Still Got a UK Pension? What British Expats in the U.S. Need to Know

Many British nationals living in the United States still hold retirement savings in UK pensions, whether through former employers, a personal SIPP, or even an older stakeholder or AVC plan. It is easy to think of these as “set and forget” investments, but the reality is more complicated once you become a U.S. tax resident.

At Skybound Wealth USA, my focus is on helping British expats make cross-border decisions that avoid tax surprises, protect long-term wealth, and comply with U.S. laws without neglecting the unique features of UK pensions. Here’s what you should know.

Your UK Pension Still Grows Tax-Deferred. But Withdrawals Are Taxable in the U.S.

The good news is that your UK pension continues to grow free from UK income tax, even after you leave the UK. The challenge is that once you are a U.S. tax resident, the IRS requires you to report and pay tax on worldwide income, including UK pension withdrawals.

Withdrawals are generally treated as ordinary income in the U.S. The entire distribution, not just the growth, is usually included in taxable income. The treatment of the 25 per cent UK tax-free lump sum can vary depending on your residency history, how the pension is structured, and how the U.S.-UK tax treaty is applied. Because this is a grey area, it is essential to seek specialist advice before making withdrawals.

The U.S.–UK Tax Treaty Can Prevent Double Taxation

The tax treaty between the U.S. and the UK is designed to prevent income being taxed twice. Pension income is taxable only in the country of residence, which for U.S.-based Brits means you should not be paying UK income tax on your withdrawals.

However, your pension provider will not apply this automatically. You must complete a DT-Individual form, provide proof of U.S. tax residency, and send it to HMRC. Once HMRC approves, your provider can apply a “No Tax” (NT) code. Without this step, withdrawals may be subject to UK tax at 20 per cent, which you would then need to reclaim, often a slow and frustrating process.

{{INSET-CTA-1}}

UK Pensions Are Now Exposed to Inheritance Tax

In the October 2024 UK Budget, significant reforms were announced, shifting the system toward residency-based taxation for income and capital gains. These reforms did not change how Inheritance Tax applies.

UK pensions remain UK-situs assets and are therefore always within scope for Inheritance Tax, regardless of your residency or citizenship. While pensions were previously seen as a tax-efficient way of passing on wealth, that protection has been weakened. If your pension has not been drawn down, or is in drawdown at the time of your death, your beneficiaries could face up to 40 per cent IHT on its value.

Don’t Overlook U.S. Estate Tax

On top of UK exposure, U.S. citizens and green card holders are also subject to estate tax on worldwide assets, including UK pensions. This creates the possibility of the same pension being taxed twice: once under UK IHT rules and again under U.S. estate tax.

The current U.S. exemption is close to $13 million, but it is due to be reduced by half in 2026. For families with global estates that include property, investments, and pensions, this tightening of the threshold makes proactive estate planning even more important.

Steps You Should Be Taking Now

If you are living in the U.S. with a UK pension, it pays to be proactive. Make sure your provider has your updated non-UK tax status. Apply for an NT code from HMRC so tax is not withheld at source. Work with a U.S. accountant to ensure withdrawals are reported correctly. Confirm that your pension is included in estate planning calculations, and review your nominated beneficiaries to make sure they reflect your wishes and any structures you have in place. Finally, consider whether your pension investments are aligned with U.S. tax rules and your retirement objectives.

{{INSET-CTA-2}}

How Skybound Wealth USA Can Help

Managing a UK pension from the U.S. requires more than routine administration. We work with clients to secure NT codes, coordinate reporting, align pension investment strategies with U.S. goals, and address estate planning risks. Our role is to ensure your UK pensions remain an asset, not a liability, as part of your cross-border financial plan.

Make Your Pension Work on Both Sides of the Atlantic

A UK pension can still be a powerful part of your retirement strategy, but only if it is managed with U.S. tax and estate rules in mind. The earlier you act, the more options you have to protect your savings and avoid costly mistakes.

If you would like a complimentary review of your UK pension as a U.S. resident, contact me today and let’s make sure your planning is on track.