matter. UK pensions usually belong on the FBAR and Form 8938. Whether a SIPP is a foreign trust needing Forms 3520 and 3520-A depends on the scheme, because the IRS exemption for retirement trusts has conditions.
Pension questions we work through
- 01
- Treaty status of each scheme confirmed before it is relied on
- 02
- Growth, contributions and distributions analysed as three separate questions
- 03
- Lump sum withdrawals modelled on both returns before they are taken
- 04
- FBAR, Form 8938 and possible Form 3520 reporting for each pension
- 05
- US basis tracked where contributions have already been taxed by the US
Who this is for
US citizens contributing to a UK workplace pension or SIPP
- UK residents who left a 401(k) or IRA behind in the US
- People approaching retirement with pensions in both countries
- Anyone considering a lump sum or a transfer between schemes
Why US UK Tax Returns
Each return is prepared with the other country's return open beside it, so a credit, election or disclosure on one is supported by the other.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
Does the IRS tax the growth in my UK workplace pension each year?
Generally not, if the scheme qualifies as a pension scheme under the treaty. Article 18(1) defers US tax on income earned inside the scheme until it is distributed, and the saving clause does not override that paragraph. Registered UK workplace schemes usually qualify. The position is less certain for unusual arrangements, and the pension still has to be reported on the FBAR and, where the threshold is met, Form 8938.
Can I deduct my UK pension contributions on my US return?
Sometimes. The treaty gives a US citizen relief for contributions to a UK scheme only where the conditions of Article 18(5) are met, which include being UK resident and employed by a UK employer, and the relief cannot exceed what US law would allow for a US plan. Employer contributions follow similar rules. Where relief is unavailable or is not claimed, the contributions create US basis that should be tracked for later.
What happens to my 401(k) or IRA now that I live in the UK?
In general it can stay where it is. The treaty lets a UK resident defer UK tax on growth inside a qualifying US plan, and distributions are then taxed under the pension article, with the UK as country of residence usually having the main right to tax periodic payments. Lump sums and Roth accounts follow their own paragraphs. US withholding on distributions and the practicalities of holding a US account from abroad also need attention.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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