United Kingdom

Employers must enrol eligible workers in a workplace pension automatically,¹ and a worker who opts out is treated as never having joined, with the contributions refunded.² The employer and the worker each pay a percentage of the worker's earnings: since April 2019 the minimum is 8% in all, at least 3% of it from the employer.^3,4 Those are minimums: scheme rules can set higher rates, and where an employer pays more than the minimum, the worker may pay less.⁵ The government adds tax relief to the worker's contributions.⁶

A workplace pension used for automatic enrolment must be a registered pension scheme.⁷ Their investment income is free of UK income tax,⁸ members get tax relief on contributions up to their UK earnings,^9,10 and no pension may be paid before the normal minimum pension age, 55, rising to 57 on 6 April 2028, unless the member is in ill health.^11,12

Taking benefits. From the minimum pension age the tax rules let a scheme pay a defined contribution member's whole pot as cash, in one sum or in parts: as lump sums from money not yet used for benefits, a quarter of each free of UK tax, or by moving it into flexi-access drawdown, with a tax-free lump sum of up to a third of what goes in and no limit on what can then be withdrawn.^{13,14,15,16,17} Tax-free lump sums from all your pensions together are limited, from 6 April 2024, to £268,275, the lump sum allowance, unless you hold a protected allowance; for earlier years the lifetime allowance rules applied, which this guide does not cover.^18,19 Schemes do not have to offer drawdown, and the options open to you are the ones your scheme's rules give;^20,21 once you are no longer building up money purchase benefits in a scheme, you can ask to transfer that pot to a scheme willing to accept it, and the trustees then have up to 6 months to carry it out.^22,23,24,25 A defined benefit scheme can pay its pension only as a scheme pension, and may let you take part of your benefit as a tax-free lump sum, with the rest as a yearly pension; its rules decide when you can start it and whether paying it early needs anyone's consent.^26,27,28,29 If all your pension rights together are worth £30,000 or less, a defined benefit scheme can pay its benefits as one lump sum, and a scheme can pay out a small pot of up to £10,000, if its rules allow.^30,31 The tax rules do not require you to retire first, though a scheme's rules can.³² A member who leaves an occupational scheme with at least 3 months' service but no right to a deferred benefit can elect a refund of their own contributions or a transfer; where all of the benefit would be money purchase, 30 days' service already gives that right, so the refund is for other benefits.^33,34 A master trust, an occupational scheme providing money purchase benefits for employers not connected with each other, is covered here.³⁵

A foreign trust: UK law requires an occupational scheme run from the UK to be set up under trust.

A foreign trust, on our reading. An occupational pension scheme with its main administration in the UK may not accept contributions unless it is established under irrevocable trusts,³⁶ and HMRC notes that most registered pension schemes are set up under trust.³⁷ Trustees holding the scheme's assets for its members is what makes an arrangement a trust for U.S. purposes.³⁸ A scheme governed by UK law and run in the UK meets neither test for a domestic trust, so it is foreign.^39,40

No IRS guidance addresses the classification of UK pension schemes. An investment trust whose trustee can vary its investments is not classified as a trust,⁴¹ but we read a pension scheme held in trust as one. UK law defines a pension scheme by the retirement and similar benefits it provides, bars paying a pension before the minimum pension age, makes an occupational pension impossible to assign, and taxes an assignment from any registered scheme as an unauthorised payment,^42,11,43,44 and those are features of the funds the IRS has ruled privately are trusts, one of them a fund whose members chose their own investments.^45,46 A workplace pension written as individual contracts with an insurer is covered in the next block.

A §402(b) employees' trust on our reading; your contributions, salary sacrifice included, are your own.

No IRS ruling addresses UK workplace pensions, though the IRS has ruled privately that a similar foreign fund, with mandatory employer contributions and personal accounts, is a §402(b) trust.⁴⁷ We read a workplace pension held in trust as a §402(b) employees' trust: the employer must pay in for a worker it enrols,⁴ and a trust created outside the United States cannot be exempt under U.S. §501(a).⁴⁸ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,⁴⁹ and on our reading nothing suggests this plan meets §401(a).

On that reading, employer contributions are U.S. income to you in the year they are paid, to the extent they are vested,^50,51 and the foreign earned income exclusion cannot cover them.⁵² You are not treated as owner of the part they fund.⁵³ We read your own contributions as made at your election. You are enrolled automatically but may opt out, then or later,^2,54 and the IRS's reading of a similar fund treats amounts paid in at the employee's election as the employee's own, taxed as pay.⁵⁵ The U.S. rules for §401(k) plans, which do not govern a foreign plan, point the same way by analogy: automatic enrollment with a right to opt out still counts as an election.⁵⁶ Under salary sacrifice you give up part of your salary and your employer pays it into your pension,⁵⁷ and an amount contributed at an employee's election is treated as the employee's.⁵⁸ Tax relief at source is part of your own contribution: you pay in net of basic-rate tax, the law treats you as having paid the tax deducted, and the scheme claims it from HMRC.⁵⁹

