How to report UK State Pension on US Tax Return?

Published on May 20, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

How do I report my UK pension on my US tax return?

To report your UK pension on your US tax return, you should use Form 1040, listing the pension as foreign income. If you’ve paid taxes in the UK and want to claim a Foreign Tax Credit, you’ll likely need to complete Form 1116 as well.

Is the UK State Pension taxable in the US?

The UK State Pension is not taxable on your US tax return. However, other types of pensions such as employer-provided pensions, private pensions, and SIPPs must be reported and are considered in your FBAR filings as foreign financial accounts.

How does the US-UK tax treaty affect my UK pension taxation?

The US-UK Tax Treaty helps to avoid double taxation on your UK pension and recognizes certain tax-exempt pension distributions. Note that the 25% tax-free lump sum from UK personal pensions is taxable by the IRS, an important fact for US citizens and Green Card holders.

What benefits does the US-UK tax treaty provide to American expats with UK pensions?

The treaty protects US expats from double taxation on pension income, specifying which country has taxing rights. It often results in the country of residence taxing the pension, but you may claim tax relief or credits in the other country to avoid double taxation.

Do I need to file US foreign trust returns for my UK pension?

Whether you need to file Forms 3520 and 3520-A for your UK pension is dependent on the nature of the pension scheme. If your pension is trust-based—like the NEST scheme where personal contributions can exceed those of the employer—you will generally need to file these forms due to the structured nature of the contributions.

However, contract-based pensions, such as those provided by Aviva, do not require filing Foreign Trust returns with the IRS, regardless of the contribution amounts. This distinction is key in determining your filing obligations.

What differentiates contract-based pensions from trust-based pensions?

Contract-based pensions are individual agreements with pension providers, giving you a bit more autonomy over investment choices.

In contrast, trust-based pensions are managed collectively by trustees who make investment decisions for all members.

This fundamental difference affects not just investment control but also tax reporting requirements in the US. It’s best to consult a tax professional, as they can provide clarity and ensure compliance.

When is the deadline to file my US foreign trust return?

The deadline to submit Forms 3520 and 3520-A is April 15th. However, you can request an extension, which pushes the deadline to October 15th. Staying on top of these dates is crucial to avoid penalties and ensure proper reporting of any foreign trust activities, including those related to UK pensions.

What are the different types of UK pensions?

The UK offers three main types of pensions: State Pensions, Workplace Pensions, and Personal or Stakeholder Pensions.

  • State Pensions are government payments based on your National Insurance contributions. 
  • Workplace Pensions, either defined benefit or defined contribution plans, are set up by employers. 
  • Personal and Stakeholder Pensions are arranged by individuals, with options like SIPPs offering a wide range of investment choices.

How are pensions taxed in the UK?

In the UK, State Pensions are taxed as income without requiring National Insurance. Workplace and Personal Pensions allow pre-tax contributions, with taxes applied upon withdrawal. Notably, while 25% of the pension can be withdrawn tax-free, the IRS considers this taxable for US citizens.

Which IRS forms are needed for reporting UK and other foreign pensions?

In general, you may need these forms: Form 8938 for reporting foreign financial assets, Form 3520 for transactions with foreign trusts, Form 3520-A for details on those trusts, Form 1116 for claiming Foreign Tax Credit, and FinCEN Form 114 (FBAR) for reporting foreign pension balances.

Can UK pension income be qualified for the FEIE?

UK pension income, classified as unearned income, does not qualify for the Foreign Earned Income Exclusion, which is intended for earned income like wages.

Are medical expenses from UK State Pension deductible?

Since UK State Pension income isn’t reported on US tax returns, there’s no provision to deduct medical expenses paid from it.