A Comprehensive Guide To UK Pension Planning In The USA
This article breaks down how your UK pension interacts with US tax systems, explores pension management options for US residents, and highlights the steps you can take to secure your retirement while living in America.
- How UK pensions in the us are treated by the IRS
- Understanding the different components of your UK pension schemes
- Transfer options to gain more flexibility in retirement
- An overview of the UK-US double taxation agreement
UK Pensions In The USA
For many British expats who now call the United States home, understanding how their UK pensions fit into their US financial plan can feel overwhelming. Whether you hold a private pension, state pension, or a self-invested personal pension (SIPP), it’s essential to know how your UK pension income will be treated under US tax rules.
While your UK pension remains governed by UK law and regulations, as a US resident, your pension income is typically taxable in the US. However, thanks to the US–UK Double Taxation Agreement, you can often avoid being taxed twice on the same income.
Pension Management For US Residents
Understanding the Tax Treatment of UK Pensions
Your UK pension contributions were likely made from pre-tax income, meaning your pension pot has grown tax-deferred. Once you start drawing UK pension income in the US, that income becomes part of your taxable income under US tax rules.
Private pensions and SIPPs: The US generally taxes withdrawals as ordinary income.
Tax-free lump sum: The UK allows up to 25% of your pension to be taken as a tax-free lump sum, but the IRS may view this differently. Its tax treatment in the US can vary by state and individual circumstances.
State pension: Your UK state pension is also taxable in the US, though you can claim treaty benefits to avoid double taxation.
Because of the complexity of tax rules between the two nations, working with a UK–US qualified adviser is essential. They can ensure that your pension income is reported correctly in both jurisdictions and that you benefit fully from the double taxation treaty.
Top Tip
View your UK and US retirement savings as 2 separate pieces in your overall retirement picture. Your UK pensions can never be physically transferred into a US retirement account, and vice versa. So whilst they will always remain 'separate', they still need to be incorporated into your financial planning, cash flow forecasts and investment strategy.
Using an International SIPP (Self-Invested Personal Pension)
For many British expats, an International SIPP, sometimes called a US SIPP, is the most flexible and efficient way to manage UK pensions in the US.
An International SIPP is a UK-registered, HMRC-approved pension scheme designed specifically for expats. It allows you to:
Consolidate multiple UK pension pots into one account
Hold your investments in US dollars, reducing currency risk
Enjoy flexible draw-down options to control your income flow
Receive pension income directly into your US bank account
Continue working with an FCA-regulated and FSCS-protected pension provider
While transferring to an International SIPP can offer freedom and simplicity, it’s important to evaluate any potential costs or implications before doing so. Some transfers may incur advisory or administrative fees, so professional guidance is key.
Avoiding Double Taxation on UK Pension Income
The UK–US Double Taxation Agreement plays a crucial role in protecting your retirement income. It ensures that UK pension income isn’t taxed twice, provided it’s properly declared and structured.
Here are a few strategies to help minimise your exposure:
Claim treaty benefits under the US-UK tax treaty
Ensure pension contributions and withdrawals are reported accurately
Time your withdrawals to avoid being pushed into a higher taxable income bracket
Work with a dual-qualified adviser to align both UK and US tax planning
With the right structure, your UK pension can complement your US retirement accounts (like IRAs or 401(k)s) to provide a well-balanced and tax-efficient income stream.
To understand how our independent UK-US qualified cross-border financial advisers can help with your retirement savings, schedule an initial consultation using the button below.
Your UK Pensions In The United States | Frequently Asked Questions
Can I claim both a US and UK pension?
Yes. If you’ve worked and contributed in both countries, you can claim benefits from each. Your UK state pension and US Social Security are independent of each other.
How is a UK pension taxed in the US?
Your UK pension income is treated as taxable income in the US. However, the double taxation treaty prevents you from being taxed twice.
Can I transfer my UK pension to a US pension?
Not directly. UK pensions can’t be transferred into US retirement accounts like IRAs or 401(k)s. However, you can consolidate them into an International SIPP.
Does the UK have a double taxation agreement with the USA?
Yes. The UK–US Double Taxation Agreement ensures income isn’t taxed twice on both sides of the Atlantic.
Are US citizens double taxed in the UK?
No, provided you correctly claim treaty benefits and declare your income properly in both countries.
How to avoid double taxation in the US and UK?
Use the double taxation treaty, report your income correctly, and seek advice from a dual-qualified tax adviser.
Is my UK income taxable in the US?
Yes. As a US tax resident, your global income, including your UK pension income, is taxable in the US.
Are UK pensions taxable in the US?
Yes, they form part of your taxable income. You can, however, use treaty benefits to mitigate or eliminate double taxation.
Do I have to pay tax on my UK state pension?
Yes. The UK state pension is taxable in the US under the treaty, even though it’s not taxed in the UK.
What happens to my UK pension if I move to the USA?
It stays in the UK but can be accessed or consolidated via an International SIPP, providing flexibility and full access from the US.
How can I avoid double taxation in the UK and the US?
Declare your UK pension income properly in both countries and claim treaty benefits under the double taxation agreement.
Can US citizens have a SIPP?
Yes. US citizens with UK pension rights can hold an International SIPP that’s FCA-regulated and HMRC-approved.
Can I open a SIPP if I am not a UK resident?
Yes. Expats and non-residents can open an International SIPP to manage and consolidate UK pension pots.
How is a UK SIPP taxed in the US?
Withdrawals are generally taxed as ordinary income in the US. Lump sums may be taxed differently depending on your state.
What is the SIPP equivalent in the US?
The closest US equivalents are the IRA or 401(k), though they differ in regulation and flexibility.
Is UK pension income taxable in the US?
Yes, it forms part of your US taxable income, though you can claim treaty benefits to avoid double taxation.
How to avoid paying tax on your UK pension?
While you can’t entirely avoid tax, careful planning, such as timing withdrawals and claiming treaty benefits, can significantly reduce your liability.