Once your own contributions have come to exceed your employer's, you are treated as owner of the part your contributions fund, if the grantor trust rules are otherwise met.⁶⁰ At the minimum rates, 5% from you and 3% from your employer, that is from your first payday;³ if your employer has always paid more than you, it has not happened. In a defined benefit scheme the minimum rates don't apply, and the employer's contribution for you may not be known; where it is not, the regulations work it out by actuarial methods,⁶¹ so whether your contributions exceed it depends on the scheme. No contribution to a §402(b) trust is a Part I event, your own included.⁶² Payouts from the employer's part are taxed under §72 when they are paid or made available to you,^63,64 and they stay off Part III if you report them as compensation income,^65,66 unlike payouts from a part you own.⁶⁷

Money made available. An amount is made available, on the IRS Chief Counsel's reading of a similar fund, whenever you could receive it just by giving notice that you want it,⁶⁸ but not while your control of it is subject to substantial limitations or restrictions,⁶⁹ such as a right to withdraw that depends on showing hardship.⁷⁰ On the cautious course, what your scheme's rules let you take on request is made available from when you can ask for it, whether you take it, move it or leave it in the scheme, and that is not settled: no IRS guidance applies these rules to a UK scheme. That is from the minimum pension age, 55, or 57 from 6 April 2028,¹² or a lower protected pension age the scheme pays from.^71,72 Only the part you do not own counts: the part you own is taxed to you as owner, and its payouts go on Part III as they are paid.^60,67 In a defined contribution scheme whose rules offer cash lump sums or flexi-access drawdown, it is the whole of that part;^14,17 in one that offers only a pension, it is the tax-free lump sum you could take with the pension: a quarter of that part's value at 31 December, within your available lump sum allowance, or, for years before 2024-25, within the limit the lifetime allowance rules set, which this guide does not cover, less what was counted in earlier years;^73,16,18 in a defined benefit scheme, it is that part's share of the lump sum you could take with your pension, in the amount the scheme would pay, once its rules entitle you to start your pension without anyone's consent;^74,29 whether a lump sum you can have only together with a pension is made available before you choose it is not settled, and no IRS guidance addresses it, so the cautious course counts it; and in any scheme it includes that part's share of a small-pot or trivial commutation payout the rules let you take on request; one the trustees may refuse is not made available unless you control the trustees.^31,30,69 A trivial commutation payout and a lump sum taken with your pension are alternatives: count what is first made available once.⁷⁵ A money purchase part of a defined benefit scheme follows the defined contribution answer for the part of it you do not own; additional voluntary contributions are your own money, made at your election, which the scheme may pay at a different time from its main benefits.^55,76 The scheme may buy you a lifetime annuity, which an insurer pays, or pay you a scheme pension, itself or through an insurer it chooses.^77,78 Where a trust distributes an annuity contract, a regulation counts the contract's entire value as the distribution,⁷⁹ so on our reading an annuity bought in your name is a payout of its whole value that year, the share bought with a part you own as an owner's payout, while a pension the scheme keeps paying, itself or under a contract it holds, is taxed as each payment is made.⁶³ Whether choosing a pension instead of cash you could take escapes being made available is not settled, and the cautious course counts the cash from when you could ask for it.

Nothing is made available while the rules need the trustees' or your employer's consent, even if it has always been given,^29,80 unless you control the employer or the trustees whose consent is needed, when the cautious course treats that consent as given.⁶⁹ Nor is anything made available while the rules require you to leave your job and you have not,³² or by a payment left to the trustees' discretion, unless you control the trustees, when the cautious course treats the payment as one you can take on request.⁶⁹ Leaving the UK makes nothing available either: the payments a registered scheme may make are listed in its law, and none is for leaving the country.⁸¹ A refund of your own contributions when you leave ends every other benefit under the scheme, so on our reading it is not made available before you take it; it goes on Part III when paid.^34,82,69 Schemes do not have to offer cash or drawdown.²⁰ Once you stop building up benefits in one, you can ask to transfer to a scheme that does, but only to a scheme willing to accept the transfer, within up to 6 months, and, unless the receiving scheme is a public service scheme, an authorised master trust or an authorised collective money purchase scheme, only where none of the regulations' red flags, such as an unsolicited approach or an incentive to transfer, is found.^22,24,83,25 Whether the pot is made available before you move it is not settled; the cautious course reports the move when it happens, as the notes on moves at the end of this guide say. The strongest point against reading money as made available at all is that taking it flexibly costs a member who is still saving: from the first income withdrawal from flexi-access drawdown, or the first uncrystallised funds pension lump sum (a lump sum from money not yet used for benefits, other than a small pot or trivial commutation payout), money purchase saving above £10,000 a year (£4,000 before 2023-24) is charged under the annual allowance.^84,85 The 1981 explanation of these words counted a suspension of employer contributions after a withdrawal as a substantial restriction,⁸⁶ a court has held that a limitation from outside the plan's own terms, there an agreement among members not to withdraw, can be one, and said that economic conditions can be too,⁸⁷ and IRS officials have said a foreign penalty tax on early withdrawal could be.⁸⁸ Against that: this is a tax charge on later saving, not a cost to the money taken; it costs nothing to a member whose money purchase saving stays under the limit, and nothing more to one who has already taken money flexibly from any pension; and taking only the tax-free lump sum into drawdown, a small pot or a trivial commutation payout does not bring it in.^89,85 No IRS guidance treats such a charge as a restriction, so whether it stops money being made available is not settled, and the cautious course counts the money as made available. For the plan history's question on taking your balance on request, that course treats the lower allowance as nothing given up. On the cautious course the amount for a year is what is first made available in that year, not the whole balance again each year,⁶³ and what is taxed when made available is basis when it is paid.⁹⁰ If you could already take it before you became a U.S. person, when it was made available is not settled, and no IRS guidance addresses it. The argument against reporting it is that it was made available in a year before you were a U.S. person, so it was never U.S. income.⁶³ On that argument the money is taxed when it is paid instead, since an amount made available becomes basis only if it was included in income.^90,91 The cautious course treats what you could then take as made available in your first year as a U.S. person, on Part III, taxed above your basis subject to the treaty, as its step says, and your basis leaves out contributions for work done, and earnings made, while you were a nonresident alien that no country taxed;^63,91 what is credited to it later is made available as it is credited.⁶⁸ Whether money made available and left in the scheme then counts as your own money for Part II is not settled; read as never having left, it keeps its mix, and no IRS guidance addresses it.⁶⁰

