For US citizens and green card holders (lawful permanent residents) who have worked in the UK or hold UK pension assets, the interaction between US tax law and UK pension rules creates one of the most complex cross-border tax situations in international financial planning. The fundamental tension is this: the US taxes its citizens on worldwide income regardless of where they live, while the UK tax system treats pensions as tax-deferred savings that attract generous reliefs. Reconciling these two systems requires careful attention to treaty provisions, US reporting obligations, and UK withdrawal strategies.
This guide provides an overview of the key issues. It is not a substitute for specialist US-UK cross-border tax advice.
This area of law is exceptionally complex. Rules for US persons with UK pension assets have been subject to IRS guidance, court cases, and treaty interpretations that continue to evolve. Always consult a specialist dual-qualified adviser (CPA/IRS Enrolled Agent familiar with UK tax) before making decisions.
The UK-US Tax Treaty: Article 17
The UK-US Income Tax Treaty (Convention) contains Article 17 covering pension income. Under Article 17(1), pension income — including income from pension schemes — may be taxed only in the country of residence of the recipient.
This means:
- A US resident (including a US citizen living in the US) receiving UK pension income: taxed only in the US (not UK-sourced).
- A UK resident receiving US pension income: taxed only in the UK (not US-sourced).
- A US citizen living in the UK: more complex — as a UK resident with US citizenship, both countries may claim taxing rights, but the treaty and foreign tax credit mechanism are intended to avoid double taxation.
Government pensions are different: Under Article 19, government service pensions (paid by the UK government to former government employees, including many public sector workers) are typically taxable only in the UK, even if the recipient is a US resident — unless the person is also a US national AND a UK national AND a US resident.
US Tax Treatment of UK Pension Contributions
One of the most problematic areas for US persons with UK pensions is the tax treatment of contributions and the tax-deferred growth inside the pension.
UK workplace pensions: Employer contributions to a UK workplace pension are generally excluded from UK taxable income. However, the US does not automatically recognise this treatment — unless the treaty provides relief.
Article 18 of the UK-US Treaty (Pension Contributions): The treaty contains provisions (in Article 18) that may allow a US person to deduct or exclude UK pension contributions for US tax purposes. However, these provisions are narrow and require that the individual is not a US citizen contributing to a US-qualifying plan — complex conditions apply. IRS guidance (Revenue Procedure 2020-17) provides relief from the onerous Form 3520/3520-A trust-reporting requirements for certain tax-favoured foreign retirement trusts, though it does not address PFIC treatment, and its conditions do not apply universally.
The PFIC issue: If UK pension funds hold non-US registered investment funds (most UK pension funds do), those funds may be classified as Passive Foreign Investment Companies (PFICs) by the IRS. PFIC rules impose punitive excess distribution tax treatment and complex annual reporting. Some UK pension funds qualify as "pension trusts" excluded from PFIC treatment; others do not. This analysis requires fund-by-fund examination.
QROPS and US Citizens
Qualifying Recognised Overseas Pension Schemes (QROPS) — offshore pension schemes to which UK pension assets can be transferred tax-efficiently — are generally not suitable for US citizens and green card holders.
The reason: QROPS transfers may trigger US tax events, and the offshore pension structures used for QROPS (Maltese or Isle of Man schemes are common) may be characterised as Foreign Grantor Trusts under US law, with associated Form 3520/3520-A reporting requirements and potential tax consequences.
UK pension specialists who suggest QROPS to US persons without specialist cross-border tax advice should be treated with caution.
UK SIPP and the US Person
A UK SIPP held by a US citizen or green card holder who is UK-resident presents several issues:
Annual reporting: The SIPP is likely a Foreign Financial Account requiring FinCEN Form 114 (FBAR) filing if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the year. Penalty for non-filing: up to $10,000 per violation (non-willful) or the greater of $100,000 or 50% of account value (willful).
FATCA (Foreign Account Tax Compliance Act): UK pension schemes and SIPP providers are required to report US persons' accounts to HMRC, which shares information with the IRS under the UK-US Intergovernmental Agreement (IGA). US persons should assume their UK pension provider has reported their account to US tax authorities.
Form 8938 (FATCA): US persons with foreign financial assets exceeding $50,000 (single; $100,000 married filing jointly) must file Form 8938 with their US tax return reporting the SIPP.
