UK Pensions When You Move to the USA: SIPPs, the Treaty, the State Pension and the 2027 IHT Change

Nothing is forced on you. A SIPP or workplace pension is a UK scheme and it stays one; becoming a US resident does not crystallise a tax charge, close the account or require a transfer. The practical friction is commercial rather than fiscal: some UK platforms restrict what US-resident customers can do with their accounts, so many people confirm their provider's policy before the move as part of wider preparation for UK tax when moving to the USA. Scope to keep contributing with UK tax relief after you leave is limited, so do not assume ongoing contributions will work as they did.

The important protection is Article 18 of the US-UK treaty. Without it, the US could look through a foreign pension and tax the income and gains arising inside it each year. Article 18 defers US tax on income earned by a qualifying UK pension scheme until it is actually paid out, and it is one of the provisions listed in Article 1(5) that survive the saving clause, so it works for US residents and US citizens alike. Whether a particular claim needs disclosure on Form 8833, and how the scheme is classified for US reporting, is a question for the US return.

Article 17(1) gives the residence state the taxing rights over pensions and similar remuneration, and HMRC's own guidance at DT19853 confirms that pensions are taxable only in the state of residence of the beneficial owner. Once you are a US resident, regular drawdown from a SIPP or a workplace pension, and payments from a UK annuity, are taxable in the US and relieved from UK tax under the treaty.

The relief is claimed, not automatic. Until HMRC processes a claim, your provider must operate PAYE, and a first flexible withdrawal is often taxed on an emergency basis. A US resident claims relief at source, and repayment of any UK tax already deducted, on Form US-Individual 2002, which goes via the IRS for certification of your US residence. HMRC then issues an NT (no tax) code to the provider so future payments are made gross. Getting the claim in before you start drawing is far tidier than reclaiming afterwards.

On the UK side the position is clear: the tax-free lump sum remains UK tax-free, capped by the lump sum allowance of £268,275 for 2026/27. On the US side it is genuinely unsettled, and any guide that tells you it is definitely US-tax-free, or definitely taxable, is overstating what anyone knows.

The argument runs like this. Article 17(1)(b) says that a pension amount which would be exempt in the scheme's home state if paid to a resident there is exempt in the other state, and that sub-paragraph survives the saving clause, which points towards the lump sum staying tax-free in the US. Against that, Article 17(2) deals specifically with lump sums, giving taxing rights to the state where the scheme is established, and it does not survive the saving clause, so the US can argue it may tax its residents and citizens on the payment regardless. DT19853 itself notes that the US can tax lump sums received by US citizens from UK schemes because of the saving clause. The IRS has published no definitive guidance and practitioners genuinely disagree. A treaty-exempt filing position is disclosed on Form 8833, where a required disclosure that is missed carries a $1,000 penalty, and the position carries real risk if challenged.

Because the UK side is only generous while the UK rules apply to you in the ordinary way, the sequencing of any lump sum against your US residency start date is one of the biggest pre-move planning points. Many people review the timing with both their UK and US advisers before the move; we model the UK side.

The State Pension is the simple one. Under Article 17(3), social security payments made by one country to a resident of the other are taxable only in the residence country, and this survives the saving clause. So the UK State Pension paid to a US resident is taxable only in the US, where it goes on the US return; the UK does not tax it and DWP pays it gross. You claim from abroad through the International Pension Centre, and it can be paid into a US bank account.

Better still, it is not frozen. Annual increases are only paid in some countries, but the USA is on GOV.UK's list of countries where the annual State Pension increase is paid, because the UK-US social security agreement provides for uprating. Unlike a retirement to Australia or Canada, a move to America does not cost you the yearly rises.

Because the State Pension is uprated in the US, buying extra qualifying years usually holds its value there, but the price has gone up. From 6 April 2026, voluntary Class 2 contributions were abolished for periods abroad, so for 2026/27 onwards the route for most people overseas is Class 3 at £18.40 a week, £956.80 a year. New overseas applicants also face a tougher test: 10 years of continuous UK residence or 10 years of paid qualifying contributions, with credits not counting. Existing Class 2 payers and applications already in the pipeline keep more generous transitional treatment if they act before 6 April 2027. Our guide to voluntary National Insurance from abroad walks through the deadlines and the CF83 application.

Even at the Class 3 price the arithmetic is usually compelling. One extra qualifying year typically adds around one thirty-fifth of the full new State Pension of £241.30 a week, roughly £358 a year for life, so a £956.80 year is normally recovered within about three years of retirement. Check your State Pension forecast first, because extra years add nothing once you are on course for the full amount, and diarise the April 2027 transitional deadlines before you fly.

A UK pension can only move overseas without penal tax if it goes to a Qualifying Recognised Overseas Pension Scheme on HMRC's published list. We checked the ROPS notification list (updated 15 July 2026): it contains no schemes established in the USA. American plans such as 401(k)s and IRAs cannot generally meet HMRC's conditions, so for practical purposes a QROPS transfer to the US does not exist.

That matters because the fallback is brutal. GOV.UK confirms that a transfer to an overseas scheme that is not a QROPS is an unauthorised payment attracting at least 40% UK tax (GOV.UK), and even genuine QROPS transfers elsewhere face the 25% overseas transfer charge unless a narrow exclusion applies. Products marketed to US-bound savers as an international SIPP are still UK schemes, so they change the provider, not the treaty analysis. For almost everyone the realistic position is that the pension stays in the UK and is drawn under the treaty.

From 6 April 2027, unused funds in UK registered pensions will be counted in your estate for UK inheritance tax, and moving to the USA does not take them out of the net. Under the residence-based IHT rules, once you stop being a long-term UK resident (broadly, resident for 10 of the previous 20 tax years, with a tail of 3 to 10 years after leaving) your foreign assets fall out of scope, and you can check your own tail with our IHT tail calculator. But HMRC's technical note is explicit that schemes established in the UK remain within the rules regardless of whether the member was a long-term UK resident. A SIPP is established in the UK, so it stays behind.

The spouse trap bites hard on couples in America. The spouse exemption is only unlimited where the survivor is a long-term UK resident; otherwise it is capped at a cumulative £325,000, with an election available to restore the full exemption at the price of bringing the survivor's worldwide estate into UK IHT. Add the US federal estate tax system on top, which is a matter for US advisers, and pension death benefits become a genuine cross-border modelling exercise. Our guide to UK pensions and inheritance tax when you live abroad covers the options worth reviewing before April 2027.

Once you are a US person, information reporting arrives with the tax. The FBAR (FinCEN Form 114) is required once your foreign financial accounts exceed $10,000 in aggregate at any time in the year (IRS). The IRS carve-outs for retirement accounts cover US arrangements such as IRAs and US qualified employer plans, not UK schemes, so UK pensions such as SIPPs are generally treated as reportable, and foreign pensions also feature in Form 8938 reporting under FATCA. None of this creates extra tax by itself, but the penalties for missing it are serious, and the classification questions sit firmly on the US side of the file.

On the UK side, the pre-departure checklist is ours: confirming your departure under the Statutory Residence Test and split-year treatment, preparing the US-Individual 2002 claim so the NT code is in place before you draw, reviewing your National Insurance record against the April 2027 transitional deadlines, and modelling the 2027 IHT exposure on your pot. You can compare your take-home position across the two systems with our UK vs US take-home tool. We work on fixed fees agreed upfront, with non-resident and expat returns from £550, and we coordinate the whole picture with your US preparer so the treaty claims land consistently on both returns.