If you are a highly compensated employee and one reason the scheme is not exempt is that it fails the U.S. coverage tests, you include your vested balance, less what has already been taxed to you, in income each year instead.⁹²

Rev. Proc. 2020-17: possible, with two open conditions: relief without earnings, and a limit on relief, not contributions.

Rev. Proc. 2020-17 exempts an eligible individual (one who has filed U.S. returns and reported the scheme's income as U.S. law requires)⁹³ from Forms 3520 and 3520-A for a retirement trust that meets its conditions.⁹⁴ A UK workplace pension points toward four of them. It is tax-favored: its investment income is free of UK income tax and contributions get relief.^8,6,95 HMRC may require the scheme to make returns covering contributions and the scheme's income.^96,97 Contributions are set as a percentage of earnings,³ though a scheme using relief at source can give relief on up to £3,600 a year to a member with no earnings,⁹ so this condition is open.⁹⁸ No pension may be paid before the minimum pension age except in ill health, and an unauthorised payment is taxed at 40%, with a 15% surcharge on large ones.^11,99,100 And the employer must enrol every eligible worker.^1,101

And the contribution limit is open too. Rev. Proc. 2020-17 wants contributions limited by a percentage of earned income or a dollar cap,¹⁰² but the UK limits tax relief, not contributions: relief stops at the member's UK earnings, and the annual allowance of £60,000 (since 2023-24) sets a tax charge on pension savings above it, not a bar on paying in.^9,103 With no IRS guidance on UK schemes, whether Rev. Proc. 2020-17 covers them is not settled.

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,¹⁰⁴ let a value test stand in for a contribution limit: your funds in the UK together at or under US$600,000 at every point in the year (adjusted for inflation from 2026).¹⁰⁵

Article 18(1) defers tax on scheme income until paid, not settled once made available; lump sums are taxed; 18(5) can exclude pay.

Under Article 18(1) of the U.S.-UK treaty, a U.S. resident who is a member of a UK pension scheme is taxed on the scheme's income only when it is paid out,¹⁰⁶ and the saving clause does not override that.^107,108 The Technical Explanation says it covers a U.S. citizen living in the UK too.¹⁰⁹ For a §402(b) scheme, on our reading, that defers the yearly income of the part you own, not the employer's contributions, which are your pay rather than the scheme's income.^106,50 In an information letter, the IRS has said that moving a UK employer scheme's income into a SIPP is not a taxable event in the U.S. when both are pension schemes under the treaty, and that a scheme in a third country is not one;^110,111 the IRS Chief Counsel, in advice that is not precedent, reads Article 18(1)'s words on transfers as needing, for a move between two schemes in the same country, only that country's transfer rules.¹¹² No IRS guidance says how such a transfer is reported on Form 3520.

For a U.S. citizen living in the UK and working there for a UK employer, Article 18(5) also keeps that work's contributions, yours and your employer's, out of U.S. income, up to what a generally corresponding U.S. plan would allow.^113,114 It applies only to a scheme the U.S. competent authority has agreed generally corresponds to a U.S. one. The exchange of notes agrees that the schemes it lists generally correspond, among them UK employer schemes approved under Chapter I of Part XIV of the Income and Corporation Taxes Act 1988, and extends the list to substantially similar schemes under later legislation;^115,116 the Technical Explanation reads Article 18(5) as reaching the employer schemes.¹¹⁷ We found no IRS statement that today's registered schemes are substantially similar. Someone working in the U.S. who is neither a U.S. citizen nor a green card holder, with contributions to the scheme, by them or their employer, before that work began, can get similar relief under Article 18(2) and (3), for a scheme the U.S. competent authority has agreed generally corresponds to a U.S. one.^118,119 Employer contributions kept out of income give you no basis, so they are taxed when paid out, or when made available, as the next paragraph says.¹²⁰ How your own contributions kept out of income are taxed once they fund a part you own is not settled, and no IRS guidance addresses it; the cautious course taxes them when paid out.^114,118,60 On the cautious course, contributions paid from taxed pay under relief at source get no relief, since a corresponding U.S. plan relieves only contributions made before tax; and contributions relieved under Article 18(5) count when working out what your own U.S. plans and IRAs allow.¹²¹

