Form 3520 UK Trust Reporting: What US Persons Must File

Form 3520 UK trust reporting: an introduction

Form 3520 UK trust reporting applies when a US person creates, funds, owns or benefits from a British trust. Form 3520 is the IRS information return for transactions with foreign trusts and for large gifts or bequests from foreign persons. It usually carries no tax by itself. However, the penalties for missing it are among the heaviest in the US system, so it matters for any American family with British trust ties.

This article explains who files, what triggers a filing and how the penalties work. Our guide to US-UK tax for founders and executives covers the wider reporting that wealthier cross-border families face.

What Form 3520 UK trust reporting covers

The IRS page on Form 3520 says US persons file it to report three things. These are certain transactions with foreign trusts, ownership of foreign trusts under the grantor trust rules, and certain large gifts or bequests from foreign persons. A British trust is generally a foreign trust for US purposes, so these rules reach it.

Why British trusts cause particular trouble

Trusts are common in British family life. Grandparents set them up for grandchildren, and parents use them to hold assets for minors. Many Americans in Britain therefore benefit from a UK trust without thinking of it as foreign. Consequently, filings are often missed for years.

Who must file Form 3520 for a UK trust?

A US person files Form 3520 if they transfer property to a foreign trust, are treated as its owner, or receive a distribution from it. The Form 3520 instructions list these categories, together with large foreign gifts.

Transfers to a UK trust

If you, as a US person, settle money or property into a British trust, you report the transfer. That includes adding to an existing trust. In addition, a transfer can make you the owner of the trust under the US grantor trust rules. In that case, ongoing reporting follows each year.

Owners of a UK trust

A grantor trust is a trust whose income the US taxes to the person treated as its owner, usually the settlor. If you are the US owner of a foreign grantor trust, you report that ownership on Form 3520. The trust itself should also file Form 3520-A each year, as the IRS page on Form 3520-A explains.

Beneficiaries receiving distributions

If you receive a distribution from a British trust, you report it on Form 3520. The instructions treat loans from the trust and the free use of trust property as distributions in some cases. For many Americans, this is the most common Form 3520 UK trust trigger. For example, a payment from a grandparent's discretionary trust towards school fees can count.

How do large gifts and inheritances from Britain fit in?

Gifts and bequests from British relatives are reported on Form 3520 when they pass set thresholds. The gift is not taxed in the US, but the report is still required.

Gifts from individuals and estates

You report gifts or bequests totalling more than $100,000 in a year from a nonresident alien individual or a foreign estate. The threshold includes gifts from foreign persons related to the giver. Therefore, several smaller gifts from British parents in one year can pass the threshold together. Inheritances from a British estate count in the same way.

Gifts from foreign companies and partnerships

The threshold for gifts from foreign corporations or partnerships is much lower and is indexed each year. Revenue Procedure 2025-32 sets it at $20,573 for 2026. The base figure appears in section 6039F of the Internal Revenue Code. As a result, a payment from a family company can need reporting even when it seems small.

Why the gift rules matter for UK families

British parents often help with a house deposit or pass on savings during their lifetime. Those gifts are usually tax-free for the American recipient. Nevertheless, missing the report brings a penalty, which we cover below. Accordingly, any large family transfer from Britain deserves a check.

When are Form 3520 and Form 3520-A due?

Form 3520 is due with your income tax return, and extensions to that return extend it too. Form 3520-A has its own earlier date and its own extension form.

The Form 3520 due date

The instructions say Form 3520 is due by the 15th day of the fourth month after your tax year ends. For a calendar year, that is 15 April. If you live and work abroad, it is due by 15 June with a statement attached. With an income tax extension, it is generally due by 15 October.

The Form 3520-A due date

The Form 3520-A instructions say it is due by the 15th day of the third month after the trust's year ends. For a calendar-year trust, that is 15 March. An income tax extension does not extend it. Instead, you file Form 7004 using the trust's employer identification number.

How the forms are filed

The instructions give a paper mailing address for both forms at the IRS in Ogden, Utah. They also say only a complete Form 3520 counts as filed on time. Therefore, a form sent with missing parts may be treated as late. Check IRS.gov for any change to filing methods before you post.

What are the penalties for missing Form 3520?

The penalties are severe. For trust reporting, the penalty is the greater of $10,000 or 35% of the amount that should have been reported. For gifts, it is 5% a month, up to 25%.

Trust transfers and distributions

Under section 6677 of the Internal Revenue Code, the penalty is the greater of $10,000 or 35% of the gross reportable amount. Further penalties of $10,000 apply for each 30 days the failure continues after an IRS notice. However, the total cannot exceed the gross reportable amount.

Owners and Form 3520-A

If a foreign grantor trust fails to file Form 3520-A, the US owner is liable instead. The penalty is the greater of $10,000 or 5% of the gross value of the trust assets treated as owned by the US person. Consequently, an owner needs the trust's cooperation to meet the deadline.

Unreported foreign gifts

For gifts, section 6039F charges 5% of the gift for each month the failure continues, capped at 25%. The IRS may also decide the tax treatment of the gift. In every case, penalties are not imposed if you show reasonable cause. In our experience, reasonable cause needs a clear, specific explanation, not a general statement.

