Introduction Pension planning is complicated enough in a single country. Add a second country to the picture, and it becomes one of the most technically demanding areas of personal tax. An American living in the UK may hold a SIPP, a 401 (k)k from a previous US employer, a traditional IRA, a Roth IRA, and […]
Pension planning is complicated enough in a single country. Add a second country to the picture, and it becomes one of the most technically demanding areas of personal tax.
An American living in the UK may hold a SIPP, a 401 (k)k from a previous US employer, a traditional IRA, a Roth IRA, and a UK workplace pension — all at the same time. Each of these is taxed differently in the UK. Each is taxed differently in the United States. And the two systems do not align.
Getting this wrong can mean paying tax twice on the same retirement income, or failing to make the mandatory minimum distributions from a 401(k) and incurring a harsh IRS penalty. Or taking a UK pension lump sum that is tax-free in the UK but fully taxable in the United States.
Specialist US and UK tax accountants with deep pension expertise are essential for anyone in this position. This guide explains the key rules, the most dangerous traps, and what a properly coordinated advisory engagement looks like. Contact Jungle Tax at https://www.jungletax.co.uk/ for specialist guidance.
US and UK tax accountants are dual-specialist practitioners who hold concurrent expertise in both US federal tax law and UK tax law.
For pension and retirement planning, this dual expertise covers: the UK tax treatment of SIPPs, workplace pensions, and pension lump sums; the US tax treatment of 401ks, IRAs, and Roth IRAs; the provisions of Article 17 of the US-UK Double Taxation Convention that govern the taxation of pensions; and the interaction of required minimum distributions, foreign tax credits, and the treaty exemption elections available to UK-resident US persons.
A UK-only financial adviser or accountant cannot advise on the US treatment of a UK pension. A US-only CPA cannot advise on the UK treatment of a 401 (k) distribution. Only genuine US and UK tax accountants can manage both sides correctly.
The IRS guidance on the taxation of pension and annuity income is published at:
https://www.irs.gov/publications/p575
Pension planning sits at the intersection of income tax, inheritance tax, and treaty law in both jurisdictions.
A decision that is sensible from a UK perspective — such as taking a tax-free lump sum from a SIPP — can trigger a large US tax liability. A decision that is sensible from a US perspective — such as taking Roth IRA distributions — may be taxed in the UK as foreign pension income.
The US-UK Double Taxation Convention contains specific pension provisions under Article 17. These provisions interact with the UK treaty exemption election for US pensions in ways that most generalist advisers do not understand.
This guide is written for US citizens and permanent residents who are UK residents and who hold pension or retirement assets in either or both countries.
It is equally relevant to those approaching retirement who need to understand the tax consequences of drawing down pension income across both jurisdictions. And it applies to anyone who has left the United States and retained a 401 (k) or IRA without understanding the ongoing US reporting and distribution obligations.
The SECURE 2.0 Act, passed in December 2022, changed the age at which required minimum distributions must begin from US retirement accounts.
The RMD age increased to 73 in 2023 and will increase again to 75 in 2033. For a UK-resident US person who has been deferring distributions from a 401 (k) or traditional IRA, this change significantly affects the planning timeline.
Missing an RMD triggers a 25 percent penalty on the amount that should have been distributed. This penalty is reduced to 10 percent if corrected within two years. Specialist US and UK tax accountants track RMD obligations and ensure distributions are taken correctly and on time.
The UK Autumn Budget 2024 announced that most unused pension funds will be included in the deceased’s estate for UK inheritance tax purposes from April 2027.
This is a fundamental change to UK pension planning. Currently, defined contribution pension funds — including SIPPs — pass outside the estate on death. They will be subject to IHT starting in April 2027.
For a US person with a SIPP and a US estate, this change creates a potential double exposure: UK IHT on the SIPP and US estate tax on the same fund. Our related guide on US and UK tax advisors for generational wealth planning covers the estate planning implications in detail.
Under Article 17 of the US-UK Double Taxation Convention, a US person who is a resident of the United Kingdom can elect to have their UK pension treated as if they were a UK resident for US tax purposes.