Money made available. Article 18(1) lets the U.S. tax the scheme's income only when, and as far as, it is paid to you or for your benefit,¹⁰⁶ and the Technical Explanation reads it as no U.S. tax on that income until a distribution is made.¹²² Whether that also defers U.S. tax on money made available but left in the scheme is not settled, and no IRS guidance addresses it. For the deferral: the treaty says "paid", and U.S. law separates an amount made available, one "not actually paid", from one paid or distributed.^123,124 Against it: §402(b)(2) taxes an amount in the year it is made available, under §72, a regulation treats such an amount as distributed, and the IRS's own advice on this article speaks of no tax until amounts are distributed;^63,125,126 the treaty leaves undefined words to U.S. tax law, whose withholding rules treat a payment as made when it would be income under the cash method.^127,128 Claiming the deferral is a treaty position, to disclose as the next paragraph says. The deferral, and the question, hold for a U.S. resident member and, on the Technical Explanation's reading of Article 18(1), for a U.S. citizen living in the UK.¹⁰⁹ Money with no U.S. basis that is not the scheme's income is outside the deferral: on the cautious course, contributions made while you were a nonresident alien that no country taxed are taxed when made available, and are then basis;^63,91,90 the IRS's advice on this article treats the scheme's income and pre-tax contributions separately.¹²⁹ Whether contributions kept out of U.S. income under Article 18(5) or 18(2) are taxed when made available is not settled: those paragraphs say the contributions are not to be treated as your taxable income, up to what a generally corresponding U.S. plan would allow, and a U.S. qualified plan is taxed only when it pays.^{113,130,118,124} In a year you claim the treaty's deferral this guide reads that money as part of your treaty position, taxed when paid and disclosed with it; in a year you do not, it is taxed when made available. Part III does not change: line 24 covers what you receive actually or constructively whether or not it is taxable, and an amount the treaty keeps out of income is not one you report as compensation income;^131,65 the IRS has said of Canadian plans that Forms 3520 and 3520-A still apply even where a treaty defers tax.¹³² Buying an annuity in your name is, on our reading, a payment for your benefit, which Article 18(1) does not defer; whether an insurer's annuity is itself a pension scheme under the treaty, so that the purchase is a transfer to another pension scheme, is not settled, and the cautious course treats it as a payout.^106,133

Payouts: a periodic pension is taxed in the U.S. only as far as the UK taxes it,^134,135 but a lump sum falls under Article 17(2), which gives the right to tax it to the country where the scheme is and which the saving clause does not spare, so the UK's tax-free lump sum is taxed in the U.S. for a U.S. citizen, or a resident of the U.S. under the treaty.^{136,107,137,16} Disclosing a treaty position on Form 8833 is waived for pensions and pay,¹³⁸ but the deferral under Article 18(1) is not clearly within that waiver; the cautious reading is to disclose it unless the amounts are $10,000 or less.¹³⁹

Part II and 3520-A for your part once it exceeds your employer's; Part III for payouts and, cautiously, cash on request.

Read as a §402(b) trust: no Part I for any contribution.⁶² No Part II or Form 3520-A for the employer-funded part. Part II and Form 3520-A can apply if your own contributions exceed your employer's, which at the minimum rates is from your first payday, and are then due each year for the part they fund.^53,60,140 No Part III for payouts from the employer-funded part that you report as compensation income.⁶⁵ Part III can apply if you receive a payout from a part you own, which goes on lines 24 and 27,⁶⁷ or a refund of your contributions on leaving, or, on the cautious course, a refund on opting out, or money in the part you do not own that is made available to you or moved out of the scheme, an annuity bought in your name included, unless you report it as compensation income: an amount made available is received constructively, and line 24 covers what you receive actually or constructively.^131,68 On that course the amount for a year is what is first made available in that year, not the whole balance again each year, and money made available and paid or moved out in the same year goes on Part III once.^63,141 Where Article 18(1) defers the tax on it, it is not reported as compensation income, so it goes on Part III.^106,65 Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^131,90,65 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^131,65 Where you claimed the treaty's deferral on part of an amount made available, that part is, on that position, which is not settled, taxed when it is paid, as the treaty step says, and the payout still goes on Part III.^106,131 Whether money made available and left in the scheme then counts as your own money for Part II is not settled; read as never having left, it keeps its mix, so this guide does not add a Part II for it.⁶⁰ No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules, and the income of a part you own is taxed to you each year, or when paid out under the treaty.^{63,142,143,106}

If the scheme is not treated as a §402(b) trust, each contribution you make is a Part I transfer and you are treated as owner of the part it funds, so Part I, Part II, Form 3520-A, and Part III all apply.^{144,145,140,141} Part I also applies at your death as a U.S. citizen or resident, if any part of the scheme is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.¹⁴⁶ Either way, an eligible individual whose scheme qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them.^94,104 On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^147,148,149 No IRS guidance names executors, and the revenue procedure's scope speaks of the eligible individual who would otherwise report.¹⁵⁰ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^151,152

An employer may meet its automatic enrolment duties through a personal pension scheme as well as an occupational one,¹⁵³ and a personal pension scheme is by definition not an occupational pension scheme.¹⁵⁴ A pension scheme may be established by trust, by contract, by board resolution, or by deed.¹⁵⁵

Not a trust if written purely as a contract with an insurer; if the documents don't say, treat it as held in trust.

