Many UK-resident individuals hold American retirement accounts or qualify for US Social Security after years spent working in the States. The UK–US Income Tax Treaty determines which country may tax each type of payment, but the answer changes with the kind of plan and the form of the distribution. Below is a concise guide to how the treaty applies to IRAs (traditional and Roth), 401(k)s and US Social Security for someone who is UK tax resident, non-US tax resident.
1. Traditional IRA Distributions
Regular periodic distribution tax position:
Taxable only in the UK. Article 17(1)(a) gives exclusive taxing rights to the country of residence (the UK) for “pensions and other similar remuneration”. The United States should not tax the payment if the treaty is claimed (usually via Form W-8BEN and/or a 1040-NR refund claim). The entire gross amount is taxable as foreign pension income on the UK Self Assessment return.
Lump-sum distribution tax position:
Taxable only in the US. Article 17(2) states that a lump-sum from a pension scheme established in the other state is taxable solely in the state where the scheme sits (the US). HMRC should not tax the lump-sum, but you must still report it on the UK return and claim treaty exemption.
2. Roth IRA Distributions
Qualified distribution (account aged 5+ years and you are over 59 ½) Tax position:
Exempt in both countries. Under US law the distribution is tax-free; Article 17(1)(b) obliges the UK to grant the same exemption because the payment “would be exempt from tax in the United States if the recipient were a US resident”.
Non-qualified distribution (early or fails five-year rule) Tax position:
In the US, the earnings portion of the distribution is taxable and may also be subject to a 10% early withdrawal penalty unless an exception applies. In the UK, the distribution is also taxable, as the US exemption doesn’t apply. However, Foreign Tax Credit relief may be available for the US tax paid.
Lump-sum from a Roth IRA Follows the same rules as periodic payments, qualified lump-sums are exempt in both countries; non-qualified lump-sums are taxable in the US and the UK, with credit relief possible.
3. 401(k) Distributions (and Similar Employer Plans)
Regular distributions only in the UK under Article 17(1)(a). If US withholding occurs, file Form W-8BEN to claim treaty relief; otherwise reclaim on Form 1040-NR.
Lump-sum cash-out treated like the IRA lump-sum: taxable only in the US under Article 17(2). The UK return should disclose the amount and claim exemption.
4. US Social Security Benefits
Article 17(2) specifically addresses “Social Security payments and other public pensions” and assigns taxation solely to the paying state.
Therefore:
US Social Security received by a UK resident is taxable only in the United States and is not taxed by HMRC. The gross benefit is reported on the US return; no UK tax is due, though the income is usually disclosed on the UK return with a treaty exemption claim.
Practical Steps to Claim Treaty Relief
Submit Form W-8BEN to each US payer to reduce or eliminate withholding where the treaty exempts the income. File Form 1040-NR if withholding has been taken to recover a refund under the treaty. Report the payments on your UK Self Assessment, claiming “UK-US Treaty Article 17 exemption” where relevant. Keep documentation of residency status, payment records and any withholding certificates.
Final Thoughts
The UK–US treaty offers generous protection against double taxation of US pensions and Social Security, but only when the correct article is applied and the paperwork is done. Mis-categorising a lump-sum or failing to file the necessary forms can result in avoidable tax or prolonged refund claims.
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.
