UK pension taxation for US expats: Complete 2025/26 guide
| UK pension US tax – Key takeaways | |
|---|---|
| 1. | All UK pensions are taxable as ordinary income for US citizens |
| 2. | 25% tax-free lump sum in the UK = fully taxable in the US |
| 3. | State pension 2025/26: £230.25/week = ≈$15,600/year reportable |
| 4. | Form 1116 prevents double taxation via the foreign tax credit |
| 5. | Form 8938 if assets $200k+ (single) or $400k+ (joint) |
| 6. | FBAR if foreign accounts $10k+ on any day |
| 7. | Form 3520 for trust-based pensions with transactions |
| 8. | Cannot use FEIE (Form 2255) – pensions are unearned income |
UK pensions are taxable income for US citizens. The IRS taxes all UK pension types (state, personal, workplace) as ordinary income. The 25% tax-free lump sum in the UK is fully taxable in the US.
Use Form 1116 for the foreign tax credit to avoid double taxation.
Key 2025/26 figures:
- £268,275 lump sum allowance,
- £230.25/week state pension.
This guide covers US tax treatment of UK state pensions, personal pensions (SIPPs), workplace pensions (defined contribution and defined benefit), the 25% pension commencement lump sum, Form 1116 foreign tax credit, Forms 8938/FBAR reporting, and US-UK tax treaty provisions for 2025/26.
US–UK tax treaty: Key implications for pension income
How the treaty affects US tax obligations
The US-UK tax treaty allows both countries to tax pension income (Article 17), but prevents double taxation through the foreign tax credit mechanism. US citizens must report all UK pensions on Form 1040, then claim a credit for UK taxes paid using Form 1116. The treaty does not exempt pensions from US taxation.
For expats with UK pensions, the US–UK tax treaty offers valuable protections – but it also introduces complexity. Understanding key provisions can help you avoid double taxation while staying compliant with US reporting rules.
The US-UK tax treaty aims to avoid double taxation – but for expats, it’s a maze of default rules, exceptions, and strategic filings.
- Dual taxation rights (Article 17) allow both the US and UK to tax pension income, with the US typically offering a foreign tax credit to offset UK tax.
- Savings clause lets the US override treaty benefits for its citizens, meaning UK pension taxable in US rules still apply, and UK pension US tax reporting stays required.
- Foreign tax credit mechanism: Most expats use Form 1116 to claim a credit rather than seeking a full exemption.
- Article 18 exceptions: Certain public pensions or government service schemes may be exempt under treaty terms.
- Tie-breaker rules: Dual residency can trigger tests like home, centre of vital interests, habitual abode, and nationality.
The treaty protects against double taxation but adds complexity. Most expats use the credit method rather than seeking exemption because US citizenship overrides treaty residence-based benefits.
NOTE! The treaty does not shield you from trust reporting under US law. Even when the UK pension US tax is reduced, filing duties can still apply, including Form 3520, Form 8938, and FBAR for a trust-based pension.
Tax credit or tax exemption?
Most UK pensions receive a foreign tax credit, not an exemption. You report pension income on Form 1040, calculate US tax, then offset with UK taxes paid via Form 1116. Only UK government service pensions may qualify for exemption under Article 18.
The treaty gives withdrawal-phase relief mainly through the foreign tax credit, not an exemption – meaning you usually report the pension on Form 1040 and then offset UK tax with Form 1116. Only government-service pensions or specific diplomatic cases qualify for outright exemption.
Treaty tie-breaker rules and residency
If you qualify as a tax resident in both countries, treaty tie-breaker rules determine primary tax residency based on:
- permanent home,
- centre of vital interests,
- habitual abode,
- nationality.
This affects which country taxes first.
If dual residency applies, tie-breaker rules look at permanent home, centre of vital interests, habitual abode, and nationality. Winning UK status can shift primary taxation there, but a US citizen with UK pension income still reports everything in the US and typically uses Form 1116.
Winning UK tax residence under treaty rules means the UK gets primary taxing rights, but the US still taxes you as a citizen.
Keep documentation:
- HMRC certificate of residence (form UK/Individual),
- US Form 8802 (residency certification) for treaty claims.
