UK Pensions & Retirement Plans
US Tax Reporting Requirements
Issues Affecting US Taxpayers
Here are important considerations related to properly reporting your foreign retirement accounts. This focuses specifically on United Kingdom retirement accounts for beneficiaries of these plans who must also file US income tax returns. Typically these are British citizens living in the USA and US Citizens and Green Card holders with UK connections.
2 FUNDAMENTAL TYPES OF UK RETIREMENT SCHEMES:
1. Plans created by an individual
2. Plans created by their employer
There are a significant number of pension schemes for employees working in the United Kingdom. That doesn’t matter to you unless you are a beneficiary of one of these retirement plans and you have US tax return filing requirements. If so, you must take the time to analyze whether or not you have to report this to the Internal Revenue Service. Ignoring this issue could be very expensive. Persons who may be caught in these reporting requirements include:
US citizen who has previously worked in the UK and is a current or future beneficiary of one of these UK pension retirement plans. They have money in a UK plan.
US citizen who is currently working in the UK and is a current or future beneficiary of one of these UK pension retirement plans.
US Resident Aliens (green card holders – legal immigrants) who have worked in the UK and have funds in one of the UK pension retirement plans. These often are UK citizens that have immigrated into the US. Many have forgotten about their dormant plans. This may also include those who are NOT UK citizens but worked there and participated in a UK pension scheme.
US Resident Aliens defined by your physical presence in the US (substantial presence test). If you have any financial interest in a UK pension scheme, you probably have a reporting requirement on your US tax return.
While this article focuses on UK pension schemes, if you have ANY OTHER FOREIGN retirement account, you should look carefully as to whether you also have US tax reporting requirements.
FAILURE to properly report your investment in such foreign retirement accounts risk incurring very substantial penalties typically beginning at $10,000 per report per year.
These report types may include but are not limited to: Foreign Bank Account report [FBAR Form 114] and Form 8938 Report of Foreign Financial Assets.
Other forms that may need to be filed include Form 3520 for Foreign Trusts; Form 8621 PFIC; Form 5471 for foreign corporations, Form 8833 to claim benefits from a specific Tax Treaty.
A number of UK pension schemes are treated as a “grantor trust” under US tax rules. In such instances, you are required to file an annual Form 3520 (Foreign Trust) and typically a Form 3520-A as a beneficiary of the trust. Failure to file these forms creates penalties that begin at $10,000.
There are exceptions. Governmental pensions are exempt from reporting. Social Security plans are exempt. However, retirement plan assets held by a nongovernmental institution (businesses, etc.) are not exempt from Form 8938 (Foreign Financial Assets) reporting.
Fundamentally, if you are a US Citizen or Resident Alien AND you are participating in or have participated in a foreign retirement account then STOP what you are doing. To protect yourself from potential and substantial penalties, determine what pensions you have that exist outside of the USA. Ignoring the filing requirements could generate penalties that are greater than the value of your pension!
These issues can be resolved often with little or no penalties. But if you are caught by the IRS via all the FATCA reporting requirements, the consequences will be severe.
UK Pension Schemes:
Personal Pension Plan [PPP]
Self-Invested Pension Plan [SIPP]
Additional Voluntary Contribution [AVC]
Retirement Annuity [RAR]
Stake Holder (no longer available but still exist)
Work Place Pensions [WPP]
Self-Administered Scheme [SSAS]
Executive Pension Plan [EPP]
Work Place Pensions [WPP]
Stake Holder [old – moved to WPP]
Funded Unapproved Retirement Benefit Scheme [FURB] now known as [EFRBS]
Employer Funded Unapproved Retirement Benefit Scheme [EFURBS]