Moving to the US? What Happens to Your UK Pension

A UK pension does not need a visa. But the day you become a US tax resident, a different set of rules starts to apply to it - and several of them work in ways that surprise people who assumed a pension simply travels quietly in the background. The move itself is exactly when the avoidable mistakes happen, which is why this article focuses on the transition rather than on the years of steady management that follow.

It is written for UK nationals and other UK-origin individuals - holders of a workplace pension, a personal pension, or a SIPP - who are relocating from the UK to the United States, or have recently done so. It explains what changes at the point of the move, where the treaty helps, and what is worth checking before you go.

Your pension stays in the UK

There is no route to move a UK pension into a US 401(k) or IRA, and attempting an overseas transfer toward the US carries its own charges and pitfalls (covered in a separate article in this series).The practical reality is straightforward: your UK pension remains a UK pension, held in pounds, invested under UK rules. The change is not to the account; itis to your tax status. As a US resident you are taxed on your worldwide income, and your UK pension becomes a foreign asset the US tax system expects to see.

How your UK pension income is taxed once you are US-resident

Under the US–UK Income Tax Treaty, regular pension distributions are generally taxable in the country where you reside. For a US resident, that points to the US as the primary taxing authority ongoing UK pension income. Left unmanaged, though, the UK pension payer may still deduct UK tax at source under PAYE - leaving you taxed twice up front and forced to reclaim.

The mechanism that resolves this is the NT (No Tax) code: HMRC can instruct your UK pension provider to pay your pension without deducting UK tax, on the basis that the income is taxable in the US under the treaty. Putting an NT code in place is one of the more useful early steps for a US-resident pensioner, and it has its own dedicated article in this series.

The treaty provision that protects your pension's growth

One of the most valuable - and most overlooked - features of the treaty is its treatment of the growth inside your UK pension. Without treaty protection, a US person could face current US tax on investment growth accruing inside a foreign pension each year. The treaty allows that growth to be deferred from current US taxation until benefits are actually drawn, broadly mirroring the tax-deferred treatment the pension already enjoys in the UK. This is a significant protection, but it depends on the arrangement qualifying and on the position being claimed correctly, which again is a matter for a documented treaty position rather than assumption.

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The 25% tax-free lump sum: the hardest question

UK pensions typically allow up to 25% of the pot to be taken as a tax-free lump sum, within the UK's lump sum allowance. For a US person, whether that lump sum is also free of US tax is genuinely uncertain. The treaty's lump-sum provisions and the saving clause interact in ways that practitioners continue to debate, and the IRS does not automatically mirror the UK's tax-free treatment. Some specialists take the view that a UK tax-free lump sum can be exempt in the US if the treaty is applied correctly; others are more cautious. Because the sums involved are usually large, the timing of any lump sum relative to your change of residence is one of the most consequential decisions in this whole area - and one to model carefully, not assume.

Reporting your UK pension to the US

Once US-resident, your UK pension becomes part of your US reporting picture. Depending on the type of pension and the balances involved, that can include the FBAR (for foreign accounts totalling $10,000 or more at any point in the year) and Form 8938 under FATCA. Some self-directed arrangements such as SIPPs can raise foreign-trust reporting questions, although relief is often available for qualifying tax-favoured retirement arrangements, and funds held inside a UK pension can raise separate considerations of their own. The detail depends on the pension; the principle is that the account becomes visible and reportable.

What to check before you move

The window before you become US-resident is when you have the most options, because some choices are far harder - or impossible - to make once the US tax system applies to you. Without straying into specific advice, the questions worth raising in advance include how and when any tax-free cash is best handled, when an NT code should be requested, how the pension's growth will be protected under the treaty, and how good your records are. These are conversations to have before departure, with an adviser who can see both the UK and US consequences.

An illustrative example

Consider a hypothetical UK national, age 57, who accepts a role in New York and holds a £600,000 SIPP. Believing he should 'simplify' before moving, he considers taking his 25% tax-free lump sum the week after he arrives in the US. Viewed only through a UK lens, the cash is tax-free. Viewed across both systems, taking it after he becomes US-resident exposes it to a US treatment that may not be tax-free at all - whereas the timing, sequencing, and treaty position around the move change the picture entirely.

Left in place and properly reported, his SIPP simply continues; an NT code routes his future income through the US system cleanly, and the treaty shields the pot's growth until he draws on it. This example is hypothetical and for illustration only.