This election can defer or reduce the US tax on UK pension contributions and growth. But it must be made correctly and claimed on the US return. Most UK-based US persons have never made this election because their advisers did not know it was available. The US-UK treaty is published at:
https://www.gov.uk/government/publications/usa-tax-treaties
One of the most adaptable types of pensions is a self-invested personal pension. vehicles available in the UK. Contributions receive tax relief at the marginal UK income tax rate. Growth inside the SIPP is free of UK income tax and capital gains tax. At retirement, up to 25 percent of the fund can be taken as a tax-free lump sum. The remainder is drawn as taxable income.
For a US person, the UK SIPP is not automatically recognized as a pension for US tax purposes. The Article 17 treaty election allows the SIPP to be treated as a pension equivalent — meaning contributions receive the same treatment as contributions to a US qualified plan. Without the election, growth inside the SIPP may currently be taxable in the United States.
Specialist US/UK tax accountants correctly make the treaty election on the US return and ensure the SIPP is reported on Form 8938 when its value exceeds the FATCA threshold.
A 401 (k) is a US employer-sponsored retirement plan. Contributions are made pre-tax, and the fund grows tax-deferred. Distributions are taxed as ordinary income in the United States.
In the United Kingdom, a 401 (k) is treated as a foreign pension under Article 17 of the US-UK Double Taxation Convention. Distributions are taxable in the UK as pension income. The foreign tax credit for US federal tax already paid on the same distribution can offset the UK liability.
However, if distributions are not taken and the 401 (k) simply grows, the question of whether the accrued growth is taxable in the UK depends on the treaty position. This analysis requires specialist advice from genuine US and UK tax accountants.
A Roth IRA is funded with after-tax US dollars. Growth is tax-free in the United States. Qualified distributions are entirely tax-free — no US income tax, no reporting obligation on withdrawal.
In the United Kingdom, the position is different. HMRC does not recognize the Roth IRA as a pension. It is treated as a foreign trust or a foreign investment account. The income and gains inside the Roth IRA may be taxable in the UK as they arise, even though they are completely exempt in the United States.
This creates a genuine risk of double taxation. The Roth IRA is the single most misunderstood retirement account for UK-resident US persons. Specialist US and UK tax accountants analyze the correct UK treatment and advise on the optimal strategy for each client’s specific situation.
Cross-border pension planning requires a structured approach. Every retirement account must be assessed separately in both jurisdictions.
Step one — Full retirement account inventory.
The adviser identifies every pension and retirement account held by the client in both countries. This includes SIPPs, workplace pensions, final-salary schemes, 401(k)s, traditional IRAs, Roth IRAs, and any inherited retirement accounts.
Step two — Treaty position analysis.
The treaty position is confirmed for each account under Article 17 of the US-UK Double Taxation Convention. Where the Article 17 election is available and beneficial, the adviser makes or confirms the election on the US return.
Step three — FATCA and FBAR reporting.
UK pension funds — including SIPPs and workplace pensions — may be reportable on Form 8938 if the value exceeds the applicable FATCA threshold. US retirement accounts held by a UK resident may also create FBAR obligations, depending on the account structure. The FBAR filing system is available at:
https://bsaefiling.fincen.treas.gov/main.html
Step four — RMD tracking for US accounts.
The adviser tracks required minimum distribution obligations for all US retirement accounts. RMDs must begin at age 73 under the SECURE 2.0 rules. The correct distribution amount is calculated each year and reported on the US federal return.
Step five — Distribution planning.
Before any distribution is taken from either a UK or US retirement account, the adviser models the combined UK and US tax position. The foreign tax credit is calculated. The optimal timing and amount of distributions — including the sequencing of different account types — is advised.
Step six — Lump sum planning.
A UK pension lump sum of up to 25 percent of the fund is tax-free. But it is not tax-free in the United States. The adviser models the US tax cost of the lump sum and advises on whether to take it, defer it, or structure it differently.
Step seven — Estate and IHT planning for pension assets.
From April 2027, SIPP funds will be included in the UK estate for IHT purposes. The adviser models the combined UK IHT and US estate tax exposure on pension assets. Planning strategies — including drawdown timing and beneficiary designation — are reviewed in light of both systems.