Also read. Tax guide for Americans in the UK
UK pension types and their US tax treatment
The US taxes all UK pension types as ordinary income, but each has specific reporting requirements. State pensions report on lines 5a/5b. Personal pensions (SIPPs, stakeholder) may trigger foreign trust reporting. Workplace pensions require Form 8938 if thresholds are met. Here's how each type is treated:
The UK offers several types of pensions, each with its own structure and unique US tax treatment. Knowing how the IRS views each type helps you avoid misreporting and plan smarter withdrawals.
State pension
The UK state pension is fully taxable as ordinary income in the US. Report the full amount (£230.25/week for 2025/26 new state pension) on Form 1040 lines 5a/5b. Claim foreign tax credit on Form 1116 if the UK deducted PAYE tax from your pension.
The UK state pension may feel like Social Security, but the IRS treats it differently. Here's what you need to know when reporting it:
- The full state pension for 2025/26 pays £230.25 per week.
- The IRS considers all payments as ordinary income; none of it qualifies as Social Security for US tax purposes.
- Report the gross amount on Form 1040 lines 5a/5b (ordinary income).
- If the UK deducted PAYE tax, you can claim a foreign tax credit on Form 1116 to avoid double taxation.
Example: £12,000 annual state pension = ~$15,600 at 1.30 exchange rate. Report $15,600 as ordinary income. If the UK tax withheld was £1,200, claim ~$1,560 foreign tax credit on Form 1116.
Personal and stakeholder pensions
Personal pensions (SIPPs, stakeholder plans) are classified as foreign pension trusts under Section 402(b). Contributions are not deductible. Employer contributions are taxable when vested. Withdrawals are fully taxable. You may need to file Form 3520 for trust transactions if contributions/distributions occurred.
Take, for example, a US citizen who contributed to a UK stakeholder pension while working for the NHS. Most personal or stakeholder plans are classified as foreign pension trusts under Section 402(b), and contributions generally aren’t deductible in the US, while employer matches are immediately taxable.
Although growth is tax-deferred in the UK, it’s taxable annually in the US unless a treaty election under Article 18(5) applies for government-sponsored schemes. Any withdrawals made at all or even a lump-sum withdrawal are fully taxable on the US return.
Most personal pensions are contract-based (insurance policies), not trust-based, which may exempt them from Form 3520 under Notice 97-34. Consult a tax professional for proper classification before filing.
Workplace pensions
Workplace pensions (auto-enrolment schemes like Nest, Aviva, defined benefit plans) require disclosure on Form 8938 if the aggregate value of foreign financial assets exceeds thresholds ($200k/$400k for expats). Employer contributions are taxable income when vested.
Auto-enrolment defined-contribution schemes (e.g., Nest, Aviva) and defined-benefit schemes must be disclosed on Form 8938 if the aggregate value of all foreign financial assets exceeds the reporting threshold. Employer contributions are treated as employee income when vested. Annual growth is taxable unless the plan meets foreign exempt pension criteria – which most UK schemes do not.
Form 8938 thresholds for expats: $200,000 on Dec 31 (single) or $400,000 married filing jointly. Or $300,000/$600,000 at any point during the year. Report the fair market value in USD.
UK pension types quick reference
| Pension Type | Examples | US Tax Treatment | Key Forms |
|---|---|---|---|
| State pension | New state pension, old basic pension | Taxable ordinary income | 1040 (lines 5a/5b), 1116 |
| Personal pension | SIPP, stakeholder, personal plans | Taxable withdrawals, possible Form 3520 | 1040, 1116, 3520 (if trust) |
| Workplace pension | Nest, Aviva, defined benefit/contribution | Taxable withdrawals, employer match taxable | 1040, 1116, 8938 (if threshold) |
| Government pension | Civil Service, NHS (if qualified) | Potentially exempt (Article 18) | 1040, 8833 (treaty position) |
All UK pension types are taxable in the US. Foreign tax credit via Form 1116 prevents double taxation. Specific reporting varies by pension structure.
UK pensions and the IRS foreign trust rules
Do UK pensions trigger foreign trust reporting? It depends on the pension type. Trust-based occupational pensions may require Forms 3520/3520-A. Contract-based personal pensions (SIPPs) typically don't. Notice 97-34 provides an exception: if your employer-sponsored plan had no contributions or distributions during the tax year, you can skip Form 3520. However, IRS scrutiny has increased since 2024.
