UK Pension US Tax: Your First Year in a British Workplace Scheme

UK pension US tax: an introduction

The UK pension US tax answer for a US citizen joining a British workplace scheme is usually good news. Under the US-UK treaty, your own and your employer's contributions can be kept out of US income, within limits. However, the relief is not automatic. You have to claim it correctly on your US return, and you still have reporting to do.

This article supports our guide to the US-UK double taxation treaty. It follows one year, from the day the enrolment letter arrives to the day both returns are filed. Our separate article on the UK pension on the FBAR covers reporting for people who have saved for many years.

Why UK pension US tax starts in month one

Your employer must enrol you quickly, and the first contributions leave your pay within weeks. Each payslip then creates a figure the US return will need. Therefore, the simplest approach is to set up your records in the first month, not at the following year's deadline.

Who this checklist is for

We assume you are a US citizen or green card holder who has moved to Britain for work. We also assume you are employed by a UK employer and paid through UK payroll. Self-employed people and personal pensions you open yourself raise different points, and we touch on them only briefly.

What happens when you are auto-enrolled?

Your employer must put you into a workplace pension if you are aged 22 to State Pension age, work in the UK and earn at least £10,000 a year. Contributions then start from your pay. You can opt out within a month and get your money back.

The enrolment rules

GOV.UK's page on joining a workplace pension sets out who must be enrolled. The government's review for 2026 to 2027 kept the £10,000 trigger unchanged. Your employer must also re-enrol you every three years if you have left the scheme.

What goes in

The minimum is 8% of qualifying earnings in total, with at least 3% from your employer. GOV.UK explains the split between you, your employer and tax relief. Many employers pay more than the minimum. Keep the scheme booklet, because it states the rates and the scheme type.

The one-month opt-out

If you opt out within a month of joining, GOV.UK says you get back what you paid in. Some Americans opt out because they fear US complications. That choice is yours, and it gives up the employer's money. In our experience, the US side is manageable for most new joiners once the records are set up.

How does the UK give tax relief on contributions?

The UK relieves your contributions in one of three ways: net pay, relief at source, or salary sacrifice. Each method changes the figures on your payslip. Consequently, each also changes the figures you carry to the US return.

Net pay and relief at source

Under a net pay arrangement, your employer takes contributions before income tax. Under relief at source, you pay from taxed pay and the provider adds basic rate relief. GOV.UK's pension tax relief page explains both. Higher-rate taxpayers under relief at source claim the extra relief through Self Assessment.

Salary sacrifice and the 2029 change

Salary sacrifice is an agreement to give up pay in return for an employer contribution. It saves National Insurance as well as income tax. From April 2029, only the first £2,000 a year of sacrificed pay will stay free of National Insurance. Income tax relief is unchanged.

The annual allowance

The annual allowance is the most that can go into your pensions each year with UK tax relief. GOV.UK gives it as £60,000 for the current tax year, with a taper for very high incomes. Most new joiners are far below it. Still, it matters for the US, because treaty relief follows UK relief.

What does the treaty do for UK pension US tax?

Article 18(5) of the treaty lets a US citizen employed in the UK exclude qualifying contributions from US income. It covers your own contributions and your employer's. It also means growth inside the scheme is not taxed in the US until paid out.

The conditions in Article 18(5)

The treaty text sets several conditions. You must be a US citizen resident in the UK, employed there, with pay taxed in the UK and paid by a UK employer. Contributions must qualify for UK relief. They are also capped at what the US would allow for a generally corresponding US plan.

The saving clause question

The saving clause lets the US tax its citizens as if the treaty did not exist, with listed exceptions. The Treasury Technical Explanation says Article 18(5) is not subject to the saving clause. So a US citizen can use it. However, the explanation describes UK schemes in terms of tax law that has since been replaced. Whether every modern scheme type qualifies is not fully settled.

Growth and the US cap

Article 18(5) also says benefits accrued under the scheme during that employment are not part of your US taxable income. Meanwhile, the US cap on excluded contributions follows US plan limits, which change each year. For a typical salary, the 8% minimum sits well inside those limits. Very high earners should check the cap each year.

What reporting does a UK pension trigger in year one?

Usually an FBAR if your foreign accounts pass $10,000 in total, possibly Form 8938, and possibly a treaty disclosure. Form 3520 is often not needed for a qualifying scheme. Each answer depends on figures you can collect from day one.

FBAR and Form 8938

The FinCEN FBAR instructions exempt US plans such as 401(k)s and IRAs, but foreign plans are not listed. A cautious preparer therefore includes a UK pension. The Form 8938 instructions ask for your interest in a foreign pension plan. Thresholds for filers abroad are much higher, so many new joiners will not reach them.

