Retiree Tax: Drawing a US and a UK Pension at the Same Time

Retiree tax on a US and UK pension follows one main rule: the country you live in taxes your state benefits and your regular pension income, and the other country steps back. Lump sums are the exception, and US citizens are taxed by the US wherever they live, with credits to stop the same income being taxed twice. This guide is for retirees drawing both sets of pensions at once, and it goes stream by stream, for a retiree living in either country.

Our earlier guides go into single topics in depth: how each country taxes retirement income, UK pensions on a US return and a 401(k) for a UK resident. This one puts all four income streams side by side, because a retiree meets them together: US Social Security, a US workplace plan such as a 401(k), the UK State Pension and a UK workplace or personal pension. For the full service view, see our page on retiree tax on a US and UK pension.

Who taxes what: the retiree tax table for US and UK pensions

The US/UK Double Taxation Convention (the treaty) deals with retirement income in Article 17. Three sentences in it do most of the work. Article 17(1)(a) says pensions belonging to a resident of one country are taxable only in that country. Article 17(2) says a lump sum from a pension scheme in one country, paid to a resident of the other, is taxable only in the country where the scheme is. Article 17(3) says social security paid by one country to a resident of the other is taxable only in the country of residence. The treaty text on GOV.UK is the reference.

Then comes the saving clause. Article 1(4) lets the US tax its citizens "as if this Convention had not come into effect", except for the provisions listed in Article 1(5). For retirement income, the exceptions that matter are Article 17(1)(b) and 17(3), plus Articles 18(1) and 24. Article 17(1)(a) and the lump sum rule in 17(2) are not on the list. We explain the mechanism in our guide to the saving clause. Here is how it plays out.

Income stream	You live in the UK	You live in the US	Extra point for US citizens
US Social Security	Taxed only in the UK (Article 17(3))	Taxed only in the US; up to 85% taxable	A UK resident citizen still keeps it off the US tax bill: 17(3) survives the saving clause
UK State Pension	Taxed in the UK; paid without tax deducted	Taxed only in the US (Article 17(3)); uprated yearly	A UK resident citizen reports it to the US too, with credit for UK tax
401(k) or US workplace pension, regular payments	Taxed in the UK in full (Article 17(1)(a)); non-US persons file Form W-8BEN	Taxed in the US	The US taxes it anyway; the UK credits the US tax
UK workplace or personal pension, regular payments	Taxed in the UK through PAYE	Taxed only in the US; apply for a UK no-tax code	A UK resident citizen reports it to the US, with credit for UK tax
UK 25% tax-free lump sum	Tax free in the UK within the lump sum allowance	UK tax free; US position disputed	US tax likely, with no UK tax to credit
401(k) lump sum or cash-out	Taxed in the US (Article 17(2)) and, on HMRC's reading, in the UK with credit	Taxed in the US	Same as the resident column

Is US Social Security taxed in the UK or the US?

US Social Security is taxed only in the country where the retiree lives. For a UK resident, that means the UK taxes it and the US does not, even if the retiree is a US citizen, because Article 17(3) is one of the saving clause exceptions. IRS Publication 915 lists the United Kingdom among the treaty countries whose residents are exempt from US tax on these benefits.

For a retiree living in the US, the familiar US rules apply. IRS Publication 915 (2025 edition) sets the base amounts at $25,000 for a single filer and $32,000 for married filing jointly: below them the benefits are not taxed, and above them up to 50% and then up to 85% of the benefits become taxable. For a UK resident the UK has no such formula. The benefits go on the SA106 Foreign pages of the Self Assessment return as overseas pension or social security income, converted into sterling.

One point for US citizens in the UK: the benefits still appear on the SSA-1099 statement that the Social Security Administration sends each year. The exclusion is a treaty position, so it is worth confirming how it is shown on the Form 1040 and whether a treaty disclosure is needed, rather than simply leaving the form out. Our treaty relief service handles these claims.

How is the UK State Pension taxed for a retiree in each country?

The UK State Pension is taxed by the country of residence. A UK resident pays UK income tax on it. A US resident is taxed only by the US under Article 17(3). The UK State Pension is paid gross, with no tax taken off, so for a UK resident HMRC usually collects the tax through the tax code on another pension or, if there is none, by a Simple Assessment bill.

The figures matter here. For 2026/27, GOV.UK's benefit and pension rates set the full new State Pension at £241.30 a week (£184.90 for the full basic State Pension under the pre-2016 system). Fifty-two weeks at the full new rate is £12,547.60. The personal allowance for 2026/27 is £12,570, with basic rate at 20% up to £50,270 and higher rate at 40% above that, according to GOV.UK's income tax rates. So a full new State Pension leaves only a few pounds of allowance for everything else, and a UK resident's US Social Security, 401(k) and UK workplace pension are taxed from close to the first pound.

For a US resident, Publication 915 treats foreign social security as taxable like an annuity unless a treaty treats it as US Social Security. The treaties with Canada and Germany do that; the UK treaty does not. So the UK State Pension goes on a US return as foreign pension income, without the 50% or 85% limits.

Frozen or uprated?

Retirees who move abroad often hear that the UK State Pension is "frozen". That applies only in some countries. GOV.UK says the State Pension increases each year only for people living in the EEA, Gibraltar, Switzerland or a country with a social security agreement with the UK, excluding Canada and New Zealand. The United States has such an agreement, so a UK State Pension paid to someone living in the US is uprated every April.

Does a UK pension still reduce US Social Security?

No, not for benefits payable from January 2024. Under the Windfall Elimination Provision (WEP), the Social Security Administration used to reduce the US benefit of someone who also drew a pension from work that did not pay US Social Security tax. That could include a pension from employment abroad, although pensions paid under a totalization agreement were among the exceptions. The Social Security Fairness Act was signed on 5 January 2025 and ended both WEP and the Government Pension Offset (GPO). The SSA says December 2023 was the last month either applied.

