401k UK Resident Tax: How Your 401(k) Is Taxed If You Are a US Citizen, a Returning Briton or a Green Card Holder

401k UK resident tax: an introduction

Your 401k UK resident tax bill turns on your passport. A returning Briton, a US citizen in London and a green card holder in Leeds can draw the same dollars and get three results. In short, the UK taxes regular payments and the US joins in for citizens. Lump sums are now taxed by both countries.

This article supports our guide to the US-UK double taxation treaty. We follow four events in the life of a 401(k). They are growth inside the plan, regular distributions, lump sums, and rollovers or Roth conversions. For each one, we show which country taxes first and which gives credit.

Why 401k UK resident tax depends on you

Start with the plan. A 401(k) is a US employer retirement plan funded from pay before income tax. The Treasury's Technical Explanation of the treaty confirms that a 401(k) counts as a pension scheme. However, the treaty then treats owners differently by citizenship. Therefore, the 401k UK resident tax answer starts with your profile.

The three profiles in this article

We use three profiles. Profile A is a US citizen who is resident in the UK. Profile B is a Briton who worked in the US and came home, and who never held US citizenship or a green card. Finally, profile C is a green card holder who now lives in the UK. In each case, we assume the person is UK resident and has left the US employer.

Which treaty rules decide who taxes your 401(k)?

Three articles do the work. Article 17 covers pensions, Article 1 holds the saving clause, and Article 24 gives relief. Together they decide who taxes first and who gives credit.

Article 17: pensions and lump sums

Pensions go to the country of residence. Under Article 17(1)(a) of the US-UK income tax treaty, they are taxable only where the owner lives. However, Article 17(2) then makes an exception for lump sums. A lump sum from a scheme in one country, paid to a resident of the other, is taxable only where the scheme sits. On the face of it, that points a 401(k) lump sum to the US alone.

The saving clause and its exceptions

The saving clause overrides much of this. It is the rule in Article 1(4) that lets each country tax its own residents, and the US its citizens, as if the treaty did not exist. In addition, Article 1(5) lists the exceptions, including Article 17(1)(b). However, neither Article 17(1)(a) nor Article 17(2) is on that list. Consequently, the US can still tax a citizen's 401(k), and the UK can still tax its residents.

Article 24: who gives credit first

Article 24(6) sets the order. It applies when the US taxes a citizen living in the UK. The UK gives credit only for the tax the US could charge a UK resident who is not a citizen. After that, the US credits the UK tax that remains. To make that work, Article 24(6)(d) treats the income as arising in the UK, which is called re-sourcing.

Is your 401(k) taxed while it grows, or when you roll it over?

Usually not. Neither country taxes growth inside the plan, and a direct rollover to a US IRA is generally tax-free in both. The main trap is a Roth conversion, and green card holders face a separate risk.

Growth inside the plan

Growth stays sheltered. Article 18(1) says income inside a pension scheme in the other country is taxed only when it is paid out. Moreover, it excludes money that moves to another pension scheme. As a result, HMRC does not tax dividends or gains building up inside your 401(k). Article 18(1) is a saving clause exception, so this protects all three profiles.

A direct rollover to an IRA

A rollover is not a payment. In practice, a direct rollover moves money from the plan straight to another plan or IRA. According to IRS Publication 575, it avoids the mandatory 20% withholding on eligible rollover distributions paid to you. Furthermore, the Technical Explanation says a rollover into another US IRA is exempt in the UK if the US does not tax it. By contrast, a transfer into a UK pension falls outside that protection.

Roth conversions, briefly

A conversion is taxable in the US. A Roth conversion moves pre-tax money into a Roth account, and the US taxes the amount converted. Article 17(1)(b) does not help, because the US does not exempt it. Meanwhile, the UK view is less clear, since Article 18(1) excludes transfers to another pension scheme. We have found no HMRC guidance on the point, so we model the 401k UK resident tax result both ways. A separate article on Roth accounts will cover this in depth.

Green card holders and the treaty tie-breaker

Dual residence is common here. A green card holder living in the UK is often resident in both countries. Article 4(4) of the treaty settles this by looking first at where you have a permanent home. Claiming UK residence under that tie-breaker can therefore cut your US tax. However, section 7701(b)(6) says you then stop being treated as a permanent resident. A long-term resident is a green card holder in 8 of the last 15 years, under section 877(e)(2). Consequently, for that person the claim can count as expatriation.

How are regular 401(k) distributions taxed in the UK?

The UK taxes them as foreign pension income for all three profiles. In contrast, the US side differs. A returning Briton pays no US tax, a citizen pays US tax with credit, and a green card holder faces an awkward gap.

Profile B: the returning Briton

This is the simplest case. Article 17(1)(a) applies cleanly, so 401k UK resident tax is UK tax alone. Under section 575 of ITEPA 2003, the full amount arising in the year is taxable. On the US side, IRS Publication 515 says payers withhold 30% on US-source pensions unless a treaty exempts them. Instead, you claim that exemption on Form W-8BEN. The W-8BEN instructions ask you to name your treaty country.

Profile A: the US citizen

Both countries tax a citizen. Here the UK goes first. Under Article 24(6)(b), the UK credits only US tax that a non-citizen could suffer. A non-citizen would pay no US tax on a regular payment, so the UK gives no credit. Subsequently, the US credits the UK tax against its own tax on the same income. Meanwhile, Publication 575 says a citizen cannot opt out of US withholding without a US home address. You may therefore see tax taken off at source and reclaim it on Form 1040.

