A Self-Invested Personal Pension can work for a US citizen or green card holder living in the UK, but only under specific conditions: you generally need an International SIPP rather than a mainstream UK platform, you have to avoid UK-domiciled funds because of the Passive Foreign Investment Company (PFIC) regime, and you have to make a US-UK tax treaty election to defer US tax on growth inside the account. Every year you hold the SIPP, you also carry US reporting obligations that most UK pension savers never think about. This article walks through what that looks like in practice for a US person holding a SIPP in the UK.
Why Mainstream UK SIPP Platforms Turn US Persons Away
UK residency and being under age 75 are the basic legal requirements to open a SIPP, but legal eligibility is not the constraint that matters here.1House of Commons Library. Self Invested Personal Pension Schemes (SIPPS) The constraint is that major UK platforms including Hargreaves Lansdown, Fidelity UK, Vanguard UK, Interactive Investor, and AJ Bell will not accept US-resident clients. The underlying UK and EU funds available through these platforms have withdrawn access for US persons because of the compliance burden created by FATCA and SEC regulations.
The workaround the market has produced is the International SIPP, a scheme structured for non-UK-tax-resident investors and for US persons who need a broader investment menu than mainstream platforms will open to them. These are often paired with an SEC-registered adviser. Practically, if you are a US citizen in the UK and you want a SIPP, this is the route you are likely to take.
The PFIC Problem Shapes What You Can Hold
This is where SIPP investing gets genuinely painful for US persons. Most UK-domiciled funds, including OEICs, unit trusts, and investment trusts, qualify as Passive Foreign Investment Companies under US tax law. The PFIC regime exists to discourage US investors from deferring gains through foreign funds, and it does so with punishing arithmetic.
When a US shareholder receives an “excess distribution” from a PFIC, or sells PFIC shares at a gain, the profit is spread across the entire holding period and taxed at the highest individual rate in effect for each of those years (37% for recent years), plus an interest charge on the deferred tax for each prior year.2Internal Revenue Service. Instructions for Form 8621 The effective tax rate often exceeds 50% once interest is factored in.
There is an important exception for pension participants. Under the Form 8621 instructions, a shareholder who participates in a foreign pension fund recognised under a US tax treaty is not required to complete the annual PFIC information reporting for PFICs owned through that pension.2Internal Revenue Service. Instructions for Form 8621 Whether your SIPP qualifies depends on whether you have properly elected treaty benefits, which is one reason the treaty election below is functionally essential.
Even with the reporting relief, most practitioners advise US persons to build the SIPP portfolio out of assets that avoid PFIC classification entirely. That leaves a narrower universe:
- Individual stocks listed on recognised exchanges, which are not PFICs
- US-domiciled ETFs, which are organised in the US and therefore outside the PFIC regime, though not every SIPP platform offers them
- Gilts and individual bonds, which do not raise PFIC issues
- Cash, which is straightforward but earns little over time
Because mainstream UK platforms rarely offer US-domiciled ETFs, this is another reason US citizens tend to end up in an International SIPP. Building a diversified portfolio from individual stocks and bonds requires more active management and typically higher dealing costs than the low-cost index fund approach most non-US SIPP investors take.
Using the US-UK Treaty to Defer Tax on Growth
Without treaty protection, the IRS could tax you on contributions and internal growth inside a SIPP as they occur, defeating the point of holding one. Article 18 of the US-UK Income Tax Treaty allows a US person to defer US tax on contributions to and growth inside a UK pension scheme, provided the person was contributing to the scheme before becoming a US resident and the IRS agrees the scheme generally corresponds to a US pension plan.3Internal Revenue Service. United Kingdom (UK) – Tax Treaty Documents For the treaty to recognise a pension scheme, contributions must qualify for tax relief in the country where the scheme is based, and distributions must be taxable there.
Claiming the deferral is not automatic. You file Form 8833 with your US tax return to disclose the treaty-based position, and ongoing compliance filings are required to maintain the protection. Miss a filing and you can expose the entire account balance to immediate US taxation, plus substantial penalties.
US Reporting Obligations Every Year
US citizens and green card holders owe US tax on worldwide income regardless of where they live. A SIPP sitting quietly in the UK still generates reporting obligations with the IRS, and the penalties for missing them can exceed the tax itself.
FBAR (FinCEN Form 114)
If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts.4Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) The IRS website broadly exempts accounts held in a retirement plan of which you are a participant or beneficiary. The underlying regulation at 31 CFR 1010.350 lists only specific US plan types, such as 401(a) and IRA accounts, as exempt.5eCFR. 31 CFR 1010.350 Because a UK SIPP does not fall neatly into those categories, most tax professionals advise reporting it on the FBAR to avoid any ambiguity. The filing is due April 15 with an automatic extension to October 15, and it must be submitted electronically through FinCEN’s BSA E-Filing System.
