Form 3520 and your UK pension

This is the one question where the legal shape of your pension matters more than who sold it to you. Most of this site treats a pension as a wrapper and asks what you can hold inside it. The foreign trust rules ask something different: who legally holds the money.

Which UK pensions are trusts

Two structures sit behind the word pension in the UK. A trust-based scheme, which covers master trusts such as Nest and single-employer occupational schemes, has trustees holding the assets with you as a beneficiary. A contract-based scheme, which covers SIPPs and group personal pensions, is a contract between you and a provider, with no trust in the picture.

You probably did not choose. Automatic enrolment puts the decision with your employer, so a US citizen can accumulate two or three trust-based pensions across a few jobs without ever being asked, and without anyone mentioning that the structure carries a US reporting question. Changing jobs twice is enough to acquire the problem.

What the two forms are

Form 3520 is the annual return you file to report transactions with a foreign trust: money going in, money coming out, and ownership of it. Form 3520-A is the foreign trust's own annual information return, and where a US person is treated as the owner it is that person who carries the consequence of it not being filed, which in practice means filing a substitute themselves. A UK pension trustee has no reason to file a US form, so the substitute route is the realistic one.

The penalties are why this is worth attention rather than a footnote. The initial penalty is generally the greater of $10,000 or 35% of property transferred to the trust, 35% of distributions received from it, or 5% of the trust assets treated as owned by you where the 3520-A is missing. A reasonable cause exception exists.

The exemption, and its two gates

Revenue Procedure 2020-17 exempts what it calls an applicable tax-favored foreign trust from this reporting entirely. Two separate gates have to be passed.

The first is you. An eligible individual is one who has filed the US returns covering the period and has reported, where US law required it, the contributions, earnings and distributions connected to the scheme. Someone who has not been filing cannot reach for the exemption to explain why the forms are missing.

The second is the scheme. A tax-favored foreign retirement trust has to exist to provide retirement benefits, be tax-favored under its own country's law, report annually to its own tax authority, accept contributions only out of earnings from personal services, restrict withdrawals until a retirement age or penalise early ones, and, where an employer maintains it, be non-discriminatory across rank and file employees. A UK registered pension scheme meets those comfortably.

Where a UK pension gets stuck

On contributions. The revenue procedure accepts a scheme whose contributions are limited in any one of three ways: by a percentage of the participant's earned income, by an annual cap of $50,000 or less, or by a lifetime cap of $1,000,000 or less.

Two of those three are unavailable to a UK pension. The annual allowance is £60,000, which is above the dollar figure at any recent exchange rate, and the lifetime allowance was abolished in April 2024, so there is no lifetime cap left to point at. Everything therefore rests on the first branch, and the argument runs that UK tax relief is capped at 100% of your annual earnings, which is a limit expressed as a percentage of earned income.

That argument is plausible and it is not settled. The obvious weakness is that employer contributions are not limited by your earnings at all; they run up against the annual allowance instead, which is a flat figure rather than a percentage. A workplace scheme where your employer pays in is exactly the case where the reasoning is weakest, and it is also the most common case. If you are relying on this exemption, it is worth paying a cross-border adviser to reach a view on your particular scheme and to record why.

What the exemption does not do

It does not touch anything else. The revenue procedure removes reporting under section 6048, which is these two forms, and states in terms that it leaves every other obligation in place, naming the FBAR specifically. A pension outside Form 3520 can still belong on the FBAR and on Form 8938.

It also does nothing for an ISA. There is a second category in the revenue procedure for non-retirement savings, but it reaches only trusts providing medical, disability or educational benefits, and general savings falls outside it. The ISA position is unchanged and is covered in how the US taxes an ISA.

Reporting is not taxing, and none of this decides what the US charges on the pension itself. For that, read how the US taxes your UK pension and the treaty and its saving clause.