Not a trust when it is written purely as a contract with an insurer: a trust for U.S. purposes needs trustees holding property for the beneficiaries,³⁸ and a contract creates no trustee. A scheme set up under trust, as HMRC says most registered schemes are,³⁷ is a foreign trust and follows the workplace pension block above.³⁹ No IRS guidance addresses UK group personal pensions, so check the scheme documents; if they don't make clear that there is no trust, the cautious course is to treat the scheme as held in trust.

Applies only if the scheme is a trust; employer premiums for an annuity contract are pay under §403(c).

§402(b) reaches only an employer's contributions to an employees' trust,⁵⁰ so it doesn't apply to a contract. An employer's premiums for an annuity contract are your income under the rules for property transferred for services;¹⁵⁶ no IRS guidance says whether a group personal pension is an annuity contract.

Not needed for a contract; for one held in trust, as for workplace pensions held in trust.

Not needed for a contract, since §6048 reaches only foreign trusts.¹⁴⁴ For a scheme held in trust, as for workplace pensions held in trust.⁹⁴

The same Article 17 and 18 rules as for workplace pensions held in trust.

The same as for workplace pensions held in trust: Article 18(1) defers U.S. tax on income of a UK pension scheme until paid out, though whether that reaches money made available is not settled, and a lump sum is taxed in the U.S. for a U.S. citizen, or a resident of the U.S. under the treaty.^106,137,107 The treaty's "pension scheme" covers a plan, scheme, fund, trust or other arrangement, so a contract can qualify.¹³³

Nothing on Form 3520 for a contract; one held in trust follows the block above.

For a contract: no Part I, Part II, Form 3520-A, Part III, or Form 4970, since Forms 3520 and 3520-A report foreign trusts.^144,140,141 For a scheme held in trust: as in the workplace pension block above.^53,60 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^151,152

The largest public service pension schemes, for NHS employees, teachers, civil servants, and the armed forces, are defined benefit schemes paid on a pay-as-you-go basis.^157,158 The Local Government Pension Scheme is not covered here: it is a funded scheme, with assets of its own,¹⁵⁹ and no IRS guidance says whether it is a trust.

Not a trust: the big public service schemes are unfunded, with no fund of assets.

Not a trust. Central government pension schemes are unfunded statutory defined benefit schemes, with no fund of assets which is invested,^158,160 and a trust for U.S. purposes needs trustees holding property for the beneficiaries.³⁸

Does not apply: there is no trust to contribute to.

§402(b) reaches an employer's contributions to an employees' trust,⁵⁰ and these schemes have no trust.¹⁵⁸

Not needed.

§6048 reaches only foreign trusts.¹⁴⁴

Taxed only in the UK, except for U.S. nationals living in the U.S.; U.S. citizens and green card holders are taxed either way.

Article 19(2) makes a pension paid by the UK for services to it taxable only in the UK, unless the person is a resident and a national of the U.S., when it is taxable only in the U.S.¹⁶¹ The saving clause keeps Article 19 only for someone who is neither a U.S. citizen nor a green card holder, so U.S. citizens and green card holders are taxed in the U.S. either way.^107,119

Nothing on Form 3520 or 3520-A.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: Forms 3520 and 3520-A report foreign trusts, and these schemes are not trusts.^144,140,141 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^151,152

A personal pension is a pension you arrange with a provider yourself; a self-invested personal pension (SIPP) is one that lets you choose the specific investments.¹⁶² The provider claims tax relief from the government at 20% and adds it to your pot, on contributions of up to your annual earnings, or £3,600 a year for someone with less.^163,9 From the minimum pension age you can take your pot as cash, buy an annuity or move it into drawdown, as far as your provider offers those options; if it offers none you want, you can ask to move your pot to another provider.^12,164 A quarter of what you take benefits from can be paid free of UK tax, and from 6 April 2024 tax-free lump sums from all your pensions together are limited to £268,275, the lump sum allowance, unless you hold a protected allowance; earlier years had the lifetime allowance rules, which this guide does not cover.^15,16,18,19

A foreign trust when held in trust, as most are; not a trust when written purely as a contract with an insurer.

A foreign trust when it is set up under trust, as HMRC says most registered schemes are:^37,38 governed by UK law and run in the UK, it meets neither test for a domestic trust.^39,40 On our reading, choosing your own investments in a SIPP doesn't change that: the same retirement purpose and limits on paying out and assigning apply,^11,44,41 and one of the funds the IRS ruled is a trust let its members choose their investments.⁴⁶ A personal pension written purely as a contract with an insurer creates no trustee, so it is not a trust.¹⁵⁵ Check the scheme documents; if they don't make clear that there is no trust, the cautious course is to treat it as held in trust.

Does not apply where no employer pays in.

§402(b) reaches only an employer's contributions to an employees' trust,⁵⁰ so it does not apply to a pension only you pay into. If an employer pays in, read that part as in the workplace pension block above.

Rev. Proc. 2020-17: unlikely, since contributions need not come from earnings. Proposed regulations: possible.

