The US UK pension tax treaty leaves most regular UK pensions paid to a US resident taxable only in the US, but not lump sums or most government pensions.
That is the treaty's wording, and it only helps once HMRC accepts a claim, so UK tax can still come off a pension until then. Your UK pensions keep a British side wherever you live. How your British pots and State Pension sit together is worth a free phone conversation; an FCA-authorised adviser covers the UK side when your enquiry arrives through this page's form, while US rules need a US adviser.
What does the UK-US tax treaty say about pensions?
Four paragraphs of the 2001 convention, as amended by the 2002 protocol and published by HMRC on GOV.UK, do the work. Article 17(1)(a) is the main rule:
"Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State."
For a UK pension paid to someone resident in the US, "that State" is the US. Paragraph 1(b) adds that the part of such a pension which would be exempt from tax in the UK if the owner lived here is also exempt in the state where they live. Lump sums are treated differently, in Article 17(2):
"Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State."
A UK scheme is the "first-mentioned State" here, so the UK keeps the right to tax a lump sum from it. The convention defines a "pension scheme" as an arrangement that is generally exempt from income taxation in the state where it is established and operated principally to provide pension or retirement benefits.
Where does each kind of UK payment fall?
The convention gives separate answers by type of payment, so read it paragraph by paragraph rather than assuming one answer for everything.
| Payment to a US resident | Convention paragraph | Taxable only in |
|---|---|---|
| Regular payments from a workplace or personal pension (not a government service pension) | Article 17(1)(a) | The state where you live (the US) |
| Lump sum from a UK pension scheme | Article 17(2) | The UK |
| Pension for services to the UK government or a UK local authority | Article 19(2) | The UK, unless you are a US national as well as a US resident |
| UK State Pension | Article 17(3) | The state where you live (the US) |
| Annuity bought for full consideration | Article 17(4) | The state where you live (the US) |
Article 19(2) takes priority over Article 17 for a pension paid by, or out of funds created by, the UK or a UK local authority for services to it. GOV.UK's general guidance on double taxation points the same way, saying that civil service and most other UK government pensions are taxed only in the UK.
Lump sums need care. HMRC's notes to its US claim form add that if you were resident in the US on the date a trivial commutation payment was made, you can claim repayment of the tax taken off. HMRC's notes describe that payment as a single lump sum paid instead of a small annual pension or annuity. For any other lump sum from a UK scheme, Article 17(2) is the rule to start from, and HMRC can confirm how your own payment is treated. For the UK rules on tax-free cash, see the tax-free lump sum page.
Does the treaty still apply to US citizens and green card holders?
The convention has a saving clause. Article 1(4) says:
"Notwithstanding any provision of this Convention except paragraph 5 of this Article, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if this Convention had not come into effect."
Paragraph 5 lists exceptions, including Article 17(1)(b), 17(3) and 18(1). On its face, that wording leaves each state free to tax its own citizens and residents, apart from the listed exceptions. What that means for your return is a question of US law, so ask a US tax adviser who deals with UK pensions, and read the convention's Article 4 on who counts as a US resident.
How does a US resident stop UK tax coming off a pension?
GOV.UK says each double-taxation agreement sets out "the country you pay tax in", "the country you apply for relief in" and "how much tax relief you get". For the US, HMRC's form is US-Individual 2002, which it describes as applying "to United States residents receiving pensions, incapacity benefit, purchased annuities, interest or royalties arising in the UK". The steps:
- Complete HMRC's claim form, listing only the income you are claiming relief on, and keep your tax vouchers in case HMRC asks for them.
- Get it certified. HMRC's notes say the form "will therefore need certification by the US Internal Revenue Service (IRS)", sent with the IRS's Form 8802 and its fee. The address is in HMRC's notes.
- For a pension taxed through PAYE, add a copy of the newest P60 your payer issued.
- HMRC may then issue a notice so that tax stops coming off at source. Its notes say it deals with each application on its merits, and where it cannot arrange relief at source, you can claim repayment of the tax taken off.
If relief at source is granted, any later change to what you put on the form must reach HMRC promptly. Some double taxation agreement cases end up on tax code NT; GOV.UK says that code means "You’re not paying any tax on this income". For repayments on ordinary overpayments, see claiming back pension tax.
Does the State Pension rise each year if I live in the US?
Yes, usually. DWP's list of countries where the State Pension is increased includes the USA: "If you live in one of the following countries and receive a UK State Pension, you will usually get an increase in your pension every year". That differs from countries where the pension is frozen, such as Canada.
On tax, HMRC's notes say the State Pension "is a National Insurance benefit and is taxable, but usually paid without deduction of tax", and that a US resident "can claim exemption from UK Income Tax" under the convention. The same form covers a deferral lump sum from which tax was taken. The wider UK position is on the State Pension tax page. Holding several British pensions paid into an American bank? An FCA-authorised adviser versed in UK pension rules can go through them on a no-cost call-back, booked from this page's form.
What else do UK pensioners in the US ask?
Are UK pensions taxed in the US?
The treaty text allocates regular pension payments to the state where you live, which would be the US. Whether and how the US taxes them, and what a foreign tax credit may do, is US law that sits outside this page.
Does the same form recover tax HMRC has already collected?
HMRC's notes say it also works as a claim for repayment of UK income tax already taken off. Where PAYE is adjusted, the notes limit how far back it reaches: no earlier than whichever is latest of your US residence start, your first payment, or the oldest UK tax year that can still be claimed.
What does the NT tax code mean?
It means no tax is being taken from that income. HMRC's PAYE manual says the code should be used only in the cases it lists, and people exempt under a double taxation agreement are one of them.
Where can I read the whole treaty?
HMRC publishes it on GOV.UK under USA: tax treaties, with the claim form listed on GOV.UK's page for people taxed twice. The same treaty-and-form route for another country is covered for Australia.
For the wider picture, see UK pensions after a move overseas, transferring a UK pension to another country and the UK pension tax guide. Weighing up a transfer rather than a treaty claim? An FCA-authorised adviser can discuss British rules with you, free, if you ask for a return call through this page's form.