Americans Living in the UK - Part 3: Retirements, Pensions & Estate Planning

Expatriation Dec 3, 2025

Introduction: Planning for retirement and managing your estate can be especially complex when you’re an American living in the UK. You must navigate two tax systems – the US (which taxes citizens on worldwide income) and the UK (taxing UK residents) – to avoid pitfalls like double taxation. In this part of our series, we provide general guidance on how different retirement accounts, pensions, and inheritance tax rules work for US citizens in the UK. (As UK tax advisors, we focus on UK aspects, with only broad points on US rules – for detailed US advice, consult a US tax professional.)

US Retirement Accounts & UK Tax Treatment

U.S. 401(k) and IRA Distributions: If you have US retirement plans (like a 401(k) or Traditional IRA) from your time in America, the UK will tax distributions once you’re UK-resident. Regular withdrawals from a US 401(k)/IRA are treated as foreign pension income and added to your UK taxable income. For example, taking periodic distributions from a US 401(k) while living in the UK means those payments are subject to UK income tax at your marginal rate. The US will also tax these distributions as normal income, but double taxation is relieved by foreign tax credits – you can credit the UK tax paid against your US tax so you don’t pay twice. In practice, Americans end up reporting the distribution in both countries and using the US–UK tax treaty to offset the taxes.

Lump Sum vs. Periodic Payments: How you withdraw US retirement funds affects the UK tax. A one-time lump-sum cash-out of a US 401(k) is generally exempt from UK tax under the US–UK tax treaty (Article 17) – the UK won’t tax a full lump sum withdrawal. However, the United States will tax that lump sum at normal rates (and may apply 30% withholding for non-residents). On the other hand, partial or periodic distributions from a US plan are taxable in the UK (since you’re a UK resident) and also taxable in the US, with foreign tax credit relief to prevent double taxation. In short, lump sums from a US pension are taxed by the US but not by HMRC, whereas ongoing payments are taxed by HMRC (and the IRS will tax them too, but you can claim a credit). The treaty essentially allows the country of residence to tax pension income, and either exempts it in the other country or requires a credit to be given. (Note: The US treaty “savings clause” means the IRS can still tax its citizens, so in practice Americans must file US returns on their pension income, then use credits for UK taxes paid.)

Roth IRAs: A Roth IRA is treated differently. Qualified Roth IRA distributions (which are tax-free in the US) are generally tax-free in the UK as well. In other words, if you’re a UK resident and take a qualified distribution from your Roth IRA, it is not taxable in either country. This makes Roth IRAs attractive for US expats – the investments grow tax-free and, when withdrawn under the qualified rules, the payout is not taxed by HMRC or the IRS. By contrast, Traditional IRA growth is not sheltered from UK tax: any interest or investment earnings accumulating inside a Traditional IRA are taxable in the UK each year as foreign interest or income. And Traditional IRA withdrawals are taxed as income in both countries (with credits to avoid double tax). If you have sizeable US retirement accounts, it may be worth seeking advice on strategies like Roth conversions, timing of withdrawals, and treaty elections to minimize combined taxes. The key is that both HMRC and the IRS have a claim on these pensions – but careful planning (using treaty provisions and foreign tax credits) can ensure you don’t pay more than the higher of the two countries’ tax rates.

UK Pension Taxation: As a UK resident, you may also contribute to or receive UK pension benefits. The UK’s tax treatment of its pensions is straightforward: you can typically take a tax-free lump sum of 25% from your UK pension pot, and the remaining 75% of withdrawals are taxed at your normal income tax rate (20%, 40%, or 45% depending on your total income). For a UK pension, HMRC will withhold tax on payouts above the 25% lump sum. If you’re a US citizen, you still have to deal with the IRS on this income. The US generally taxes distributions from foreign pensions as ordinary income. However, the US–UK treaty provides an important relief: it recognizes the UK’s 25% Pension Commencement Lump Sum (tax-free portion). Under Article 17(1)(b) of the treaty, that 25% lump sum from a UK pension can be taken tax-free in both countries. In practice, if reported properly to the IRS (via a treaty election on Form 8833), the IRS will honor the UK’s tax exemption on that amount, resulting in no US tax on the 25% lump sum. Any remaining pension withdrawals from the UK plan are fully taxable in the UK and taxable in the US as foreign income – you must declare them on your US tax return, but you can claim a foreign tax credit for the UK tax paid to avoid double taxation. In summary, the UK pension’s tax-free lump sum is also tax-free for US purposes if handled correctly, while ongoing UK pension income is taxed by both countries (with credits to offset). Be mindful that the IRS does not treat UK pension schemes as “qualified” plans, so contributions and growth may not get the same tax deferral in the US as they do in the UK. U.S. citizens often still report annual UK pension contributions or growth on their US returns (unless a treaty provision applies). This is a highly technical area, and the takeaway is: your UK pension will be taxed in the UK, and the US will either tax it with credits or allow an exemption for certain parts, per the treaty. Always keep records of UK tax paid on your pension and consider professional advice so you claim the appropriate treaty benefits and credits.