Rev. Proc. 2020-17 needs contributions only from earned income,⁹⁸ while a personal pension gives relief on up to £3,600 a year to someone with no earnings,⁹ so it is unlikely to cover one. The employer-plan condition does not apply to a pension no employer maintains.¹⁰¹ The proposed regulations need contributions only "generally" from earned income, allow for limited contributions by someone not working, and let a value test stand in for a contribution limit,^165,105,104 so they may cover a pension whose value stays at or under the threshold.

Article 18(1) defers U.S. tax on income until paid out; the tax-free lump sum is taxed for U.S. citizens and treaty residents.

Article 18(1) taxes the income of a UK pension scheme to a U.S. resident member only when it is paid out,^106,108 and the Technical Explanation says it covers a U.S. citizen living in the UK too.¹⁰⁹ For a pension you own, that defers U.S. tax on its yearly income. Article 18(5) covers only contributions from UK employment.¹¹³ A lump sum, the UK's tax-free lump sum included, is taxed in the U.S. for a U.S. citizen, or a resident of the U.S. under the treaty,^137,107 and a periodic pension only as far as the UK taxes it.¹³⁵ Disclose the Article 18(1) deferral on Form 8833 unless the amounts are $10,000 or less, on the cautious reading.¹³⁹ Forms 3520 and 3520-A still apply.¹³² For a transfer into a SIPP from a UK employer scheme, see the workplace pension block above.

Full reporting for a pension held in trust; nothing on Form 3520 for a contract.

For a pension held in trust: you are treated as owner of the part your contributions fund, including contributions made before you became a U.S. person, because its income is held for you,^166,145 so Part II and Form 3520-A are due each year,¹⁴⁰ and payouts go on Part III.¹⁴¹ Each contribution you make as a U.S. person is a Part I transfer,¹⁴⁴ and one made within 5 years before your U.S. residency started is treated as made on your residency starting date and goes on Part I for that year.¹⁶⁷ Part I also applies at your death as a U.S. citizen or resident, if any part of the pension is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.¹⁴⁶ If the provider does not file Form 3520-A, you attach a substitute to your Form 3520.¹⁶⁸ No Form 4970, because the income is taxed to you, each year or under the treaty when paid out.^143,106 For a contract with an insurer: nothing on Form 3520 or 3520-A.¹⁴⁴ An eligible individual whose pension qualifies under the proposed regulations files none of these.¹⁰⁴ On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^149,169 No IRS guidance names executors. The funds a SIPP holds may be subject to the PFIC rules; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^151,152

You can save up to £20,000 a tax year (the limit for 2026-27) across your ISAs,¹⁷⁰ and the income and gains are free of UK tax.¹⁷¹ A cash ISA holds savings in bank and building society accounts.¹⁷² A Lifetime ISA can hold cash, stocks and shares, or both,¹⁷³ and a Junior ISA can be a cash or a stocks and shares account;¹⁷⁴ the cash in either is covered here.

Not a trust: the savings are held in bank and building society accounts.

Not a trust. A cash ISA holds savings in bank and building society accounts,¹⁷² and a trust for U.S. purposes is an arrangement in which trustees take title to property to protect or conserve it for the beneficiaries,³⁸ which a deposit account is not.

Does not apply: no employer pays in.

§402(b) reaches only an employer's contributions to an employees' trust,⁵⁰ and no employer pays into an ISA.

Not needed.

§6048 reaches only foreign trusts.¹⁴⁴

No deferral: an ISA is not a pension scheme under the treaty.

No relief. The treaty's pension rules reach a "pension scheme", one operated principally to provide pension or retirement benefits,¹³³ and an ISA is not one. The U.S. taxes the interest each year.¹⁰⁷

Nothing on Form 3520 or 3520-A.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: Forms 3520 and 3520-A report foreign trusts.^144,140,141 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^151,152

In a stocks and shares ISA you own the investments and the manager or its nominee holds legal title,^175,176 and you can choose to attend meetings and vote.¹⁷⁷ The income and gains are free of UK tax.¹⁷¹

A Lifetime ISA takes up to £4,000 a year, from a first payment before age 40 until age 50, and the government adds a 25% bonus.^178,179 Taking money out before 60, other than for a first home, costs a 25% charge.¹⁸⁰ A Junior ISA belongs to the child.¹⁷⁵ An innovative finance ISA holds peer-to-peer loans, crowdfunding debentures, funds that can't go in a stocks and shares ISA, and cryptoasset exchange traded notes;¹⁸¹ no IRS guidance addresses it either, and this guide takes the same cautious course for it as below.

Not settled: there is a real argument that it is not a trust, but no IRS guidance confirms it.

Not settled, and no IRS guidance addresses ISAs. A U.S. trust is an arrangement whose purpose is to vest in trustees the responsibility for protecting and conserving property for beneficiaries who cannot share in that responsibility.¹⁸² In a stocks and shares ISA you are the beneficial owner and the manager or its nominee holds title,^175,176 and on your instructions the investments or their proceeds are transferred or paid to you.¹⁸³ Federal law, not the UK's label, decides whether that is a trust.¹⁸⁴

The argument that it is not a trust: the closest IRS ruling holds that an arrangement whose title-holder only holds and transfers title at the owner's direction is not a trust, and the owner is treated as owning the property directly,¹⁸⁵ and a stocks and shares ISA works much like a U.S. brokerage account held in a nominee's name. The argument that it may be one: that ruling is narrow and does not apply where the title-holder does more than hold title,¹⁸⁶ while an ISA manager manages the account under terms agreed with you and arranges for you to vote.^187,177 That argument is stronger where those terms let the manager choose the investments. With the question open and the penalty for a missing Form 3520-A large,¹⁸⁸ this guide takes the cautious course of treating a stocks and shares ISA as a trust.