The Form 8938 thresholds abroad

For a single filer living abroad, the instructions set the test at $200,000 on the last day of the year or $300,000 at any time. For married couples filing jointly, the figures are $400,000 and $600,000. A new pension rarely reaches these alone. However, your other foreign accounts and investments count towards the same totals, so add them up each December.

Form 3520 and Revenue Procedure 2020-17

Revenue Procedure 2020-17 exempts tax-favoured foreign retirement trusts from Forms 3520 and 3520-A. The scheme must meet conditions, such as contribution limits and penalties on early withdrawal. Most UK workplace schemes are designed in a way that fits. Nevertheless, record why you think the exemption applies.

Form 8833

Form 8833 discloses a treaty position on a US return. Regulation 301.6114-1 waives disclosure for some pension positions. It is not settled whether that waiver covers excluding contributions under Article 18(5). Consequently, many preparers attach Form 8833 for the exclusion as a cautious step.

What does the first year look like in figures?

A typical first year produces a modest pension pot, an exclusion on the US return and one or two information returns. The example below shows each figure and where it goes.

A worked example

Consider a typical case. Jake, a fictional US citizen, starts work in Manchester in April 2026 on a £60,000 salary. His scheme uses net pay. He pays 5% and his employer pays 5%, so each puts in £3,000 over the UK tax year. His P60 shows taxable pay of £57,000, because his contributions came off before tax.

On his US return for 2026, Jake reports only the pay for April to December, converted to dollars. Under Article 18(5), he excludes his own contributions for those months and does not include his employer's. He attaches Form 8833. His pension value at 31 December goes on his FBAR, together with his UK current account.

What would happen without the treaty

Outside the treaty, a UK scheme is usually not a qualified US plan. Under section 402(b), employer contributions to such a plan can be taxable to the employee. Jake's employer's £3,000 could then become US income. That is the cost the treaty claim avoids, and it is why the paperwork matters.

The calendar mismatch

The UK tax year runs from 6 April to 5 April, while the US year follows the calendar. Jake's P60 therefore covers a different period from his Form 1040. Payslips bridge the gap. Keep every one, and total contributions for January to March separately each year.

Which dates should you put in your diary?

Mark the opt-out deadline, the UK tax year end, the US filing dates and the FBAR date. A simple diary covers almost every UK pension US tax step in the first year.

The UK dates

First, note the date one month after enrolment, which ends the opt-out window. Next, after 5 April, file your P60 with your pension statement. If you are a higher-rate taxpayer under relief at source, claim extra relief through Self Assessment. Our UK Self Assessment service covers that return.

The US dates

Your Form 1040 is due on 15 April, with an automatic extension to 15 June for people living abroad. The FBAR is due on 15 April, with an automatic extension to 15 October. Our article on US tax deadlines for Americans abroad sets out the full list.

Each December

Finally, ask your provider for the 31 December value, or note it from the online portal. You will need it for the FBAR and any Form 8938. A single screenshot each December saves a lot of searching the following summer.

What changes for UK pension US tax after year one?

The routine stays the same, but three events change the figures: a new job, a pension transfer and a move back to the US. Each one deserves a note in your file when it happens. The UK pension US tax position after year one depends mainly on those notes.

Changing jobs

When you leave an employer, your pot usually stays where it is. A new employer then enrols you in a new scheme, so you have two pensions to report. Consequently, your FBAR and any Form 8938 will list both. The Article 18(5) exclusion applies only to contributions during UK employment, so record the dates of each job.

Transferring between UK schemes

Many people combine old pots into one. A transfer between UK schemes moves money between two foreign accounts. In our experience, it is worth noting the transfer date and amount, because both accounts can show a high value in the same year. That affects the maximum values you report.

Moving back to the US

Article 18(5) depends on UK employment, so new contributions after you leave usually fall outside it. Article 18(1) can then help. It says that, for a resident of one country with a scheme in the other, income earned by the scheme is taxed only when paid out. Therefore, a UK pension US tax position after moving home usually turns on Article 18(1), not 18(5).

Keeping the file current

Finally, keep one folder for each scheme with its booklet, annual statements and your December values. A tidy file makes every later UK pension US tax return quicker, and it makes a future transfer or withdrawal far easier to report correctly.

How US UK Tax Experts can help

US UK Tax Experts prepares the US and UK returns from one file, so that the two agree. For UK pension US tax, we work out the Article 18(5) exclusion from your payslips, prepare Form 8833 and decide what goes on the FBAR and Form 8938. See our pensions service and our US federal returns service.

Conclusion

Joining a UK workplace pension need not cost a US citizen extra tax. The treaty keeps qualifying contributions and growth out of US income, as long as you claim it properly. The work is mostly records: payslips, the P60 and a December value. Set those up in your first month, and your UK pension US tax filings will follow easily.

Contact us

If you have just joined a UK workplace pension, email hello@usuktaxexperts.com or use our contact page. Tell us your start date, the scheme type and your contribution rates. We reply within one working day.