How the US taxes your UK workplace pension

You were most likely enrolled without being asked. Automatic enrolment puts a worker aged 22 or over and under State Pension age, earning more than £10,000 a year, into a workplace pension, with at least 8% of qualifying earnings going in and at least 3% of that from the employer. For 2026/27 qualifying earnings are the band between £6,240 and £50,270. Nothing in those rules turns on nationality, and the Pensions Act 2008 stops an automatic enrolment scheme requiring a form or a choice from you to stay a member, so a US citizen is enrolled like anyone else.

What the treaty gives you

The treaty's saving clause lets the US tax its citizens as if the treaty did not exist. The 2002 protocol added Article 18(5) to the short list of exceptions to that clause, which is why this paragraph works for a US citizen when most of the treaty does not. It applies where you are a US citizen resident in the UK, working in the UK for a UK employer, paid income that is taxable in the UK, and a member of a pension scheme established in the UK. For contributions and benefits attributable to that job:

• Your own contributions are deductible, or excludable, on your US return.
• Your employer's contributions, and the benefits that accrue under the scheme, are not treated as part of your US taxable income.

Both apply only to the extent that the contributions or benefits get UK tax relief. Relief on your own contributions reaches you in one of three ways, depending on the scheme: taken from pay before tax, topped up by the provider at the basic rate, or given up from salary in return for an employer contribution. The treaty's condition is the UK relief, not the route it takes.

The US ceiling

The relief cannot exceed what the US would allow its own residents for a generally corresponding US scheme. The US Treasury's technical explanation of the treaty describes the result as the lesser of the UK relief and the relief a comparable US scheme would get. Neither document names the US figures for this paragraph. For a defined contribution workplace scheme the obvious comparison is a 401(k), whose 2026 limits are $24,500 of employee deferrals, $8,000 more from age 50 or $11,250 at ages 60 to 63, and $72,000 of contributions in total. How a UK scheme is measured against those is a question for a cross-border specialist. Whatever goes in above the ceiling gets no treaty relief.

The same paragraph counts relieved UK contributions as contributions to a US scheme when your eligibility for US plans is worked out. The technical explanation's example is the annual limit on contributions to an IRA.

Which schemes it covers

Article 18(5) applies only to a scheme the US competent authority has agreed generally corresponds to a US scheme. The exchange of notes signed with the treaty does that by listing UK employer schemes approved under Chapter I of Part XIV of the Income and Corporation Taxes Act 1988, personal pension schemes approved under Chapter IV, and substantially similar schemes set up under later legislation. The technical explanation then narrows paragraph 5 to the employer schemes, on the reasoning that it applies only to people employed by a UK employer. UK pension schemes are now registered with HMRC under the Finance Act 2004, and no published US agreement maps the 1988 list onto today's schemes.

That puts the two kinds of workplace scheme in different places. A trust-based scheme, such as Nest or another master trust, or a single-employer occupational scheme, is the closest match to the employer schemes the technical explanation describes. A group personal pension or group SIPP is legally a personal pension that your employer arranged. Personal pensions are on the treaty's list, but not on the technical explanation's reading of this paragraph, so relief through one rests on thinner ground. The same split decides whether the scheme is a foreign trust; see Form 3520 and your UK pension.

Growth inside the scheme

Article 18(5) keeps the benefits that accrue under the scheme off your US income, and neither the treaty nor the technical explanation says whether that phrase reaches investment growth in a defined contribution pot. The technical explanation speaks to growth directly, under Article 18(1): a US citizen resident in the UK "will not be subject to tax in the United States on the earnings and accretions of a U.K. pension fund". The treaty's own wording of Article 18(1) covers a scheme established in the other country from the one you live in, which a UK scheme is not for someone living in the UK, and nothing published since reconciles the two. The explanation is the US Treasury's own account of the treaty, which is why it carries weight, but it is not the treaty.

Funds inside the pension raise the PFIC question as well. IRS regulations excuse a member of a treaty-protected pension fund from filing Form 8621 for the funds it holds, where the treaty taxes the fund's income only when it is paid out. That removes the form. The regulation does not say it removes the PFIC tax regime.

Where the treaty does not reach

Above the US ceiling, for a job not paid by a UK employer, or for a scheme outside the agreed list, ordinary US law applies. For a scheme held in trust, section 402(b) of the Internal Revenue Code includes employer contributions in your income once your right to them is vested, and your own contributions come from pay that has already been taxed. Amounts taxed on the way in become your cost in the pension, which is not taxed again when it is paid out, but employer contributions left untaxed only because of the foreign earned income exclusion do not count towards that cost.

Taking the money

UK rules let you draw a pension from 55, rising to 57 on Apr 6, 2028, and usually take up to 25% as a tax-free lump sum, capped at £268,275. The US side is less generous. The technical explanation states that a US citizen resident in the UK who receives a pension is subject to US tax on it. UK tax paid on the same income can be credited against the US bill, as the treaty page explains.

A lump sum can be taxed by the US too. Article 17(2), which would leave a lump sum to the UK, is not one of the saving clause exceptions, and HMRC's own treaty manual concludes that "the US can tax lump sums received by US citizens from UK schemes". A lump sum that is tax-free in the UK leaves no UK tax to credit against that US bill.

What you report

The scheme reports nothing about you. Pension schemes registered with HMRC are exempt products under the UK-US FATCA agreement, so what the IRS learns about the pension comes from your own filings.

• The FBAR. Its exemption for retirement plans names US plans under sections 401(a), 403(a) and 403(b), and IRAs. Nothing in it covers a foreign pension; see the FBAR.
• Form 8938. Its instructions tell you to report your interest in a foreign pension plan, valued at the fair market value of your beneficial interest at the end of the year; see Form 8938.
• Forms 3520 and 3520-A. A trust-based scheme can be a foreign trust, subject to the exemption in Revenue Procedure 2020-17; see Form 3520.
• Form 8833. Taking a treaty position normally means disclosing it, with a $1,000 penalty for each failure. The regulations waive disclosure where a treaty reduces or modifies the taxation of income from pensions, and they do not say whether that waiver reaches relief on contributions or growth. Settle that with a specialist rather than assuming it.

Opting out

You can opt out within a month of being enrolled and get back what you have already paid in; after that, payments usually stay in the pension until you retire. Your employer re-enrols you on its three-yearly cycle. Leaving ends contributions from both sides, the employer's included.

If you move back to the US

Once you are resident in the US, Article 18(1) fits on its plain words: growth in a UK scheme is taxed only when it is paid out. The paragraph that relieves new contributions to a home-country scheme while you work abroad, Article 18(2), survives the saving clause only for people who are neither US citizens nor green card holders, so it does nothing for a US citizen paying into a UK scheme from a US job.

Sources

• US-UK income tax treaty, 2001
• Protocol amending the treaty, 2002
• Exchange of notes on the treaty, 2001
• US Treasury technical explanation of the treaty and protocol
• HMRC Double Taxation Relief Manual, DT19853
• IRS Notice 2025-67, 2026 retirement plan limits
• Internal Revenue Code section 402
• Internal Revenue Code section 72
• Treasury Regulations section 301.6114-1, treaty disclosure
• IRS instructions for Form 8938
• IRS instructions for Form 8621
• FinCEN, FBAR filing instructions
• GOV.UK, workplace pensions
• The Pensions Regulator, earnings thresholds
• Pensions Act 2008, section 17
• HMRC, UK-US FATCA agreement, Annex II
• GOV.UK, tax on your private pension
• Finance Act 2004, section 279, minimum pension age