US Social Security paid to someone who is resident in the UK is taxable only in the UK. Article 17(3) of the US-UK income tax treaty gives the country of residence the sole right to tax it, and the paragraph is one of the few that still binds the United States when the recipient is its own citizen. The benefit goes on the UK return and, for a citizen, appears on the US return with no taxable amount.
This post is for UK residents who receive US Social Security retirement benefits: US citizens, dual citizens and British nationals who spent part of a career in America. It expands the social security paragraph of our guide to avoiding US-UK double taxation and covers the treaty rule, the saving clause, both returns, withholding on payments to non-citizens, the UK State Pension paid the other way, and what the separate totalization agreement does.
What does Article 17(3) of the US-UK treaty say about social security?
Article 17(3) says that 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. For US Social Security paid to a UK resident, that means the UK alone may tax it.
The paragraph opens by setting aside the general pension rule in Article 17(1), so social security has its own answer and does not depend on how private pensions are treated. The text is in the convention published with the IRS treaty documents (opens the official IRS page in a new tab) and on GOV.UK under USA: tax treaties (opens the official GOV.UK page in a new tab). The Treasury's technical explanation describes it as exclusive residence-country taxation.
The conditions are short. The payment must be made by a government under its social security legislation, and the recipient must be resident in the other country, which means resident for treaty purposes under Article 4. Nationality is not a condition, and the wording is not limited to retirement benefits. Our summary of the US-UK tax treaty sets the paragraph beside the other articles.
- Covered. US Social Security paid to a UK resident, whatever the recipient's nationality
- Covered. The UK State Pension paid to a US resident
- Covered. US Tier 1 railroad retirement benefits, which the technical explanation treats as paid under similar legislation
- Not covered. Workplace and personal pensions, lump sums and annuities, which fall under other paragraphs of Article 17
- Not covered. A benefit paid by a country to one of its own residents
Does the US tax Social Security paid to a US citizen living in the UK?
No. The saving clause in Article 1(4) normally lets the United States tax its citizens as if the treaty had not come into effect, but Article 1(5) lists the benefits that survive it, and paragraph 3 of Article 17 is on that list. A US citizen resident in the UK is therefore exempt from US tax on the benefit.
Sub-paragraph (a) of Article 1(5) names paragraphs 3 and 5 of Article 17, among other provisions, and its benefits are available to a country's own citizens. Our post on the saving clause goes through the whole list.
This is unusual. For most income, including interest, dividends and periodic private pensions, a rule that gives the UK the sole taxing right does not stop the United States taxing its citizen, and relief comes by credit. Social security is different because the exemption itself is protected. The same applies to a dual citizen and to a green card holder, provided the person is resident in the UK for treaty purposes. Someone resident in both countries has to settle that under the Article 4 tie-breaker first, and for a green card holder that claim has consequences of its own.
How is exempt US Social Security shown on a US tax return?
A US citizen in the UK still files a return and still shows the benefit. The total goes on the social security line of Form 1040 and the taxable amount is entered as nil. IRS Publication 915 lists the United Kingdom among the countries whose resident US citizens are exempt from US tax on their benefits.
Publication 915 (opens the official IRS page in a new tab) gives the exemption in a short passage on US citizens residing abroad, and says the Social Security Administration will not withhold US tax from a citizen's benefits. It does not set out a separate procedure for treaty-exempt benefits. Its general instruction for benefits that are not taxable is to report the net amount from the annual benefit statement on Form 1040 and enter nil as the taxable part. Under domestic law a share of the benefit becomes taxable as other income rises, so tax software will compute a taxable amount unless the treaty position is entered.
Disclosure is lighter than for most treaty claims. The instructions to Form 8833 (opens the official IRS page in a new tab) waive reporting where a treaty reduces or modifies the tax on an individual's social security, so the form is not required for this position. Our guide to Form 8833 covers the positions that do need disclosure. The filing requirement is unchanged: the exemption removes the tax on this income, and every other item is reported as usual.
How does the UK tax US Social Security?
The UK taxes it as foreign income of a UK resident. It is added to the person's other income for the tax year, which runs from 6 April to 5 April, and taxed at the ordinary income tax rates. No US tax should have been deducted, so there is normally nothing to credit.