Tax-deferred growth: Whether the tax-deferred growth inside a UK SIPP is recognised for US tax purposes as deferral depends on treaty analysis. Many US tax specialists take the position that Article 17 of the UK-US treaty protects the deferral — growth inside the pension is not taxed until distributed. Others disagree. This is an unsettled area.
Withdrawals from a UK Pension: US Tax Treatment
When a US person draws income from a UK pension — whether in drawdown or as a lump sum — the treaty position is:
Pension income (regular payments): Taxed only in the country of residence under Article 17(1). A US-resident US citizen drawing from a UK pension: taxed in the US. If still UK-resident: taxed in the UK. The foreign tax credit can be used to offset tax paid in one country against the liability in the other.
Tax-free pension commencement lump sum (PCLS): In the UK, 25% of the pension pot (up to the lump sum allowance of £268,275) is paid tax-free. The US does not automatically recognise this tax exemption. Some advisers argue the treaty protects the PCLS from US tax; others do not. IRS guidance specifically on this point is limited. A conservative approach assumes the PCLS is taxable in the US even if tax-free in the UK.
UK National Insurance and Social Security Totalization
The UK-US bilateral social security agreement addresses National Insurance contributions:
- Workers temporarily assigned to the UK (US employer): generally continue paying US Social Security and are exempt from UK NI.
- Workers permanently employed in the UK: pay UK NI and UK State Pension accrues.
- Workers who have contributed to both systems: can "totalise" their contribution records to satisfy minimum requirements for benefits in each country.
For US citizens who worked in the UK for extended periods and paid NI, they may be entitled to both a US Social Security benefit and a UK State Pension. Historically, the Windfall Elimination Provision (WEP) could reduce the US Social Security benefit where a pension from non-covered earnings (including foreign pensions such as the UK State Pension) was also received. However, the WEP (and the related Government Pension Offset) was repealed by the Social Security Fairness Act, signed in January 2025 and effective for benefits payable from January 2024. The WEP reduction therefore no longer applies, and affected beneficiaries have had their US Social Security benefits adjusted upward.
Planning Considerations for US Persons with UK Pensions
Do not make decisions without specialist advice: The penalties for errors in US international tax reporting — FBAR, Form 8938, PFIC issues — are severe. Seek a dual-qualified adviser with UK tax and US tax expertise.
Streamlined filing procedures: US persons who have failed to file FBAR or FATCA forms in prior years due to non-willful non-compliance may qualify for the IRS Streamlined Filing Compliance Procedures, which allow back-filing with reduced (or no) penalties.
Treaty elections: Certain treaty benefit elections require specific statements in the US tax return. Missing the election can forfeit the treaty protection for that year. A US tax return preparer familiar with UK-US treaty elections is essential.
Pre-departure planning: US citizens renouncing citizenship or green card holders relinquishing their green card face an "exit tax" (expatriation tax) that may treat pension assets as distributed on the exit date. Pre-departure planning can mitigate this in some cases — but requires specialist advice well in advance.
Consider which pension fund structure minimises PFIC exposure: For those still accumulating in a UK pension, selecting investment funds within the SIPP that may qualify for PFIC exclusions — or engaging an adviser who manages this — can reduce the annual reporting and tax burden.
How Global Investments Can Help
Global Investments has extensive experience working with internationally mobile US citizens and green card holders who have UK pension entitlements alongside other global assets. We work with specialist dual-qualified advisers (UK-regulated and US-qualified) who understand the treaty framework, FBAR/FATCA obligations, and the practical planning strategies available to minimise double taxation and compliance risk.
Whether you are a US citizen who worked in the UK and left a pension behind, a UK resident with US citizenship managing SIPP contributions, or someone planning a move between the UK and US, we can connect you with the right specialist expertise. Contact our team for an initial consultation.
Cross-border US-UK tax rules are complex, frequently changing, and subject to different interpretations. This guide is for general information only and does not constitute US or UK tax advice. Always consult qualified advisers in both jurisdictions.
This guide is for general information only and does not constitute financial, legal or tax advice. Pension rules, tax rates and programme details change; verify current requirements with a qualified and FCA-regulated pensions adviser before acting. Pension transfers involving defined benefits over £30,000 require regulated advice.