Does not apply: no employer pays in.

§402(b) reaches only an employer's contributions to an employees' trust,⁵⁰ and no employer pays into an ISA.

None: neither Rev. Proc. 2020-17 nor the proposed regulations' exemption reaches a general savings account.

Rev. Proc. 2020-17 covers only retirement trusts and medical, disability, or educational savings trusts,^189,190 and an ISA is a general savings account, so even as a trust it would not qualify. The proposed regulations describe a further category, savings trusts worth $50,000 or less, but the rule that grants the exemption lists only the retirement and medical, disability, or educational categories, so we do not rely on it.¹⁴⁹ A Lifetime ISA is not run only for retirement either: it also pays out for a first home,¹⁸⁰ and a retirement trust must operate exclusively or almost exclusively for retirement benefits.⁹⁴

No deferral: an ISA is not a pension scheme under the treaty.

No relief. The treaty's pension rules reach a "pension scheme", one operated principally to provide pension or retirement benefits,¹³³ and an ISA is not one. The U.S. taxes ISA income each year.¹⁰⁷

On the cautious course, full reporting, as for a foreign trust you own.

On the cautious course, you report it as a foreign trust you own: you are treated as its owner, including for money paid in before you became a U.S. person, because its income is held for you,^166,145 so Part II and Form 3520-A are due each year,¹⁴⁰ and withdrawals go on Part III.¹⁴¹ Each payment in you make as a U.S. person is a Part I transfer,¹⁴⁴ and one made within 5 years before your U.S. residency started is treated as made on your residency starting date and goes on Part I for that year.¹⁶⁷ Part I also applies at your death as a U.S. citizen or resident, if any part of the account is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.¹⁴⁶ If the manager does not file Form 3520-A, you attach a substitute to your Form 3520.¹⁶⁸ No Form 4970, because the income is taxed to you each year.¹⁴³ A Junior ISA belongs to the child, who cannot withdraw the money until 18,¹⁹¹ so whoever pays in is the transferor: a U.S. parent who pays in reports each payment on Part I and is treated as owning the part it funds, with Part II and Form 3520-A each year.^144,145,140 Money paid in by someone who is not a U.S. person is not treated as owned by that person,¹⁹² and on our reading a minor is not owner of it either, though the child is also a grantor of money paid in on the child's behalf, and this site's Singapore guide reads that as making a child owner, so it is not settled.¹⁹³ On our reading a U.S. child reports withdrawals of it on Part III, where Form 4970 can apply to income kept in earlier years.^141,194 Once the child turns 18 and can withdraw the money, on our reading the child is owner of it, as for an adult's own ISA.^191,195 If a stocks and shares ISA is not a trust, none of these apply. The funds an ISA holds may be subject to the PFIC rules; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^151,152

UK trusts include bare trusts, interest in possession trusts, discretionary trusts, and settlor-interested trusts, set up during life or by a will. In a bare trust the assets are held in a trustee's name, but the beneficiary is entitled to all of the capital and income from 18 in England and Wales, or 16 in Scotland.¹⁹⁶ If the trustee mainly runs a business for profit rather than holding property for the family, U.S. law may classify the arrangement as a business entity rather than a trust.¹⁹⁷

A foreign trust, unless a U.S. court supervises it and U.S. persons control its substantial decisions.

An ordinary trust where the trustee holds property for the beneficiaries,³⁸ and a foreign trust where a trustee in the UK administers it under UK law, since it then fails the court test, which alone makes it foreign, even where the trustee is a U.S. citizen.^39,40 A trust is domestic only on a day a U.S. court can supervise its administration and U.S. persons control all of its substantial decisions, counting everyone who can make one, not only the trustees.¹⁹⁸ Powers a settlor keeps, or a protector's consent rights, do not on our reading stop it being a trust; they go to who is owner, below, and where a foreign person holds one that is a substantial decision, such as a power to revoke the trust or to replace the trustee, it also keeps the trust foreign, even with a U.S. trustee.^199,200 A bare trust whose trustee only holds title for an adult entitled to the property may not be a trust for U.S. purposes,¹⁸⁵ but that ruling is narrow,¹⁸⁶ so whether a bare trust is one is not settled, and the cautious course reports it as a trust. A bank or trust company that holds your own investments only to act on your instructions is not that kind of bare trust; it is an account, not a trust.¹⁸⁵

A U.S. person who funds it is owner when it has a U.S. beneficiary; a foreign settlor only in two narrow cases.