GOV.UK guidance on tax on foreign income (opens the official GOV.UK page in a new tab) says a UK resident normally pays tax on foreign income and usually reports it in a Self Assessment return. The SA106 foreign pages (opens the official HMRC page in a new tab) have a section for overseas pensions and social security benefits. HMRC's notes say to include benefits received from another country, other than those matching certain UK benefits that are not taxable, such as Child Benefit. Tax is due only where total income exceeds the allowances available, including the £12,570 personal allowance.
Someone who has not filed a UK return before and starts receiving the benefit needs to register for Self Assessment by 5 October after the tax year ends, and file online by 31 January. The foreign pages attach to the main SA100 return. The benefit is paid in dollars and reported in sterling. A recent arrival claiming relief under the foreign income and gains regime should check whether the benefit is eligible income for that claim. We prepare these returns through our UK Self Assessment service.
Take a dual citizen retired in Bath who receives US Social Security and the UK State Pension. The US benefit is taxable only in the UK: it goes on her foreign pages and is shown on her US return with a nil taxable amount. Her State Pension is different. It is paid by the UK to a UK resident, so Article 17(3) does not apply to it. The UK taxes it, the cautious position is that the United States taxes it too as income of a citizen, and the US gives credit for the UK tax.
Is US tax withheld from Social Security paid to a British national in the UK?
Not where the Social Security Administration has the person recorded as a UK resident. By default it withholds US tax from benefits paid to a non-resident alien, but the United Kingdom is one of a small group of treaty countries whose residents are exempt from that withholding.
A non-resident alien is someone who is neither a US citizen nor a US resident, which describes a British national who worked in America for a period and then came home. The Social Security Administration acts as withholding agent for the IRS. Its guidance says it withholds a flat-rate tax, calculated on a fixed proportion of each monthly benefit, unless the recipient qualifies under a tax treaty, and its screening tool lists the United Kingdom among the countries whose treaties exempt benefits from the withholding. Publication 915 gives the same position from the IRS side.
The exemption turns on residence, so the agency's record of where the person lives matters, and a change of country should be reported to it. A recipient who leaves the UK for a country outside the list can expect withholding to start. While the person remains UK resident the benefit is exempt from US tax, and it is taxed in the UK in the way described above.
Which country taxes a UK State Pension paid to someone in the US?
The United States alone, where the recipient is a US resident. Article 17(3) works in both directions, so a State Pension paid by the UK to a resident of the United States is taxable only there. The UK gives up its right to tax the payment.
The State Pension (opens the official GOV.UK page in a new tab) is paid under UK social security legislation, which brings it within the paragraph. The saving clause is written for both countries, but it matters little here because the UK does not tax by citizenship, so a British citizen who is not UK resident is outside it. Publication 915 says it does not cover foreign social security benefits, and that they are taxable as annuities unless a treaty exempts them from US tax or treats them as US benefits. The US-UK treaty does neither for a US resident, so the State Pension is taxable income on the US return.
The paragraph covers social security only. Workplace and personal pensions follow Article 17(1) and (2) and the scheme rules in Article 18, where the results for a US citizen are less favourable and in places contested, as our post on whether a UK pension lump sum is taxable in the US explains. Someone drawing both kinds of income needs each tested separately, which is the work of our US-UK pensions service.
What does the totalization agreement do that the tax treaty does not?
The totalization agreement decides which country's social security system a worker pays into, and helps people who divided a career between the two countries qualify for benefits. It does not deal with income tax on the benefits once they are paid. That question belongs to the income tax treaty.
The Social Security Administration's summary of the totalization agreement with the United Kingdom (opens the official SSA page in a new tab) explains the benefit side. A person with too few US credits for a regular benefit may qualify for a partial US benefit by counting UK credits, provided a minimum number of credits was earned under the US system. Someone who already has enough US credits cannot have UK credits counted. The UK applies a comparable rule to its basic pension, counting US credits where there is a minimum period of UK coverage. Each country then pays its own benefit.
To have both returns checked against Article 17(3), our treaty relief service reviews the position. The guide to avoiding US-UK double taxation shows how this rule sits beside the foreign tax credit and the other reliefs.
- Income tax treaty. Decides which country taxes the benefit once it is paid
- Totalization agreement. Decides which system receives contributions and whether credits can be combined
- Domestic law. Sets the amount of each benefit and when it can start
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