Some UK pensions may trigger US foreign trust reporting. Whether you need to file depends on the pension type, your activity, and how the IRS views your control. Here's what to watch for:
- Contract-based vs. trust-based pensions: UK personal pensions are contract-based, while many occupational schemes are trust-based. The IRS still labels it either a foreign trust if participants have deferred rights.
- Are there exceptions to foreign trust reporting? If the plan is employer-sponsored and you had no contributions or withdrawals in the tax year, Notice 97-34 lets you skip Form 3520. Yet the IRS has signalled heightened foreign trust scrutiny since 2024, so most practitioners still file protectively.
- Do I need to file Forms 3520 and 3520-A? You file Form 3520 if you transfer assets into, receive a distribution from, or are deemed the owner of a foreign trust. The trust itself (often the UK plan administrator) should file Form 3520-A; if it doesn’t, you file a substitute with your return due by March 15 (extensions available).
Penalties run to the greater of $10,000 or 35% of the gross distribution.
File Form 3520 if you:
- transferred money into a UK pension trust,
- received a distribution from a trust-based pension,
- are deemed the owners of a foreign trust.
The pension administrator (trust) should file Form 3520-A; if they don't, you must file a substitute. Form 3520 due with your tax return (April 15, extensions to October 15). Form 3520-A due March 15.
Penalties for missing
- Form 3520: the greater of $10,000 or 35% of gross distribution value.
- For Form 3520-A: greater of $10,000 or 5% of trust assets.
The IRS has ramped up enforcement on foreign pension trusts since the 2024 tax year.
The 25% tax-free UK lump sum: Is it tax-free in the US too?
No. The 25% pension commencement lump sum (PCLS) that is tax-free in the UK is fully taxable as ordinary income in the US. The IRS does not recognize UK's tax-free treatment. You must report the entire lump sum amount on Form 1040 lines 5a/5b in the year received. If the UK withheld no tax, you'll owe US tax without any foreign tax credit offset.
Since April 2024, the lifetime allowance has vanished, replaced by a £268,275 Lump Sum Allowance and a £1,073,100 Lump Sum & Death Benefit Allowance. Taking the standard 25% lump sum from your UK pension is still tax-free in Britain, but the IRS sees that payment as fully taxable unless you can apply treaty Article 17(1)(b) – which rarely exempts it.
Example: You take £50,000 PCLS (25% of £200,000 pension pot) in 2025. UK: £0 tax owed. US: Report $65,000 income (at 1.30 rate). If you're in 22% US tax bracket, you owe ~$14,300 US tax.
You cannot claim a foreign tax credit because the UK charged no tax on the lump sum. Strategy: Consider taking a lump sum in a lower US income year to minimize tax bracket impact.
Plan to pay US tax or offset it with credits if UK tax was unexpectedly withheld. Lump-sum withdrawal timing matters: spreading withdrawals over multiple years can keep you out of higher US brackets.
UK pension access: Age 55 normally (rising to age 57 on April 6, 2028, unless protected at a lower age). Plan lump sum timing around your US tax situation:
- retirement year (lower income),
- year with large deductions, or
- spread over multiple years (instead of one large withdrawal).
NOTE! You can normally tap a UK pension from age 55; this rises to age 57 for benefits taken on or after 6 April 2028 (unless your scheme’s rules lock in a protected lower age).
UK vs US pension taxation comparison
| Feature | UK Treatment | US Treatment |
|---|---|---|
| State pension | Taxable (£12,570+ allowance) | Fully taxable as ordinary income |
| 25% lump sum | Tax-free (PCLS) | Fully taxable as ordinary income |
| Growth in pension | Tax-deferred | Taxable annually (unless foreign pension trust election) |
| Employer contributions | Tax-free + relief | Taxable income when vested |
| Withdrawal tax rate | 0–45% (income tax bands) | 10–37% (US tax brackets) |
| Foreign tax credit | N/A | Available via Form 1116 |
| Reporting forms | Self Assessment (if applicable) | Forms 1040, 1116, 8938, FBAR, 3520 |
| Minimum age | 55 (→57 in 2028) | No minimum (US tax applies when withdrawn) |
| Annual allowance | £60,000 (2024/25) | Not applicable |
Key difference: The UK's 25% tax-free lump sum is fully taxable in the US. Use Form 1116 to claim credit for UK taxes paid on the remaining 75% to prevent double taxation.