The HMRC guidance on pension income and tax is published at:
https://www.gov.uk/tax-on-pension
Jonathan is a US citizen. He has been a UK resident for fourteen years.
He holds: a 401 (k) from his previous US employer worth approximately $340,000; a traditional IRA worth approximately $180,000; a Roth IRA worth approximately $95,000; and a SIPP established through his current UK employer worth approximately £220,000.
When Jonathan approached Jungle Tax at age 61, he was planning to retire within three years. He had never taken professional advice on the cross-border pension position. His UK financial adviser had told him his pensions were fine. His New York CPA had simply reported the 401 (k) and IRA on his US return without addressing the UK treatment.
The review identified several serious issues.
First, the SIPP had never had the Article 17 treaty election made on the US return. Growth within the SIPP may have been taxable in the United States in each year of accumulation. This was a multi-year exposure that needed careful assessment.
Second, the Roth IRA was being treated as entirely invisible from a UK perspective. HMRC’s position on Roth IRA income was not straightforward. The income and gains inside the Roth had potentially been taxable in the UK as they arose.
Third, Jonathan had not yet begun taking RMDs from his 401(k). At age 61, he was not yet required to do so. But the adviser modeled the RMD amounts that would arise from age 73 and confirmed the UK treatment of those distributions.
Fourth, the SIPP was not included in his FATCA reporting on Form 8938. The value had exceeded the reporting threshold for several years.
Jungle Tax coordinated a full remediation and pre-retirement planning exercise.
The Article 17 election was filed for the SIPP for the current and prior years. The Roth IRA position was assessed, and a strategy to manage the UK tax exposure was designed. The FATCA reporting was corrected.
A retirement income plan was prepared covering all four accounts. The plan sequenced distributions to minimize the combined UK and US tax cost. The UK pension lump sum was modeled, and the US tax cost of £55,000 (25 percent of the SIPP fund) was identified as a significant planning factor.
Contact our US/UK tax accountants at hello@jungletax.co.uk or 0333-8807974 if your retirement planning situation is similar.
Without the Article 17 election, growth inside a UK SIPP may currently be taxable in the United States. Many UK-resident US persons have never made this election. Their US CPA was not aware it was available. Their UK financial adviser does not prepare US returns.
The election must be made on the US federal return. It is not made automatically. A US-UK tax accountant’s engagement ensures the election is made correctly and maintained year on year.
The UK 25 percent pension commencement lump sum is tax-free. It is not tax-free in the United States.
A UK pension lump sum of £100,000 is a fully taxable distribution for US federal income tax purposes. At the top marginal rate of 37 percent, this results in a US tax liability of approximately $46,000 for a single distribution. Many retirees are completely unaware of this until it is too late to plan around it.
A UK-resident US person who holds a traditional IRA or 401 (k) must take required minimum distributions starting at age 73. Missing an RMD triggers a 25 percent penalty on the amount that should have been distributed.
Many UK residents are unaware that RMD obligations continue regardless of where they live. A US-UK tax accountant’s engagement tracks these obligations and ensures distributions are taken and reported correctly. The IRS guidance on RMDs is published at:
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
A Roth IRA is completely tax-free in the United States. HMRC does not treat it in the same way.
The income and gains inside a Roth IRA may be taxable in the UK as they arise — even though they will never be taxed in the United States. This creates a genuine risk of double taxation that requires specialist analysis. The correct UK treatment depends on the specific structure of the Roth IRA and the investor’s UK residence and domicile position.
A UK SIPP may be a specified foreign financial asset for FATCA purposes. Where the value exceeds the applicable threshold — $200,000 at year-end or $300,000 at any point during the year for single filers abroad — it must be reported on Form 8938.
Many US persons with SIPPs have never included them on Form 8938. Their UK financial adviser has not raised this obligation. Missing Form 8938 carries a penalty of $10,000 per year.
Jungle Tax is a specialist US-UK cross-border tax advisory firm. Our team includes IRS Enrolled Agents and UK-qualified tax practitioners with specific experience in cross-border pension and retirement planning.
