UK pension for US expats: key rules explained
Rose-ann De Villa, an IRS Enrolled Agent and CPA with 14 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in the UK.
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Table of Contents
Understanding the UK pension system: state, workplace, and personal plans
If you’re a US expat living in the UK, you’ll likely interact with one or more of the three main pension types: the State Pension, workplace (occupational) pensions, and personal pensions like Self‑Invested Personal Pensions (SIPPs).
- State Pension: This is the standard government pension. To qualify, you need at least 10 qualifying years of National Insurance (NI) contributions, and 35 years typically for the full benefit. As of April 2025, the full new State Pension is £230.25 per week, paid under the “triple lock” system. Some expats can even “top up” missed NI years by April 2025 to boost eligibility.
- Workplace pensions: If you’re employed in the UK, your employer probably auto-enrolls you into a pension plan. Both you and your employer contribute, and your contributions get UK tax relief. Recently, there’s been talk of reviewing auto-enrolment contribution rates, but current minimums are 8% total, with at least 3% from employers.
- Personal pensions and SIPPs: These are pensions you set up yourself, giving you more control over your investments. You get tax relief on contributions, your investments grow tax-free, and up to 25% can be taken as a lump sum at retirement.
Eligibility and contribution rules for US expats in the UK
Can US expats qualify for the UK State Pension?
Yes. US expats can qualify if they’ve paid enough National Insurance contributions. You’ll need a minimum of 10 qualifying years for any pension and 35 years for the full amount. If you’re missing years, you may be able to make voluntary contributions to boost your record.
Can US expats contribute to workplace pensions and SIPPs?
If you’re working for a UK employer, you can contribute to a workplace pension and benefit from UK tax relief. The employer usually contributes too, which can significantly grow your retirement pot. For personal pensions and SIPPs, US expats can also make contributions and receive tax relief, but keep in mind that the US tax system may not always align with UK tax rules.
What about US tax considerations?
The US-UK tax treaty helps prevent double taxation in many cases, but pensions can still be complicated. Contributions, growth, and withdrawals may be treated differently under US tax law, so it’s smart to get advice before making decisions.
US-UK tax treaty: deferring taxation on UK pension contributions
Under Article 18 (“Pension Schemes”) of the US-UK tax treaty, earnings inside qualifying UK pension schemes are generally not taxed by the US until distribution, and, subject to conditions, employee and employer contributions can receive treatment comparable to a local plan.
When you later take benefits, Article 17 applies: the US typically taxes those distributions to US residents or citizens (you may be able to claim the Foreign Tax Credit for any UK tax). Form 8833 is required only when you take a treaty-based return position that reduces US tax and no reporting exception applies; IRS instructions waive 8833 for many routine pension-related claims.
Need help reporting your UK pension on your US tax return?
How the IRS treats UK pensions: reporting, FBAR, FATCA, and trust rules
Since US citizens are taxed on worldwide income, it includes UK pensions. So even if your contributions are deferred, the IRS expects full transparency.
What forms should US expats be aware of?
- FBAR (FinCEN Form 114): You must file this if all your non-US financial accounts, including your UK pension, hit more than US$10,000 at any point during the year.
- FATCA (Form 8938): You’ll need this form if your foreign assets exceed certain thresholds; over US$200,000 at year-end or US$300,000 at any time during the year. If you live in the US, the thresholds are lower (US$50,000 at year-end or US$75,000 at any time during the year).
- Trust-related forms (3520/3520-A): Some UK pensions, including SIPPs, might be treated by the IRS as foreign trusts and require extra reporting.
Distribution, double-tax relief, and claiming the foreign tax credit
As mentioned before, when you start taking payments from your UK pension, the IRS considers that part of your worldwide income. Even if contributing and growing your pension in the UK wasn’t taxed in the US here thanks to the US‑UK tax treaty, once you begin withdrawals, those distributions are typically taxable under US rules.
You’ll need to report them on your Form 1040, just like you’d report any other income.
Do you pay twice? Not necessarily. You can often offset UK tax paid on your pension by filing Form 1116, which lets you claim the Foreign Tax Credit (FTC). It’s a dollar-for-dollar reduction of your US tax. If the UK tax equals or exceeds your US tax on the same income, your US liability can shrink significantly.
You’ll need documentation showing how much tax was withheld by the UK, and the IRS expects accurate calculations on your Form 1116
Transfer options and pitfalls: QROPS, SIPP, and scheme transfers
Here are the main options:
- QROPS (Qualifying Recognised Overseas Pension Schemes): Global pension plans recognized by HMRC, allowing transfers from UK pensions.
- International SIPPs: Similar to UK Self‑Invested Personal Pensions but managed abroad and often denominated in USD.
These may seem tempting for consolidation or currency convenience, but they carry real risks:
- Overseas Transfer Charge: Moving a UK pension to a QROPS while living outside the scheme’s country, or if the scheme isn’t in the EU/EEA, may trigger a 25% tax charge.
- Exceeding Overseas Transfer Allowance: As of 2025/26, transfers above £1,073,100 could trigger that same 25% charge on the excess.
- Loss of UK benefits: Transferring may sacrifice perks like lifetime annuity options or UK tax advantages.
- IRS trust rules: Some overseas pensions are seen by the IRS as foreign trusts. If that’s the case, you may need to file Forms 3520 and 3520‑A, and face extra scrutiny.
What’s more, many experts point out that the downsides often outweigh the benefits, especially if you’re not getting independent, regulated advice.
FAQs
Do US expats pay US taxes on UK pension withdrawals?
Yes. The IRS taxes UK pension withdrawals as ordinary income, even if you already paid UK tax on them. You can often use the Foreign Tax Credit to avoid double taxation.
Is the UK State Pension taxable in the US?
Do US expats need to report UK pensions on FBAR?
Can I transfer my UK pension to a US account?
Does the US-UK tax treaty make UK pension contributions tax-free?
