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us expat tax guide – united kingdom

What is a Self-Invested Personal Pension (SIPP)?

A Self-Invested Personal Pension (SIPP) is a UK pension scheme that allows individuals to save money for retirement. Unlike typical employer-provided pensions, SIPPs offer more control over investment choices, making them attractive to those who want to manage their pension investments actively. 

You can contribute up to £40,000 a year tax-free if you’re a British citizen.

Key takeaways for managing a SIPP as a US expat:

  • Investment Control: SIPPs are excellent for keen investors as they offer control over investment choices and qualify as a pension under the US-UK Tax Treaty, avoiding individual PFIC reporting.
  • Filing Deadlines: Remember filing deadlines for Forms 3520 and 3520-A to avoid significant penalties.
  • Missed Deadlines: If you miss a deadline, consider the SFOP to mitigate potential penalties.

What should I be aware of when purchasing a SIPP as a US citizen or Green Card holder?

The US treats a SIPP as a foreign grantor trust, meaning it is seen as a separate legal entity. The trust’s assets are considered owned by you, and the income must be reported on your personal income tax return. 

You need to file Forms 3520 and 3520-A (or both) to report the SIPP properly.

What are the differences between Form 3520 and Form 3520-A?

Form 3520 and Form 3520-A are both used to report foreign trusts but serve different purposes:

  • Form 3520 reports the trust’s existence, including its establishment details, registered address, and any distributions to a US person.
  • Form 3520-A provides more detailed information about the trust, including its assets, income, and the names of US owners and beneficiaries.

As the owner of a SIPP, you are required to file both forms annually.

What about filing deadlines for Forms 3520 and 3520-A?

  • Form 3520 must be paper-filed to a special IRS department in Utah by April 15.
    • Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409—This is the designated location for submitting Form 3520, and it should not be filed electronically or sent to any other IRS office.
  • Form 3520-A is due earlier, by March 15.

Missing these deadlines can result in penalties, often at least US$10,000 per trust.

Are there extension options for Forms 3520 and 3520-A?

Yes, extensions are available. For Form 3520-A, you can file an extension by March 15, granting a six-month extension to avoid penalties. Form 3520 also has an extension option, but a separate extension form must be filed for each form.

What if I miss the filing deadline for Forms 3520 or 3520-A?

If you miss the deadline, you have two options:

  1. If you’ve received a penalty notice, contact a tax professional who can help you appeal the penalties.
  2. If you haven’t filed yet, use the Streamlined Foreign Offshore Procedures if you missed the filing due to non-willful reasons, such as misunderstanding the requirements. This program can help waive penalties.

Is a SIPP protected by the US-UK Tax Treaty?

Yes, a SIPP qualifies as a pension under the US-UK Tax Treaty. This means its earnings are exempt from US tax until the money is withdrawn.

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