Employer and private pensions for American expats in the UK.
Do I need to report my UK pension on my US tax return?
As a US citizen or Green Card Holder with an employer pension in the UK, you may have to report this as a foreign trust. US owners and beneficiaries of foreign trusts face complicated reporting requirements.
Firstly, to qualify for a UK pension, you must live and work in the UK with a valid National Insurance Number.
When do you have to report your UK pension as a foreign trust?
Let’s begin with when you don’t have to file your UK pension as a Foreign Trust.
For employer-provided pensions, whether you have to report your pension as a foreign trust depends on the contributions between the employee and employer. If the employer contributes more than the employee, there are typically no complicated US tax implications.
All you have to do is report the balance of the employer-provided pension on your FBAR and Form 8938 (Statement of Specified Foreign Financial Assets) if you have a Form 8938 filing requirement.
Because the account is considered a qualified retirement plan for US tax purposes, employee contributions and employer contributions invested in the pension along with growth are US tax-exempt.
What if the employee does contribute more?
When the employee contributes more than the employer, complex US tax compliance typically follows. That is unless the pension is contract-based as opposed to trust-based; see below.
For a UK pension to be considered “employer-funded” the majority of the funds flowing into the pension must be from an employer. When that’s not the case, the pension cannot be considered “employer-funded”.
In such a scenario, the pension will then be considered a Foreign Grantor Trust for US tax purposes and will need to be reported to the IRS on Form 3520 and 3520-A.
Consider contributions in full, not annually.
When we compare contributions between employees and employers, we look across the life of the pension, not a single year.
Even if employee contributions were higher in some years, as long as the employer contributed the overall majority since the pension was opened through to the end of the US tax year that’s being filed for, the pension would not need to be filed as a Foreign Grantor Trust.
