The UK State Pension is taxed by the country you live in, with one twist for Americans. Paid to a resident of the United States, it is taxable only there under Article 17(3) of the US-UK income tax treaty (opens the official IRS page in a new tab). Paid to a US citizen who lives in the UK, it is outside that paragraph altogether, so the UK taxes it and the United States taxes it again, with a credit for the UK tax.
This post is for three groups: US citizens retired in the UK, British pensioners who have settled in America, and US citizens back home with a State Pension earned during years in Britain. It goes further than the social security paragraph of our guide to avoiding US-UK double taxation. It covers the treaty wording, the saving clause, where the pension sits on Form 1040, how a US resident stops UK tax, yearly increases and the bank account it lands in.
Which treaty article decides who taxes the UK State Pension
Article 17(3). It says payments made by one country under its social security or similar legislation to a resident of the other country are taxable only in that other country. The State Pension is paid under UK social security law, so the paragraph applies whenever the person receiving it is resident in the United States.
The paragraph opens with the words notwithstanding paragraph 1, which takes social security out of the general pension rule. The Treasury's technical explanation (opens the official US Treasury page in a new tab) calls the result exclusive residence-country taxation, and says the paragraph applies whether the person contributed as a private-sector or a government employee. Residence here means residence for treaty purposes under Article 4, decided by the tie-breaker if both countries claim the person. Nationality plays no part.
The saving clause in Article 1(4) lets the United States tax its citizens as if the treaty had not come into effect. Article 1(5)(a), as replaced by the 2002 protocol, lists the benefits that survive it, and paragraph 3 of Article 17 is on that list. That protection only helps where paragraph 3 applies in the first place, a point that is easy to miss. Our post on the saving clause sets out the whole list.
Who taxes the State Pension in each situation
It depends on where the pensioner lives, not on passport. A US resident of any nationality is taxed only in the United States. A US citizen living in the UK is taxed in both countries, because the UK is paying its own resident and Article 17(3) is silent on that, so the US credits the UK tax.
The comparison below assumes each person is resident in one country only for treaty purposes. A year of arrival or departure needs more care, since the UK may treat part of the year as a split year and the Article 4 tie-breaker can decide residence for the treaty. Our US-UK tax treaty summary sets Article 17 beside the residence article.
- US citizen living in the UK. The UK taxes the pension as income of a resident. The US also taxes it as income of a citizen and gives a credit for the UK tax on Form 1116
- British pensioner living in the US. Only the US taxes it, under Article 17(3). The pensioner claims UK exemption on form US-Individual 2002, and no Form 1116 credit arises
- US citizen living in the US with a UK work history. Only the US taxes it, under Article 17(3). The saving clause changes nothing, because the US already has the sole right to tax
- Verdict. The two US-resident cases come out the same; the US citizen in the UK is the only one taxed twice and relieved by credit
Why a US citizen in the UK pays US tax on the State Pension
Because Article 17(3) covers payments made to a resident of the other country, and a State Pension paid by the UK to a UK resident is not one. The paragraph never engages, so its protection from the saving clause is beside the point. The United States taxes its citizen on worldwide income and relieves the UK tax by credit.
On the UK side, GOV.UK guidance on how pension tax is paid (opens the official GOV.UK page in a new tab) says the State Pension is not taxed before you receive it. Where the pensioner also has a workplace pension or wages, HMRC changes the tax code so that the tax on the State Pension is collected from that other income. Where there is no other source and income exceeds the personal allowance, HMRC sends a Simple Assessment bill. Anyone already filing Self Assessment includes it on the return, which our UK Self Assessment service prepares.
On the US side, Article 24 requires the United States to allow a credit for UK income tax, and Article 24 is itself protected from the saving clause. Because no tax is taken off the payment, the UK tax that relates to the State Pension has to be worked out from the UK computation for the year, then converted and claimed on Form 1116. The Form 1116 instructions (opens the official IRS page in a new tab) govern which income category it belongs in.
