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

Workplace pensions are registered pension schemes. Their investment income is free of UK income tax,⁷ members get tax relief on contributions up to their UK earnings,^8,9 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.^10,11

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,¹² and HMRC notes that most registered pension schemes are set up under trust.¹³ Trustees holding the scheme's assets for its members is what makes an arrangement a trust for U.S. purposes.¹⁴ A scheme governed by UK law and run in the UK meets neither test for a domestic trust, so it is foreign.^15,16

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,¹⁷ 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,^18,10,19,20 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.^21,22 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.²³ 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).²⁴

On that reading, employer contributions are U.S. income to you in the year they are paid, to the extent they are vested,^25,26 and the foreign earned income exclusion cannot cover them.²⁷ You are not treated as owner of the part they fund.²⁸ We read your own contributions as made at your election. You are enrolled automatically but may opt out, then or later,^2,29 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.³⁰ 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.³¹ Under salary sacrifice you give up part of your salary and your employer pays it into your pension,³² and an amount contributed at an employee's election is treated as the employee's.³³ 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.³⁴

Once your own contributions have come to exceed your employer's, you are treated as owner of the part your contributions fund.³⁵ 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. No contribution to a §402(b) trust is a Part I event, your own included.³⁶ Payouts from the employer's part are taxed under §72 when they are paid or made available to you,^37,38 and they stay off Part III if you report them as compensation income,^39,40 unlike payouts from a part you own.⁴¹

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.⁴²

Rev. Proc. 2020-17: possible, with one open condition: the UK limits tax 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)⁴³ from Forms 3520 and 3520-A for a retirement trust that meets its conditions.⁴⁴ 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.^7,6,45 HMRC may require the scheme to make returns covering contributions and the scheme's income.^46,47 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,⁸ so this condition is open too.⁴⁸ 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.^10,49,50 And the employer must enrol every eligible worker.^1,51

And the contribution limit is open. Rev. Proc. 2020-17 wants contributions limited by a percentage of earned income or a dollar cap,⁵² but the UK limits tax relief, not contributions: relief stops at the member's UK earnings, and the annual allowance of £60,000 sets a tax charge on pension savings above it, not a bar on paying in.^8,53 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,⁵⁴ 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).⁵⁵

Article 18 defers U.S. tax on the part you own and can exclude contributions; the tax-free lump sum is taxed.

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,⁵⁶ and the saving clause does not override that.^57,58 The Technical Explanation says it covers a U.S. citizen living in the UK too.⁵⁹ 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.^56,25

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.^60,61 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;^62,63 the Technical Explanation reads Article 18(5) as reaching the employer schemes.⁶⁴ 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.^65,66 Contributions kept out of income give you no basis, so they are taxed when paid out.⁶⁷ 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.⁶⁸

Payouts: a periodic pension is taxed in the U.S. only as far as the UK taxes it,^69,70 but a lump sum falls under Article 17(2), which the saving clause leaves taxable in the U.S., so the UK's tax-free lump sum is taxed in the U.S.^71,72 Disclosing a treaty position on Form 8833 is waived for pensions and pay,⁷³ 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.⁷⁴ Even where a treaty defers tax, the IRS has said Forms 3520 and 3520-A still apply.⁷⁵

Part II and Form 3520-A each year for the part your own money funds, once yours exceed your employer's.

Read as a §402(b) trust: no Part I for any contribution.³⁶ No Part II or Form 3520-A for the employer-funded part; once your own contributions exceed your employer's, which at the minimum rates is from your first payday, Part II and Form 3520-A each year for the part they fund.^28,35,76 No Part III for payouts from the employer-funded part that you report as compensation income;³⁹ payouts from a part you own go on Part III, lines 24 and 27.⁴¹ 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.^37,77,78,56

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.^79,80,76,81 Either way, an eligible individual whose scheme qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them.^44,54 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^82,83

An employer may meet its automatic enrolment duties through a personal pension scheme as well as an occupational one,⁸⁴ and a personal pension scheme is by definition not an occupational pension scheme.⁸⁵ A pension scheme may be established by trust, by contract, by board resolution, or by deed.⁸⁶

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,¹⁴ and a contract creates no trustee. A scheme set up under trust, as HMRC says most registered schemes are,¹³ is a foreign trust and follows the workplace pension block above.¹⁵ 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,²⁵ 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;⁸⁷ 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.⁷⁹ For a scheme held in trust, as for workplace pensions held in trust.⁴⁴

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 defers U.S. tax on income of a UK pension scheme until paid out, and a lump sum is taxed in the U.S.^56,71 The treaty's "pension scheme" covers a plan, scheme, fund, trust or other arrangement, so a contract can qualify.⁸⁸

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.^79,76,81 For a scheme held in trust: as in the workplace pension block above.^28,35 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^82,83

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.^89,90 The Local Government Pension Scheme is not covered here: it is a funded scheme, with assets of its own,⁹¹ 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,^90,92 and a trust for U.S. purposes needs trustees holding property for the beneficiaries.¹⁴

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

§402(b) reaches an employer's contributions to an employees' trust,²⁵ and these schemes have no trust.⁹⁰

Not needed.