What IRS forms are required to report UK pensions?
US taxpayers with UK pensions must file multiple IRS forms depending on pension type, value, and activity.
At minimum:
- Form 1040 (report income),
- Schedule B (if interest/dividends),
- Form 1116 (foreign tax credit).
If high account values: Form 8938, FBAR.
If trust-based pension with transactions: Forms 3520/3520-A.
Below is a complete checklist:
| Form | Purpose | When it's required |
|---|---|---|
| Form 1040 | Report all taxable income, including UK pensions | Every US taxpayer must file annually |
| Schedule B (Form 1040) | Detail interest/dividends from pensions or foreign accounts | If UK pension generated £10+ interest/dividends OR total foreign interest £10+ |
| Form 1116 | Claim foreign tax credit for UK taxes paid | If claiming credit for UK PAYE tax or withholding on pensions (recommended for all UK pension recipients) |
| Form 8938 (FATCA) | Report specified foreign financial assets, including pensions | Expats: $200k single/$400k joint on Dec 31 OR $300k single/$600k joint at any time during year |
| FBAR (FinCEN 114) | Disclose foreign accounts exceeding $10,000 aggregate | If the UK pension account + other foreign accounts total $10,000+ on any single day |
| Form 8833 | Declare treaty-based position | If claiming treaty benefits or exemption (e.g., government pension under Article 18) |
| Form 3520 | Report transactions with foreign trust | If trust-based UK pension AND contributions or distributions occurred during year |
| Form 3520-A | Annual info return for foreign trust with a US owner | If pension trust doesn't file (you file substitute) OR you're deemed trust owner |
Filing deadlines:
- Form 1040 (April 15, automatic 2-month extension for expats to June 15, further extension to October 15).
- FBAR (April 15, auto extension to October 15).
- Form 8938 (with Form 1040).
- Forms 3520/3520-A (March 15, extension to September 15).
Reporting UK pensions: Expat mistakes to watch out for
US expats frequently make costly UK pension reporting errors that trigger IRS audits, penalties, or double taxation. The most common: treating the 25% lump sum as US tax-free, omitting employer contributions, and trying to exclude pensions with FEIE.
You’ve just taken a tax-free lump sum from your UK pension, thinking you’ve outsmarted the system – until the IRS comes knocking. Many US expats unknowingly misreport UK pensions, triggering audits, penalties, or double taxation. Avoid these common mistakes:
- Treating the 25% lump sum as US tax-free: UK's tax-free treatment doesn't apply to the US. Must report the full amount as ordinary income on Form 1040.
- Omitting employer contributions from taxable income: Auto-enrolment workplace pension employer match (e.g., Nest 3% employer contribution) is taxable income when vested. Report on Form 1040 even if not yet withdrawn.
- Forgetting that withdrawal-phase growth is taxable: Investment growth inside a UK pension is tax-deferred in the UK but taxable annually in the US (unless a foreign pension trust election is made).
- Filing Form 2555 FEIE and excluding pension income: Foreign Earned Income Exclusion applies only to wages/self-employment income. Pensions are unearned income and cannot be excluded – use the foreign tax credit instead.
- Missing Form 8938 thresholds: Failing to report UK pension value on Form 8938 when aggregate foreign assets exceed $200k/$400k. Penalty: $10,000 initial, up to $50,000 for continued failure.
- Not filing Form 1116: Missing out on the foreign tax credit by failing to file Form 1116 when the UK deducted PAYE tax from state pension or withholding from personal pension, resulting in double taxation.
- Using the wrong exchange rate: IRS requires a yearly average exchange rate for income items (wages, pensions) and a date-of-transaction rate for lump sums. Using inconsistent rates triggers IRS correspondence.
Help with US tax on UK pensions is here: Talk to us
Even experienced accountants struggle with US–UK pension tax complexity: trust rules, treaty provisions, FBAR thresholds, Form 1116 calculations, and timing strategies for lump sum withdrawals.
Taxes for Expats specializes in UK–US expat tax situations. Our EA-licensed and CPA-credentialed team has prepared 12,000+ UK expat returns.
At Taxes for Expats, we handle:
- UK state, personal, and workplace pension reporting;
- Form 1116 foreign tax credit optimization;
- Forms 8938/FBAR/3520 compliance;
- 25% lump sum tax planning;
- treaty-based position elections.