Are UK pensions exempt from Form 3520?

Many are, under Revenue Procedure 2020-17. It exempts eligible individuals from Forms 3520 and 3520-A for certain tax-favoured foreign retirement and savings trusts.

The conditions in Revenue Procedure 2020-17

Revenue Procedure 2020-17 covers retirement trusts that meet several tests. The trust must be tax-favoured in its own country and report annually to the local tax authority. Contributions must come from earned income and be limited, for example to $50,000 a year or $1,000,000 in total. Withdrawals must generally depend on retirement age, disability or death.

What it does not do

The revenue procedure does not name the UK or any British scheme. Therefore, each pension has to be tested against its conditions. Registered UK pensions are commonly treated as meeting them, but that is an interpretation rather than an IRS ruling. It also leaves FBAR and Form 8938 reporting unchanged. Our guide to FBAR and FATCA reporting covers those forms.

Savings trusts and ISAs

The revenue procedure also covers some medical, disability and education savings trusts with low contribution limits. Whether UK ISAs or Junior ISAs are foreign trusts at all is not addressed by the IRS. Practitioners disagree on the point. Accordingly, we explain the position and the cautious approach case by case.

Which UK trust types raise Form 3520 questions?

Each British trust type raises different US questions. GOV.UK describes the main types on its page on types of trust.

Bare trusts

In a bare trust, assets are held in a trustee's name, but the beneficiary is entitled to them at 18, or 16 in Scotland. How the US classifies a UK bare trust is not settled by any IRS guidance we know of. Some treat it as a simple nominee arrangement, and others as a foreign trust. Therefore, the facts and documents decide the Form 3520 UK trust answer.

Interest in possession and discretionary trusts

In an interest in possession trust, the trustee must pass on all trust income to the beneficiary as it arises. In a discretionary trust, the trustees decide who receives what. Distributions from either can trigger a Form 3520 UK trust report for a US beneficiary. Furthermore, accumulated income paid out later brings the accumulation distribution rules, which the instructions calculate on a default method unless better records exist.

The UK side: registration and inheritance tax

Most UK express trusts must register with HMRC's Trust Registration Service, even without tax to pay. GOV.UK's page on checking if you need to register a trust sets out the rules. Separately, many trusts fall in the relevant property regime, where HMRC's trusts and inheritance tax guidance describes exit charges of up to 6%. Our guide to the US-UK double taxation treaty explains how the two systems meet.

What if you missed Form 3520 UK trust filings?

Missed forms can usually be filed late through an IRS route that matches your facts. The right route depends on whether you also missed tax or other returns.

Late forms with no other gaps

If your returns were filed and the tax was paid, the IRS delinquent international information return submission procedures may fit. You file the missing Form 3520 UK trust returns with a reasonable cause statement. However, penalties are not automatically waived under this route. For Forms 3520 and 3520-A, the IRS says it considers the statement before assessing a penalty.

Late forms alongside missed returns

If you also missed returns or income, the streamlined procedures may suit, provided your conduct was non-wilful. They include missing information returns such as Form 3520. Our guide to IRS Streamlined Filing from the UK explains how it works. Above all, act before the IRS contacts you.

What does Form 3520 UK trust reporting look like in practice?

An example shows how the rules apply. It is an illustration, not a real client.

An example: a grandparent's discretionary trust

Consider a typical case. Oliver is a US citizen living in Surrey. His British grandmother set up a discretionary trust for her grandchildren years ago. This year, the trustees paid £30,000 towards his child's school fees and £20,000 to Oliver directly.

Both payments may be distributions to Oliver from a foreign trust. He reports them in his Form 3520 UK trust filing by the due date of his return. Because the trust has accumulated income, part of the payment may be taxed under the accumulation rules. Furthermore, the trustees can help by providing a foreign nongrantor trust beneficiary statement. Without one, the default method applies.

What the example shows

Oliver owes US reporting on a trust he did not set up and does not control. That is common for Americans with British families. Therefore, any payment from a UK trust is worth a check before the return is filed.

How US UK Tax Experts can help

We prepare Form 3520 and Form 3520-A filings for Americans with British trusts, gifts and inheritances. First, we review the trust deed and payments to see which forms apply. Next, we work out any tax on distributions and prepare the forms with your US return. Finally, where filings were missed, we explain the routes to catch up and prepare the reasonable cause statement.

Our US federal returns service covers the returns, and our pensions service covers UK pension reporting. We prepare and file; we do not set up trusts or give investment advice.

Conclusion

In summary, Form 3520 UK trust reporting applies to US persons who fund, own or benefit from British trusts, and to large gifts from Britain. Gifts over $100,000 from individuals and estates need reporting, and the trust penalties start at $10,000 or 35%. Many UK pensions fall under Revenue Procedure 2020-17, but each must meet its conditions. Above all, check any British trust payment before you file.

Contact us

Do you benefit from a British trust or receive large gifts from family in the UK? Email us at hello@usuktaxexperts.com, or tell us about your situation through our contact page. We reply within one working day with the forms that apply and what we would need.