§6048 reaches only foreign trusts.⁷⁹

A UK government pension is taxed only in the UK, except for U.S. nationals living in the U.S.; U.S. citizens 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.⁹³ 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.^57,66

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.^79,76,81 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^82,83

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.⁹⁴ 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.^95,8 You can usually take up to 25% as a tax-free lump sum.⁷²

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:^13,14 governed by UK law and run in the UK, it meets neither test for a domestic trust.^15,16 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,^10,20,17 and one of the funds the IRS ruled is a trust let its members choose their investments.²² A personal pension written purely as a contract with an insurer creates no trustee, so it is not a trust.⁸⁶ 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,²⁵ 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,⁴⁸ while a personal pension gives relief on up to £3,600 a year to someone with no earnings,⁸ so it is unlikely to cover one. The employer-plan condition does not apply to a pension no employer maintains.⁵¹ 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,^96,55,54 so they may cover a pension whose value stays at or under the threshold.

Article 18(1) defers U.S. tax on the income until paid out; the tax-free lump sum is taxed in the U.S.

Article 18(1) taxes the income of a UK pension scheme to a U.S. resident member only when it is paid out,^56,58 and the Technical Explanation says it covers a U.S. citizen living in the UK too.⁵⁹ For a pension you own, that defers U.S. tax on its yearly income. Article 18(5) covers only contributions from UK employment.⁶⁰ A lump sum, the UK's tax-free lump sum included, is taxed in the U.S.,⁷¹ and a periodic pension only as far as the UK taxes it.⁷⁰ Disclose the Article 18(1) deferral on Form 8833 unless the amounts are $10,000 or less, on the cautious reading.⁷⁴ Forms 3520 and 3520-A still apply.⁷⁵

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

For a pension held in trust: each contribution is a Part I transfer, and you are treated as owner of the part it funds,^79,80 so Part II and Form 3520-A are due each year,⁷⁶ and payouts go on Part III.⁸¹ If the provider does not file Form 3520-A, you attach a substitute to your Form 3520.⁹⁷ No Form 4970, because the income is taxed to you, each year or under the treaty when paid out.^78,56 For a contract with an insurer: nothing on Form 3520 or 3520-A.⁷⁹ An eligible individual whose pension qualifies under the proposed regulations files none of these.⁵⁴ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^82,83

You can save up to £20,000 a tax year across your ISAs,⁹⁸ and the income and gains are free of UK tax.⁹⁹ A cash ISA holds savings in bank and building society accounts.¹⁰⁰ A Lifetime ISA can hold cash, stocks and shares, or both,¹⁰¹ and a Junior ISA can be a cash or a stocks and shares account;¹⁰² 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,¹⁰⁰ 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,¹⁴ 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,²⁵ and no employer pays into an ISA.

Not needed.

§6048 reaches only foreign trusts.⁷⁹

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,⁸⁸ and an ISA is not one. The U.S. taxes the interest each year.⁵⁷

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.^79,76,81 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^82,83

In a stocks and shares ISA you own the investments and the manager or its nominee holds legal title,^103,104 and you can choose to attend meetings and vote.¹⁰⁵ The income and gains are free of UK tax.⁹⁹

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.^106,107 Taking money out before 60, other than for a first home, costs a 25% charge.¹⁰⁸ A Junior ISA belongs to the child.¹⁰³

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.¹⁰⁹ In a stocks and shares ISA you are the beneficial owner and the manager or its nominee holds title,^103,104 and on your instructions the investments or their proceeds are transferred or paid to you.¹¹⁰ Federal law, not the UK's label, decides whether that is a trust.¹¹¹

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,¹¹² 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,¹¹³ while an ISA manager manages the account under terms agreed with you and arranges for you to vote.^114,105 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,¹¹⁵ 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,²⁵ 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,^116,117 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.¹¹⁸ A Lifetime ISA is not run only for retirement either: it also pays out for a first home,¹⁰⁸ and a retirement trust must operate exclusively or almost exclusively for retirement benefits.⁴⁴

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,⁸⁸ and an ISA is not one. The U.S. taxes ISA income each year.⁵⁷

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: each payment in is a Part I transfer, and you are treated as its owner,^79,80 so Part II and Form 3520-A are due each year,⁷⁶ and withdrawals go on Part III.⁸¹ If the manager does not file Form 3520-A, you attach a substitute to your Form 3520.⁹⁷ No Form 4970, because the income is taxed to you each year.⁷⁸ A Junior ISA belongs to the child, who cannot withdraw the money until 18,¹¹⁹ 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.^79,80,76 Money paid in by someone who is not a U.S. person isn't treated as owned by anyone,¹²⁰ so a U.S. child reports withdrawals of it on Part III, where Form 4970 can apply to income kept in earlier years.^81,121 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.^82,83

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.¹²² 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.¹²³

Usually a foreign trust.

Usually an ordinary trust, because the trustee holds property for the beneficiaries,¹⁴ and a foreign trust, because it is governed by UK law and administered in the UK.^15,16

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.⁸⁰ 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.¹²⁴ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone, or if only they or their spouse can receive distributions during their life.¹²⁰ Otherwise no one is owner, and the trust is taxed as a separate, non-grantor trust.¹²⁵

No relief.

The saving clause lets the United States tax its citizens and residents as if the treaty did not apply,⁵⁷ and none of the provisions it spares concerns foreign trust reporting.⁵⁸

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.⁷⁹ A U.S. owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^76,97 A U.S. beneficiary who receives a distribution files Part III for that year.⁸¹ 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 4970.¹²¹ Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.¹¹⁶ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.¹²⁶