U.S. Social Security Benefits: Many American expats eventually receive U.S. Social Security retirement benefits. The good news is that the US–UK treaty explicitly avoids double taxation of Social Security by taxing it only in the country of residence. If you’re a UK resident, your US Social Security payments are taxable only in the UK, and not in the US. In practical terms, this means the IRS will not tax your Social Security even if you’re a US citizen abroad – you won’t even include those payments as taxable on your US return (under treaty rules). Instead, you report the Social Security income on your UK Self Assessment. HMRC treats foreign social security like a pension annuity income, taxable at your usual rates. (If your total income is low, the UK personal allowance may cover some of it; higher incomes will pay 20% or more on the Social Security.) This treaty benefit prevents a situation where both countries tax the same Social Security benefits. UK State Pension: Similarly, a UK state pension is taxed only in the recipient’s country of residence. A UK state pension received by a US resident would be taxed in the US, and conversely a US Social Security benefit to a UK resident is taxed in the UK. Keep in mind this is different from many other types of income – it’s a special treaty provision for social security. Also note that paying into Social Security vs. National Insurance is governed by a separate Totalization Agreement to avoid dual contributions, which is beyond our scope here. The key point for retirees is that you won’t pay US federal tax on your Social Security if you’re a UK tax resident, but you will pay UK tax on it (and vice versa for UK state pensions).

Estate Tax / Inheritance

Estate planning is another area requiring coordination between US and UK rules. Both countries have taxes on transfers at death, but they operate very differently:

U.S. Estate Tax: The US imposes a federal estate tax on the worldwide estate of US citizens and domiciliaries. The tax rate is 40% on amounts above a very large exemption. As of 2025, the estate tax exemption is about $13.99 million per individual (nearly $28 million for a married couple). This means an American’s estate only pays US estate tax if the total value exceeds that threshold, and then only the excess is taxed at 40%. (Legislative changes are pending – in 2026 the exemption is scheduled to drop roughly by half, unless new laws are passed.) There is also an unlimited marital deduction for bequests to a US-citizen spouse – transfers to a US spouse are tax-free. For bequests to a non-US citizen spouse, the US limits the tax-free amount (annual gift exclusions, QDOT trusts, etc.). Importantly, US citizens remain subject to US estate tax even if they live abroad. So an American in the UK must consider US estate tax on their global assets. If you are a US citizen or green-card holder, any UK property, investments, etc., will count toward your US taxable estate. The US also has a gift tax regime (linked with the estate tax exemption), and a generation-skipping tax, which are beyond this article’s scope but worth noting for comprehensive planning.
UK Inheritance Tax (IHT): The UK taxes estates based on domicile (or long-term residence) rather than citizenship. UK Inheritance Tax is 40% on the value of a deceased’s estate above the “nil-rate band” of £325,000. Unlike the US, the UK threshold is very low (£325k has been frozen for years) – in practice, property and assets above that amount can face 40% tax. However, if you are a foreigner in the UK, you might not be subject to UK IHT on everything. Under longstanding rules, if you are not domiciled in the UK, then UK IHT generally applies only to your UK assets, not your worldwide estate. US citizens moving to the UK are usually considered non-UK-domiciled initially (domicile is a concept of your permanent home/intention). Even after years of living in Britain, you might retain a US domicile (for example, if you intend to return to the US). Previously, the UK treated anyone who had been UK-resident for 15 out of the last 20 years as “deemed domiciled” for IHT – meaning after 15 years in the UK, your worldwide assets became subject to UK inheritance tax. Update: From 6 April 2025, the UK is shifting to a residency-based inheritance tax system. Under new rules, anyone who has been UK-resident for at least 10 of the last 20 tax years will be treated as domiciled for IHT. This change lowers the bar from 15 years to 10 years, potentially bringing many more long-term expatriates into the UK IHT net. There’s also a “tail” – if you leave the UK after long residency, you may remain within scope of UK IHT for up to 3 to 10 years after departure (depending on years of residence). In short, an American who has lived in the UK for a decade or more could be taxed by the UK on their entire estate worldwide, in addition to facing US estate tax. The UK, like the US, has an unlimited spousal exemption if the spouse is UK-domiciled. If you as an American are married to a Brit, be aware that transfers to a non-UK-domiciled spouse have a capped exemption (£325k lifetime, separate from the nil-rate band) – a special rule that can affect US/UK couples. Planning may be needed to avoid IHT on the first death in that scenario.
Treaty Relief (U.S.–UK Estate Tax Treaty): Thankfully, the US and UK have a bilateral Estate Tax Treaty (from 1979) that prevents double taxation of the same assets. This treaty uses the concept of domicile as a tiebreaker. Each country will determine under its own laws whether you were a domiciliary at death, and if both claim you as a domiciled person, the treaty’s tie-breaker rules apply. The tie-breaker looks at factors such as where you had a permanent home, where your closest personal and economic relations were, where you habitually resided, and your citizenship. Based on these criteria, the treaty will assign a “deemed domicile” for estate tax purposes to either the US or the UK (whichever connections are stronger). The country deemed your domicile gets primary taxing rights on your worldwide estate, and the other country must yield on taxing worldwide assets. Instead, the non-domicile country can only tax assets located in its own territory (for example, the UK would tax UK real estate of a US-domiciled person, or the US would tax US-situs assets of a UK-domiciled person) and importantly, a tax credit is provided to eliminate double taxation on overlapping assets. In practice, this means if you’re a US citizen long-term in the UK, you might still be considered US-domiciled under the treaty, so the US taxes your whole estate and the UK only taxes UK situs assets (and would credit any US estate tax on those assets). Alternatively, if you have become clearly UK-domiciled, the UK would tax your worldwide estate and the US would only tax US assets (with credit for UK IHT paid). The treaty also aligns certain exemptions: for example, it can allow a pro-rated US estate tax exemption for a UK-domiciled person’s US assets, higher than the default $60,000 for foreign domiciliaries. It also ensures that the $13.99M US exemption can still apply for US citizens who are UK-domiciled by local law but treated as US-domiciled by the treaty. Additionally, the treaty confirms that immovable property (real estate) is always taxable in the country where it’s located, but then grants credits so one country’s tax can be credited against the other’s if both apply. Overall, the US–UK Estate Tax Treaty is a crucial safety net so that you won’t pay full death taxes to both governments on the same asset. You may still face the higher of the two countries’ tax on a given asset, but not a double hit. Given the complexity of domicile definitions and treaty elections, it’s wise to get specialized estate planning advice if you have substantial assets in both countries. Through proper planning, Americans in the UK can structure their affairs (using trusts, life insurance, marital planning, etc.) to lawfully minimize exposure to both US estate tax and UK inheritance tax.

Wills, Succession & Cross-Border Issues

Tax is only part of the equation – you must also ensure your estate planning documents (wills, trusts, etc.) are effective in both jurisdictions. When you have assets or family in the US and UK, cross-border estate planning becomes essential. Here are key issues and tips:

Wills in Both Jurisdictions: It is possible to have a single will that covers your worldwide assets, but often it’s advisable to have separate wills for each country in which you hold substantial assets. Different countries have different inheritance laws and formal requirements. A UK will may be written to cover UK property and a US will to cover US property – when carefully drafted, multiple “situs” wills can work together without revoking or contradicting each other. The goal is to ensure that each will is valid locally and that together they encompass all your assets. If you use one global will, you need to be sure it meets the legal standards of both the UK and the relevant US state (witnessing, notarization, etc.), and be careful it doesn’t unintentionally override an earlier foreign will. Engaging a cross-border estates attorney is highly recommended; they can draft wills that explicitly recognize the international context (e.g. carving out assets by jurisdiction). This prevents the nightmare of wills “colliding” or portions of your estate being left in limbo. Having properly coordinated wills can greatly streamline the probate process and ensure your wishes are carried out in both countries.
Probate & Executor Challenges: Probate is the court-supervised process of administering a deceased’s estate, and it must be done separately under each country’s laws for assets located there. If you die owning assets in the UK and in the US, generally a UK Grant of Probate will be needed for your UK estate, and a US probate (often in the state of domicile, possibly ancillary probates in other states for real property) will be needed for your US assets. These parallel processes can lead to extra costs, delays, and complexities. Different legal systems mean different procedures – for example, UK probate is often simpler (with fixed fees) whereas some U.S. states have lengthy probate processes or high executor fees. Executors (or personal representatives) of a cross-border estate may have to navigate both systems simultaneously – dealing with HMRC and UK courts on one hand, and the IRS and US courts on the other. There may also be practical issues: assets might need to be valued in two jurisdictions, foreign death certificates or court documents may need official translation or apostilles, etc. It’s not uncommon to face delays due to differing procedures and even conflicts of law. For instance, timelines for creditor claims and tax clearance vary between countries. An executor must be prepared for extra administrative work and should ideally seek legal counsel experienced in international probate. In some cases, it makes sense to appoint co-executors – one based in the UK, one in the US – so that each can handle local tasks more efficiently. The bottom line is that cross-border estates require more coordination. Expect that it may take longer to fully administer an estate that spans countries, and plan accordingly (for example, ensure sufficient liquidity in each country to cover taxes and expenses, as assets can’t be easily shifted post-mortem).
Succession Law Differences: Another consideration is that the US and UK (England & Wales) are both common-law jurisdictions that generally allow freedom of disposition by will. But if you own assets in other countries (say an American in the UK who also inherited property in France or Italy), you might encounter forced heirship or civil law succession rules that override your will. Even between the US and UK, there are nuances – for example, UK law does not have a direct equivalent of US living trusts and handles jointly owned property and beneficiary designations differently. Work with advisors to ensure that mechanisms like trusts or beneficiary designations you set up in one country will be recognized in the other. Fortunately, the US and UK do generally respect each other’s legal documents (a valid UK will can be resealed in some US states and vice versa), but local probate procedure must still be followed. Also be mindful of powers of attorney and incapacity planning – a US durable power of attorney or living will might not be effective in the UK and vice versa, so consider creating separate documents for each jurisdiction as needed.
Cross-Border Estate Planning Advice: Given the complexity of both tax and legal issues, obtaining specialist advice is crucial. There are firms that specialize in US–UK cross-border estate planning, helping clients mitigate both UK inheritance tax and US estate tax exposure. They can advise on holding assets in trust, utilizing life insurance to cover tax liabilities, and drafting estate plans that align with both countries’ laws. For example, careful planning might involve using the higher US exemption to your advantage while also reducing UK-taxable assets if you expect to become deemed UK-domiciled. Professionals can also help ensure that your estate doesn’t get caught by surprise changes in law, such as the new UK residency-based IHT rules. As one cross-border estate attorney noted, without coordination you risk “conflicting instructions, probate headaches and double taxation” – it truly requires joined-up thinking in both jurisdictions. The relatively small upfront cost of proper planning is well worth avoiding tens of thousands (or more) in unnecessary taxes or legal fees for your heirs.

Conclusion: Retirement and estate planning for Americans in the UK demands a dual focus. You must account for U.S. tax obligations on your worldwide income and assets, while also complying with U.K. tax rules that kick in once you’re a resident (and potentially once you’ve been here long enough to be deemed domiciled). The US–UK Tax Treaty and Estate Tax Treaty provide frameworks to prevent double taxation – but you need to understand how to invoke their benefits (e.g. claiming foreign tax credits, filing the right forms to claim treaty exemptions). On the UK side, be aware of the reliefs available (such as the 25% pension lump sum, or the remittance basis if you’re non-domiciled for a period) and the points at which UK taxation expands (like the 10-year residency mark for inheritance tax). Always keep good records – documents like Form 1099-R for US pension withdrawals, HMRC certificates of tax paid, and exchange rate calculations – as you’ll need them to cross-claim tax credits and satisfy both authorities. Finally, involve qualified advisors for both jurisdictions. A UK tax advisor who understands US issues (and vice versa) can collaboratively ensure that your retirement withdrawals are optimally timed and that your estate will pass on with minimal friction between the two systems. By planning ahead, you can enjoy your retirement in the UK with confidence that you’re meeting your obligations and preserving your wealth for the next generation, without unpleasant surprises from either the IRS or HMRC.