Profile C: the green card holder

This profile has a gap. Article 24(6) names citizens, former citizens and former long-term residents. Notably, it does not name current green card holders. As a result, the re-sourcing rule that rescues citizens does not plainly reach you. In our reading, a green card holder who skips the tie-breaker can face double tax on regular payments. Nevertheless, some preparers disagree, so we treat the point as contested. We model the return with and without the tie-breaker, including the expatriation effect.

What happens to 401k UK resident tax on a lump sum?

Both countries now tax it. Since March 2025, HMRC says it can tax a UK resident on a lump sum from a US scheme, with credit for US tax. Meanwhile, the US taxes the lump sum too, so the order of credits matters for every profile.

HMRC's change of view

HMRC changed its guidance in 2025. Its International Manual at INTM163160 was added between 10 and 12 March 2025. It says the saving clause lets the UK tax its residents despite Article 17(2), with relief "in the usual way". Additionally, it defines a lump sum as a non-periodic, irregular or abnormal payment. Generally, taking 50% or more of the fund is a lump sum. Similarly, taking 20% or more often is.

The taxable amount follows EIM75550. In particular, it allows deductions such as rights built up before 6 April 2017. Here, we focus on how the 401k UK resident tax change lands for each profile.

US withholding on a lump sum

Expect tax at source. Publication 515 says the treaty exemption may not apply to lump sums, and it cites Article 17(2) by name. So a returning Briton should expect 30% withholding, or graduated rates on the part earned from US work. After that, Form 1040-NR settles the final US figure. A citizen, by contrast, faces 20% withholding on an eligible rollover distribution paid out. Either way, withholding is a payment on account, not the final bill.

The 10% additional tax and whether it is creditable

Age matters here. The 10% additional tax applies to early distributions under section 72(t). Specifically, it generally bites before age 59½. However, Publication 575 spares you if you left the employer in or after the year you reached 55. Importantly, section 26(b)(2) says this tax is not tax "imposed by this chapter" for credit purposes. The Form 1116 instructions then leave such taxes out of line 20. Therefore, UK tax cannot reduce the 10%. Whether HMRC will credit it against UK tax is unclear, so we do not assume it.

A worked example

Consider a typical case. Daniel is a fictional US citizen, aged 62, living in Bristol. He has left his US employer, and a UK pension uses his personal allowance. We assume $1.30 to the pound throughout. In option one, he draws $24,000 a year, or £18,462. That keeps him in the basic rate band, which GOV.UK's income tax rates set at 20% for 2026 to 2027. His UK tax is £3,692, about $4,800. We assume US tax of $3,000 before credit. In this option the UK gives no credit. Instead, the US credit wipes out the $3,000 and leaves $1,800 unused.

In option two, Daniel takes a $100,000 lump sum, or £76,923. We assume UK tax of £21,000 and US tax of $22,000, which is £16,923. We also assume a non-citizen would face the same US tax under Article 17(2). As a result, the UK credits it, leaving £4,077 of UK tax, about $5,300. However, the US credit cannot cut the $22,000, because Article 24(6)(c) protects it. His total is $27,300, the higher of the two figures. At 57, a further $10,000 additional tax would apply, with no credit.

Where does a 401(k) payment go on your returns?

In the UK, it goes on the Foreign pages. In the US, a citizen or green card holder uses Form 1040. A Briton with a US-taxed lump sum uses Form 1040-NR.

The UK Self Assessment foreign pages

Use form SA106. The SA106 Foreign pages and notes for 2025 to 2026 cover overseas pensions, social security benefits and royalties. You fill in columns A to F, with totals in boxes 8 and 9. The notes say to include taxable lump sums from foreign schemes. Additionally, you claim foreign tax credit relief in the same columns, in pounds.

Form 1040 and its schedules

Start with Form 1099-R. The Form 1040 instructions place pensions on lines 5a and 5b. The 10% additional tax goes on Form 5329, as the Form 5329 instructions explain. Alternatively, in simple cases it goes straight onto Schedule 2. A citizen claims the UK credit on Form 1116, and Form 8833 may also be needed for re-sourced income. Our article on Form 1116 and UK tax walks through the credit.

A profile-by-event checklist

First, settle your profile: citizen, returning Briton or green card holder. Second, name the event: growth, a regular payment, a lump sum or a rollover. For growth and direct rollovers to an IRA, 401k UK resident tax is usually nil in both countries.

Next, look at regular payments. The Briton pays UK tax only, and the citizen pays UK tax with a US credit. Meanwhile, the green card holder checks the tie-breaker. For lump sums, every profile now pays UK tax. The Briton and the citizen get UK credit for US tax, while the green card holder needs modelling. Finally, check your age against the 10% additional tax, because no US credit covers it.

How US UK Tax Experts can help

We prepare both returns together. US UK Tax Experts prepares the US and UK returns from one file, so the two agree. For 401k UK resident tax, we confirm your profile and apply the right credit order. Next, we enter each payment on the SA106 and on Form 1040 or 1040-NR. We also model a lump sum against regular payments before you draw. See our pensions service and treaty relief service. Retirees may also like our guide to US UK tax for retirees.

Conclusion

The 401k UK resident tax answer starts with your passport, not your plan. Growth and direct rollovers are usually tax-free in both countries. In contrast, regular payments are taxed in the UK, with the US joining in for citizens. Lump sums are now taxed by both, with credit. The 10% additional tax is never creditable in the US, and green card holders need the most care.

Contact us

Planning to draw on a 401(k) from the UK? Email hello@usuktaxexperts.com or use our contact page. Tell us your citizenship, your age, the plan balance and what you plan to take. We reply within one working day.