For a retiree with a UK workplace pension and a US work record, that is a real change. If your US benefit was cut in the past because of a UK pension, check that the SSA has recalculated it; the SSA's page on WEP and foreign pensions sets out the history. The repeal changes the size of the benefit, not how it is taxed. The treaty rules above still decide which country taxes it.

Regular pension income: 401(k) and UK workplace pensions

Regular payments from a pension scheme follow Article 17(1)(a): the country of residence taxes them. The treatment splits in two depending on whether the retiree is a US citizen.

A British or other non-US retiree living in the UK

The UK taxes both the 401(k) payments and the UK workplace pension. Since 6 April 2017 the whole of a foreign pension paid to a UK resident is taxable, not 90% as before. The US should not tax the regular 401(k) payments, but the plan will withhold 30% unless it has a Form W-8BEN claiming the treaty rate. IRS Publication 575 explains the withholding rules for payments to nonresident aliens.

A US citizen living in the UK

The UK taxes everything as the country of residence. The US also taxes the 401(k) and both UK pensions, because the saving clause overrides Article 17(1)(a). Article 24 then sets the order of credits: broadly, the UK gives credit for US tax on the US-source 401(k), and the US gives credit on Form 1116 for UK tax on the UK-source pensions. Done properly, the retiree usually pays roughly the higher of the two countries' tax, not both. The growth inside each plan stays untaxed by the other country until it is paid out, under Article 18(1), which also survives the saving clause.

Any retiree living in the US

The US taxes the 401(k) and the UK pension. The UK should not tax the UK pension income, but the UK provider will run PAYE until HMRC tells it otherwise. The fix is form US-Individual 2002, which asks HMRC to issue a no-tax code and can reclaim UK tax already deducted. The US tax form of the pension (a workplace scheme against a SIPP) raises separate reporting questions, covered in our guide to SIPPs on a US return.

Why are lump sums treated differently?

Lump sums are treated differently because Article 17(2) gives the taxing right to the country where the pension scheme is, not the country where the retiree lives, and because the saving clause lets each country override that rule for its own residents and citizens. The result is that a lump sum is the payment most likely to be taxed in both countries.

• The UK 25% tax-free lump sum. GOV.UK says you can usually take up to 25% of a pension tax free, and the most you can take is the lump sum allowance of £268,275. For a US citizen in the UK, the US will generally tax the lump sum and there is no UK tax to credit. For a US resident, some advisers argue that Article 17(1)(b), which survives the saving clause, exempts the part that would be tax free in the UK; others read the payment as falling under 17(2), which does not. The IRS has not settled the point, so any exemption claimed should be disclosed on Form 8833.
• A 401(k) lump sum. The US taxes it under Article 17(2). HMRC's International Manual at INTM163160 says the saving clause also lets the UK tax a UK resident on it, with credit for the US tax. A 401(k) cashed out before age 59½ can also carry the 10% US early distribution tax.

The practical point: decide on lump sums before you draw anything. Regular payments usually sit comfortably under the credit system; lump sums often do not.

A year in the life: one retiree, four pensions

Illustrative example: a retired US citizen who has lived in Bath for twenty years receives, in 2026/27, the full new UK State Pension of £12,547.60, a UK workplace pension of £15,000, US Social Security of $24,000 and 401(k) payments of $18,000. At an assumed exchange rate of $1.35 to £1, used purely for illustration, the US income is about £31,111. The UK taxes all four streams: total income of roughly £58,659, with the State Pension using nearly all of the £12,570 personal allowance and the top slice above £50,270 taxed at 40%. On the US return, the Social Security is excluded under Article 17(3); the 401(k) is taxed by the US and the UK credits that tax; the two UK pensions are reported and the UK tax on them is credited on Form 1116. If the same retiree lived in Florida instead, the US would tax all four streams, the UK pension would be paid gross under a no-tax code, and the UK State Pension would still rise each April. This is illustrative only; the actual liability depends on the full facts, the exchange rates used and the credits available.

A retiree's annual checklist

1. Confirm where you are tax resident for the year under each country's rules and, if both claim you, under the treaty tie-breaker rule.
2. List every income stream and match it to the table above: social security, regular pension income, or lump sum.
3. Check the paperwork that stops wrong withholding: Form W-8BEN with the 401(k) plan if you are not a US person living in the UK, or form US-Individual 2002 with HMRC if you live in the US and draw a UK pension.
4. Keep the SSA-1099, 1099-R and UK P60 statements, and record the exchange rate used for each payment.
5. File the UK Self Assessment return online by 31 January after the tax year ends, if you are UK resident or have UK income to report.
6. File the US Form 1040 if you are a US citizen or US resident, claim treaty positions and foreign tax credits, and keep FBAR reporting on UK accounts up to date.
7. Before taking any lump sum, model both countries' tax on it.

What retirees get wrong

• Leaving US Social Security off the UK return because "it is already taxed in the US". For a UK resident it is taxed only in the UK.
• Paying UK PAYE on a UK workplace pension for years after moving to the US without applying for a no-tax code.
• Assuming the 25% UK tax-free lump sum is tax free on a US return.
• Treating the UK State Pension as US Social Security on a US return and applying the 85% limit.
• Believing the UK State Pension is frozen in the US. It is uprated there.
• Not checking whether a pre-2024 WEP reduction has been reversed.

US/UK Cross Border Tax — US CPAs and UK tax advisers working as one team; London, Manchester, New York, San Francisco. Our US/UK pension planning service prepares both returns together, so the credits on one match the income on the other. If you are about to draw from pensions in both countries, talk to us before the first lump sum.