As more American citizens relocate to the UK for work or personal reasons, it’s increasingly common to see clients with US retirement accounts, particularly Roth IRAs, wondering how these accounts are treated under both US and UK tax law. Thanks to the US – UK Income Tax Treaty, there are favourable provisions – but understanding them is key to maintaining compliance and maximizing tax efficiency.

US Tax Treatment of Roth IRAs

A Roth IRA differs from a traditional IRA in several important ways:

• Contributions: Made with after-tax dollars (i.e., not deductible).
• Growth: Tax-deferred while funds remain in the account.
• Distributions: Tax-free if certain conditions are met (e.g., age 59½ and the account has been held for at least 5 years).

There are also income and contribution limits to be aware of:

• Income Limits (2025):
  • $150,000 MAGI for single filers
  • $236,000 MAGI for joint filers
• Contribution Limits:
  • $7,000 annually (plus $1,000 catch-up for those 50+)

Important for expats: You cannot contribute to a Roth IRA using income that is excluded under the Foreign Earned Income Exclusion (FEIE).

UK Tax Treatment of Roth IRAs Under the Treaty

The US–UK tax treaty includes provisions that specifically address cross-border pension arrangements, making it one of the most expat-friendly treaties for Americans living abroad.

Taxation of Pension Earnings (Article 18)

According to Article 18:

The UK will not tax the earnings and growth inside a US pension scheme until distributions are made.

This means that your Roth IRA can continue to grow tax-free even while you are a UK tax resident, provided it qualifies as a pension under treaty definitions.

Taxation of Pension Distributions (Article 17)

Article 17 distinguishes between periodic and lump-sum payments:

• Periodic Payments: Taxed only by the UK, but the UK must exempt the portion that would be exempt in the US (i.e., Roth IRA distributions that are tax-free in the US should also be tax-free in the UK).
• Lump-Sum Payments: Taxed only by the US

The Technical Explanation of the treaty clarifies that Roth IRA distributions, whether periodic or lump sum, should be non-taxable in the UK to the same extent they are non-taxable in the US

HMRC’s Interpretation

According to the UK’s Double Taxation Relief Manual, HMRC generally agrees with this interpretation. That said, full treaty protection often requires proper disclosure and potentially a treaty election in your UK tax filings.

Key Considerations and Pitfalls

• Reporting Requirements: UK residents must declare worldwide income, so even tax-exempt distributions may need to be disclosed.
• Treaty Elections: You may need to file a claim or make an election under the treaty to receive tax relief.
• Misinterpretation by Advisors: Some UK tax professionals unfamiliar with the treaty may incorrectly treat Roth IRA growth as taxable.
• US Compliance: Continue to file FBAR, Form 8938, and IRA-related disclosures as applicable.

Final Thoughts

The US–UK treaty provides generous protections for Roth IRA holders who relocate to the UK, but the benefits aren’t automatic. Careful planning, proper treaty elections, and knowledgeable cross-border advice are essential to avoid double taxation and ensure long-term tax efficiency.

The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.

If you would like more information or want to schedule a one-on-one consultancy call, please get in touch using our contact form.