Who is treated as owner decides who files Part II and Form 3520-A. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which the trust has a U.S. beneficiary.¹⁴⁵ Someone who funds the trust while not a U.S. resident and becomes one within 5 years is treated, for this rule and for Part I, as transferring that part of the trust on the day their U.S. residency starts.¹⁶⁷ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone or with the consent of a related or subordinate party subservient to them, or if only they or their spouse can receive distributions during their life.¹⁹² Otherwise, unless another grantor trust rule makes a U.S. person owner,¹⁶⁶ no one is owner, and the trust is taxed as a separate, non-grantor trust.²⁰¹

A trust has a U.S. beneficiary for the transferor rule if anyone has discretion to pay or benefit any person, unless its terms identify the class who may benefit and none of them is a U.S. person that year,²⁰² even if nothing is paid to a U.S. person that year;²⁰³ a power to amend the trust to benefit a U.S. person counts, and so does a letter of wishes or other understanding that points to benefiting one, even one that says it is only a suggestion.²⁰⁴ Where a U.S. person funds the trust, the IRS may treat it as having a U.S. beneficiary unless that person shows it has none.²⁰⁵ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,²⁰⁶ and a transferor whose trust gains a U.S. beneficiary is taxed that year on the income the trust kept for that part to the end of the year before, as an accumulation distribution with the interest charge.^207,208 A settlor who is not a U.S. person keeps the revocable-trust exception for a year only if they can take the property back alone, or with the consent of a related or subordinate party subservient to them, for at least 183 days of it; a power that needs anyone else's consent, such as an independent trustee's or protector's, does not count.^209,210 Once the exception fails for a year it is lost for good.²¹¹ Separately, a portion already treated as owned under §676, or under §677 other than its life insurance rule, on September 19, 1995 keeps that owner for the property it held that day, for as long as it stays so treated.²¹² A U.S. settlor of a trust with no U.S. beneficiary can still be owner under another rule, for example by keeping a power to take the property back,²¹³ and a U.S. beneficiary who alone can take the property is owner of it.^195,192

When a settlor who was not a U.S. person dies, the revocable-trust and spouse-only exceptions end for that settlor's portion, because the person left with the power, even a surviving spouse, is not its grantor;²¹⁴ a U.S. person who alone can take the property, or a U.S. person who funded the trust, can still be owner, and otherwise the portion is taxed as a non-grantor trust.^195,145,201 When a portion stops being owned by a U.S. person, the owner is treated, for the gain rule, as transferring it to a foreign trust that day.²¹⁵ At death the gain is excused only if the trust's basis in the property is then reset to its value at death under section 1014(a), as where the owner could still revoke the trust;²¹⁶ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.²¹⁷

No relief.

The saving clause lets the United States tax its citizens and residents as if the treaty did not apply,¹⁰⁷ and none of the provisions it spares concerns foreign trust reporting.¹⁰⁸

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

A U.S. person who transfers property to the trust files Part I for that year.¹⁴⁴ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;²¹⁸ a transfer is not, to the extent anyone is treated as owning the part it funds.²¹⁹ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of the trust, or whose gross estate includes part of it, and to property that passes to the trust by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹⁴⁶ The gain rule does not apply to property that passes to the trust by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).²¹⁶ A U.S. owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^140,168 A U.S. beneficiary who receives a distribution files Part III for that year.¹⁴¹ A distribution from a non-grantor trust that carries out income the trust kept in earlier years is an accumulation distribution, taxed with an interest charge on Form 4970.¹⁹⁴ Form 4970 can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.²⁰⁸ Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.¹⁸⁹

A distribution is any gratuitous transfer from the trust, whether or not it is a grantor trust and whether or not you are named as a beneficiary, including a credit card bill it pays or guarantees and a check written on its account.²²⁰ On the proposed rules, a payment from a company the trust owns to a U.S. person who is a grantor, owner or beneficiary of the trust, or related to one, is treated as a distribution from the trust, unless that person shows it is properly attributable to their own interest in the company.^221,104 A loan of cash or marketable securities, or use of trust property, to you or a related U.S. person goes on Part III whether or not it is taxable;²²² it is treated as a distribution for income tax, except a loan made on a qualified obligation (a written loan in U.S. dollars, for 5 years or less, at an interest rate tied to the federal rate, for which you extend the IRS's time to assess and that you report each year) or use you pay the fair market value for within a reasonable time,^{223,224,225,226} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.²²⁷

If you are the U.S. owner of the part that pays you, you complete only lines 24 and 27, and the rest of this paragraph does not apply to you.⁶⁷ Otherwise, with a complete Foreign Grantor Trust Beneficiary Statement you treat a payment as coming from the owner, so a gift from the owner is not your income;²²⁸ without one, the default method applies even to a distribution from a grantor trust.²²⁹ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,²³⁰ and without one the default method applies: the part of this year's distributions above 1.25 times the average of the three years before is an accumulation distribution, taxed on Form 4970 with an interest charge figured on Form 3520's Schedule C, and the rest is ordinary income,^231,194,232 and once you use the default method you must keep using it in later years, except that in the year the trust ends you may use the actual method if you have the statement.²³³ In the trust's first year as a foreign trust, you stop Part III once you have entered how many years it has been foreign, so no accumulation distribution is figured that year.²³⁴ The statute treats the whole distribution as an accumulation distribution where adequate records are not given;²³⁵ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,²³⁶ and where there were none, it too makes the whole distribution an accumulation distribution.²³¹ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,²³⁷ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.²³⁸ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²³⁹