FAQ
Yes. The IRS taxes all UK pension income (state, personal, workplace) as ordinary income for US citizens and residents. Report on Form 1040 lines 5a/5b. Use Form 1116 to claim foreign tax credit for UK taxes paid to avoid double taxation.
Yes. The UK state pension (£230.25/week for 2025/26) is fully taxable as ordinary income in the US. Report the gross amount on Form 1040. If the UK deducted PAYE tax, claim a foreign tax credit on Form 1116.
No. The pension commencement lump sum that's tax-free in the UK (up to 25% of your pension pot, max £268,275 for 2024/25) is fully taxable as ordinary income in the US. Report the entire amount on Form 1040 in the year received.
Yes, if the UK deducted tax from your pension. Form 1116 (Foreign Tax Credit) allows you to offset UK taxes paid against your US tax liability, preventing double taxation. File separate Form 1116 for each income category if needed.
Form 8938 (FATCA) reports specified foreign financial assets including UK pensions. Required if foreign assets exceed: $200k single/$400k joint on Dec 31, OR $300k single/$600k joint at any time during the year (expat thresholds).
Yes, if you have ownership interest or signature authority over the pension account AND combined foreign accounts exceed $10,000 on any single day during the year. File FinCEN Form 114 by April 15 (auto extension to October 15).
No. FEIE (Form 2555) applies only to earned income (wages, self-employment). Pensions are unearned income and must be reported on Form 1040. Use the foreign tax credit (Form 1116) instead to offset UK taxes paid.
Yes. SIPPs (Self-Invested Personal Pensions) are foreign financial accounts. Report on Form 8938 if thresholds are met and on FBAR if the balance exceeds $10k. May also require Form 3520 if classified as a foreign trust and contributions or distributions occurred.
Article 17 of the US–UK tax treaty allows both countries to tax pension income but prevents double taxation via the foreign tax credit mechanism. The treaty doesn't exempt pensions from US tax for US citizens due to the saving clause.
Employer contributions to UK workplace pensions (e.g., auto-enrolment match) are taxable income when vested. Report on Form 1040 as additional wages even if not yet withdrawn. Include in income when you have non-forfeitable rights.
Rarely. Most UK pensions cannot transfer directly to a US 401(k) due to IRS rules and UK pension scheme restrictions. Transfers typically trigger a taxable distribution. Consult a cross-border pension specialist before attempting a transfer.
Failure to report UK pension income can result in IRS penalties, including accuracy penalties (20% of understated tax), failure-to-file penalties (5% per month), and FBAR penalties ($10,000+ per violation). Foreign account understatement carries severe penalties.
It depends. If you're non-UK resident for tax purposes, your UK state pension may be paid gross (no UK tax withheld). You still report it on your US return. Check your UK tax residency status and tax code.
IRS Notice 97-34 provides an exception from Form 3520 reporting for employer-sponsored foreign pensions if you had no contributions or distributions during the tax year. It may apply to some UK workplace pensions but not to personal pensions or distributions.
The UK abolished the lifetime allowance in April 2024, replacing it with lump sum allowance (£268,275) and lump sum death benefit allowance (£1,073,100). These UK limits don't affect US tax calculations, as the US taxes pension income regardless of UK allowances.
No. UK pension tax relief (contributions get UK tax relief) is not recognized in the US. Contributions to UK pensions are generally not deductible on your US tax return unless they qualify under US pension rules (rare).
Use the IRS yearly average exchange rate for regular pension income reported throughout the year. For one-time lump sums, use the exchange rate on the date you received the payment. Check IRS.gov for official yearly average rates.
Potentially. UK government service pensions may be exempt from US tax under the US–UK tax treaty Article 18 if you're not a US citizen or became a citizen after retirement. Most US citizens cannot use this exemption due to the treaty saving clause.
Report UK pension income on Form 1040 lines 5a (total pension amount) and 5b (taxable amount – usually the same as 5a). Attach Form 1116 if claiming a foreign tax credit. Include Schedule B if the pension generated interest or dividends over the threshold.
Aviva is a major UK pension provider (workplace and personal pensions). For US tax purposes, Aviva pensions are taxed as foreign pensions: income is taxable annually, withdrawals are fully taxable, and reporting may require Forms 8938, FBAR, and 3520 depending on plan type and value.