FATCA (Form 8938)
The Foreign Account Tax Compliance Act requires a separate disclosure if your foreign financial assets exceed certain thresholds. For US taxpayers living abroad and filing individually, you must file Form 8938 if your foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any time during the year. Joint filers face thresholds of $400,000 and $600,000 respectively.6Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets Unlike the FBAR, Form 8938 is filed with your annual tax return.
Form 3520 and Foreign Trust Reporting
The IRS may treat a SIPP as a foreign trust, which would normally require annual Form 3520 reporting. The instructions for Form 3520 contain an exception for tax-favored foreign trusts that exist exclusively or almost exclusively to provide pension or retirement benefits. Taxpayers can rely on proposed regulations under section 6048 for any tax year ending after May 8, 2024, provided they apply the proposed regulations consistently.7Internal Revenue Service. Instructions for Form 3520 This exception can relieve a significant compliance burden, but it does not affect FBAR or FATCA obligations.
Withdrawals: Where the UK and US Rules Collide
Under UK rules you can access your SIPP at age 55, rising to 57 from 6 April 2028.8GOV.UK. Increasing Normal Minimum Pension Age Up to 25% of your pot can be taken as a tax-free lump sum, capped at £268,275, with the remaining 75% taxable as income in the UK.9GOV.UK. Tax on Your Private Pension – Section: Lump Sums From Your Pension
The US side does not follow the UK’s rules. Distributions from a SIPP are taxable as ordinary income in the US when you draw them. The 25% tax-free lump sum recognised by HMRC is not automatically tax-free for US purposes; treaty provisions may reduce or defer US tax on that portion, but the treatment depends on the specific facts and the treaty election in place.
The US also does not recognise the UK’s minimum pension age. Distributions taken before age 59½ may be subject to the IRS’s 10% early withdrawal penalty, though many practitioners take the position that this penalty does not apply to foreign employer pension arrangements because they are not US-qualified plans.10Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The ambiguity is real, and getting it wrong is expensive.
One more catch on the UK side that catches US persons too: taking taxable income from a SIPP (beyond the tax-free lump sum) triggers the Money Purchase Annual Allowance, which slashes your future annual contribution limit from £60,000 to £10,000.11GOV.UK. Pension Schemes Rates If you plan to keep contributing after starting income withdrawals, the restriction can be a costly surprise.
State Income Tax if You Move Back
Federal tax is not the end of the story. US states with an income tax generally treat foreign pension distributions as ordinary taxable income, with rates from 0% in states with no income tax to above 13% at the top end. Your state of residence when you take distributions determines which rate applies. Some states offer partial exclusions for pension income, but these exclusions often apply only to US-qualified plans and may not extend to foreign pensions. If you are planning a move back to the US, the state you land in can meaningfully affect how much of your SIPP you keep.
Death Benefits and the April 2027 IHT Change
One of the traditional advantages of a SIPP has been its treatment on death. If you die before age 75, your nominated beneficiaries can receive the remaining fund as a tax-free lump sum or as tax-free drawdown income, provided benefits are designated within two years. Die after 75, and beneficiaries pay income tax at their marginal rate on withdrawals. Payments to a trust after age 75 are taxed at 45%.
A SIPP does not have to go through the pension holder’s will. You nominate beneficiaries directly with the provider, and the scheme administrator has discretion over payments, which is what historically kept SIPPs outside the scope of inheritance tax (IHT).
That changes on 6 April 2027. The government has confirmed that unused pension funds and most pension death benefits will be brought within the value of a person’s estate for IHT purposes.12GOV.UK. Inheritance Tax – Unused Pension Funds and Death Benefits At the standard 40% IHT rate, this is a significant shift for anyone planning to leave a large SIPP to heirs. Death-in-service benefits and dependant’s pensions from defined benefit schemes are excluded from the change, but SIPP funds are squarely in scope. If your estate plan assumed your SIPP would pass outside IHT, revisit it before April 2027.
Is the SIPP Worth Keeping?
Compliance costs are the deciding factor for most US persons. Professional preparation of US tax returns involving foreign pension reporting, FBAR filings, FATCA disclosures, Form 8833 treaty elections, and potential PFIC reporting typically costs several thousand dollars per year. Over a multi-decade accumulation period, these fees can consume a meaningful share of the tax advantages the SIPP provides.
Anyone holding a SIPP with under £100,000 should seriously consider whether the compliance cost justifies keeping the account, particularly if consolidating into a US retirement account is an option. Above that threshold, the calculus shifts, but the reporting workload does not go away. The right answer depends on the size of the pot, whether you plan to remain in the UK long-term, and how much of your retirement wealth you want subject to two tax systems for the rest of your life.