How the State Pension appears on Form 1040
As an annuity, not as a social security benefit. Publication 915 (opens the official IRS page in a new tab) says foreign social security benefits are taxable as annuities unless a treaty exempts them or treats them as US benefits. For a US resident the UK treaty does neither, so the pension goes on the pension and annuity lines of Form 1040.
This has a practical cost that most guidance passes over. Publication 915 names Canada and Germany as countries whose social security is treated as if paid under US law, which brings it into the worksheet that leaves part of a US benefit untaxed for many retirees. The UK is not named. A UK State Pension is therefore taxed under the annuity rules in Publication 575 (opens the official IRS page in a new tab), which allow tax-free recovery only of any cost in the contract. Where there is little or no cost, most or all of each payment is taxable.
The Form 1040 instructions send distributions from foreign pensions to lines 5a and 5b, and tax software that files the pension under social security can understate the income. Payments arrive in sterling or are converted, so each needs a dollar value. Our individual tax returns service prepares Form 1040 with these lines checked against the treaty position.
How a US resident stops UK tax on the State Pension
By claiming exemption on form US-Individual 2002 (opens the official GOV.UK page in a new tab). HMRC's notes to the form say the State Pension is taxable but usually paid without deduction of tax, and that a US resident can claim exemption from UK income tax under the convention. The same form claims repayment of any UK tax already taken.
The claim needs proof of US residence. HMRC's notes say the form goes with Form 8802 (opens the official IRS page in a new tab), the application for US residency certification, and its user fee, so that the IRS can certify to HMRC that the claimant is resident in the United States for treaty purposes. The claim matters most where HMRC would otherwise collect tax on the State Pension through the tax code on a UK workplace or personal pension, which follows its own treaty rules.
Take a British retired nurse who has moved to North Carolina, holds a green card and also draws a small UK workplace pension. She files the US-Individual claim for both, so HMRC stops coding her State Pension against the workplace pension. On her US return the State Pension goes on lines 5a and 5b. No Form 8833 (opens the official IRS page in a new tab) is needed: the instructions waive disclosure for treaty positions on pensions and social security, and the US is not reducing its own tax.
Had UK tax been taken before her claim, it would not belong on Form 1116. Publication 514 (opens the official IRS page in a new tab) limits the credit to the legal and actual foreign tax liability and denies it where the tax is reasonably certain to be refunded. Since Article 17(3) gives the UK no right to tax her, the repayment comes from HMRC. Our post on Form 8833 covers positions that do need disclosure.
Claiming the State Pension from the US and yearly increases
The pension can be claimed from abroad, and someone living in the United States keeps its yearly increases. GOV.UK lists the USA among the countries with a social security agreement under which the UK pays an annual increase, so a pension paid to a US resident is not frozen at the rate first paid.
The GOV.UK guide to the State Pension abroad (opens the official GOV.UK page in a new tab) says a claim can be made through the International Pension Centre or on the international claim form, within four months of State Pension age. It says increases are paid only in the European Economic Area, Gibraltar, Switzerland and agreement countries, with Canada and New Zealand excluded. The countries list (opens the official GOV.UK page in a new tab) names the USA. The amount itself follows UK rules on the new State Pension (opens the official GOV.UK page in a new tab) and the person's National Insurance record.
The guide says payment can go to a bank in the country where you live or to a UK bank or building society. The entitlement is not a financial account, so the State Pension itself is not reported on the FBAR. A UK account that receives it is, if the total across all foreign accounts exceeds the threshold at any point in the year; see our page on the FBAR.
Our US-UK pensions service and treaty relief service review the pension alongside any UK workplace scheme, covered in our post on the UK pension lump sum. The reverse case, US benefits paid to a UK resident, is in our post on US Social Security for UK residents. The guide to avoiding US-UK double taxation shows how the credit fits with the other reliefs.
- Claim. Through the International Pension Centre or the international claim form, close to State Pension age
- Increases. Paid to US residents, because the USA is on the agreement list
- Bank. A US account, or a UK bank or building society account that counts towards the FBAR total
- UK tax. Claimed off by a US resident on form US-Individual 2002 with IRS residency certification
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
