UK Pensions For US Residents | Avoiding Double Taxation

Aug 22

Written By Jack Camille

Learn how UK pensions are treated under the UK–U.S. tax treaty and explore strategies to mitigate taxation and optimise retirement income for U.S. residents.

Table of Contents

Why UK Pensions Can Be Complex for U.S. Residents
The US-UK Tax Treaty and Pensions
Tax Implications for UK Pensions in the U.S.
SIPPs, QROPS & Foreign Pensions in the U.S.
Maximising Your UK-Based Pension Benefits While Living in the U.S.
Planning for the Long Term

LEARNING OBJECTIVES:

By reading this article, you will:

Understand how the UK–U.S. tax treaty applies to UK pensions for U.S. residents.
Recognise the most common tax pitfalls that can erode pension income.
Learn how different pension types — SIPPs, QROPS and Defined Benefit are treated in the U.S.
Discover practical tax-efficient strategies for maximising benefits.
Plan effectively whether you remain in the U.S. or return to the UK.

Why UK Pensions Can Be Complex for U.S. Residents

For many British expats now living in the United States, UK pensions remain a cornerstone of their long-term financial security. However, without careful planning, these pensions can be hit by:

Double taxation - both the UK and U.S. are taxing the same income.
Unexpected IRS treatment - especially of lump sums.
Currency exchange losses - eroding the real value of withdrawals.

Definition: UK Pension

A UK pension is a retirement savings arrangement established under UK regulations, such as a Defined Benefit scheme, Defined Contribution plan, or Self-Invested Personal Pension (SIPP). For British expats in the U.S., these pensions are still governed by UK rules, but they may also be taxed under U.S. law. The UK–U.S. tax treaty determines how and where that taxation applies.

The US-UK Tax Treaty and Pensions

The UK–U.S. Double Taxation Treaty (Article 17) generally gives the country of residence, in this case, the U.S., the primary right to tax pension income.

However:

You may need to formally claim treaty benefits by notifying your UK pension provider and filing the right HMRC forms.
Without this, UK tax will be withheld unnecessarily, resulting in the need to claim it back from HMRC.

Tax Implications for UK Pensions in the U.S.

Double Taxation Treaty

Failing to apply the treaty correctly can leave you paying tax to both HMRC and the IRS, with only partial relief available.

Tax-Free Lump Sums (UK vs. U.S.)

This component is exempt from tax in the UK but may not receive the same treatment in the United States. Its status is ambiguous under both the US tax code and the UK–US double taxation agreement. We therefore recommend obtaining advice from a locally regulated US tax adviser, as treatment can in some cases vary by state.

SIPPs, QROPS & Foreign Pensions in the U.S.

SIPPs - In the U.S., a SIPP is recognised as a foreign pension plan. This means growth is tax deferred as in the UK. Distributions are then taxable.

QROPS - Existing QROPS are also recognised foreign pensions however, their use has been negated due to the Overseas Transfer Charge of 25% now being in place.
Defined Benefit Schemes - Distributions are subject to US income tax at your marginal rate, making it important to structure withdrawals strategically to prevent unnecessary exposure to higher tax brackets.

Maximising Your UK-Based Pension Benefits While Living in the U.S.

Apply the Treaty Correctly — Ensure HMRC and your pension provider have the correct residency documentation.

Time Withdrawals — Plan pension distributions to fit within optimal U.S. tax brackets.
Manage Currency Conversion — Stagger conversions to reduce exposure to volatile exchange rates.
Coordinate with U.S. Retirement Accounts — Integrate your UK pension strategy with your IRA or 401(k) for tax efficiency.

Planning for the Long Term

  If staying in the U.S., Prioritise U.S. tax efficiency and align pension withdrawals with other retirement income.
If returning to the UK, understand how moving back changes your pension taxation and how to manage U.S. assets in the UK tax environment.

Practical Steps You Can Take Today

  Obtain up-to-date valuations for all UK pensions.
Identify your pension type(s) and their U.S. tax treatment.
Review eligibility for treaty benefits and submit the required HMRC forms.
Keep detailed records of contributions, valuations, and withdrawals.
Consult a cross-border financial adviser experienced in UK–U.S. retirement planning.

Top Tip

Before taking any taxable pension withdrawals, notify your UK provider of your U.S. residency and have all treaty forms in place - this is the simplest way to prevent unnecessary UK tax withholding.

Final Thoughts

Your UK pensions may be one of your largest financial assets, but without proactive, cross-border planning, unnecessary tax and poor timing can erode their value.

At The Wealth Genesis, we help British expats in the U.S. navigate UK pensions with confidence, applying the treaty correctly, structuring withdrawals for maximum efficiency, and integrating pensions into a broader U.S. retirement strategy.