We advise clients holding SIPPs, workplace pensions, 401(k)s, traditional IRAs, and Roth IRAs in both jurisdictions. We make the Article 17 treaty election where it is beneficial. We manage FATCA and FBAR reporting for pension accounts. We track RMD obligations. And we model the combined UK and US tax cost of every distribution decision before it is made.
We also advise on the estate and IHT planning implications of pension assets — including the impact of the April 2027 changes to UK pension IHT — and on the interaction of pension income with the new non-domicile residency rules from April 2025.
You can find further information on our page at https://www.jungletax.co.uk/ or read our related guide to US-UK tax services for HNW investors.
If you hold pension or retirement assets in both the UK and the United States, contact our US UK tax accountants at hello@jungletax.co.uk or call 0333-8807974 today.
Cross-border pension and retirement planning is one of the most technically demanding areas of US-UK tax. It requires specialist US and UK tax accountants who understand both systems and their interaction.
Three points from this guide matter most.
First, the UK pension lump sum that is tax-free in the United Kingdom is fully taxable in the United States. Planning for this before taking the lump sum is essential.
Second, the Article 17 treaty election for UK SIPPs must be made actively on the US return. Without it, growth inside the SIPP may currently be taxable in the United States.
Third, the Roth IRA — entirely tax-free in the United States — may create taxable income in the United Kingdom. The UK treatment requires specialist analysis for each client’s specific position.
Speak to a Jungle Tax adviser today — contact us at hello@jungletax.co.uk or visit our website https://www.jungletax.co.uk/ to learn more.
It depends on whether the Article 17 treaty election has been made. Without the election, growth inside a SIPP may be currently taxable in the United States, because the IRS does not automatically recognize the SIPP as a pension equivalent. The Article 17 election, made on the US federal return, allows the SIPP to be treated as a qualifying pension plan. With the election in place, contributions receive treaty-equivalent treatment and growth is tax-deferred for US purposes. Specialist US and UK tax accountants make this election as part of the annual filing process.
No. The UK pension commencement lump sum — up to 25 percent of the pension fund — is tax-free under current rules. But it is not tax-free in the United States. The lump sum is treated as a taxable distribution for US federal income tax purposes. At the top marginal rate, the US tax cost can be high. Specialist US and UK tax accountants model the combined UK and US tax cost of taking the lump sum before any decision is made.
Under Article 17 of the US-UK Double Taxation Convention, distributions from a 401 (k) or traditional IRA are taxable in the United Kingdom as pension income. The foreign tax credit for US federal income tax already paid on the same distribution can offset the UK liability. Growth within the accord during the accumulation phase is generally deferred in the UK under the treaty position, but the analysis is fact-specific. Specialist US and UK tax accountants confirm the UK treatment of each account before any distributions are made.
Required minimum distributions are mandatory annual withdrawals from US traditional IRAs, 401(k)s, and most other US retirement accounts. Under the SECURE 2.0 Act, RMDs must begin at age 73. The obligation applies regardless of where the account holder lives. A UK-resident US person who holds a traditional IRA or 401 (k) must take the required distribution each year or face a penalty of 25 percent of the amount that should have been distributed. Specialist US and UK tax accountants track RMD amounts and ensure distributions are reported correctly in both jurisdictions.
HMRC does not recognize the Roth IRA as a pension in the same way the IRS does. The income and gains inside a Roth IRA may be taxable in the UK as they arise — even though they are completely tax-free in the United States. The precise UK treatment depends on the investor’s residence and domicile status and on how the Roth IRA is characterized under UK law. This is one of the most complex areas of US-UK cross-border pension planning. Specialist US and UK tax accountants provide a specific analysis of each client’s Roth IRA position.
Yes. From April 2027, most unused UK pension funds — including SIPPs — will be included in the deceased’s estate for UK inheritance tax purposes. For a U.S. person SIPP holder, this creates a potential double exposure: UK IHT on the pension fund and US estate tax on the same asset as part of the worldwide estate. The US-UK estate and gift tax treaty may provide partial relief from double taxation. But the interaction of the two systems on pension assets requires careful planning — and specialist advice from US and UK tax accountants — before the April 2027 changes take effect.
