Does the U.S.-UK tax treaty protect my UK SIPP or employer pension from current U.S. taxation?

Yes. Under the U.S.-UK tax treaty, a Self-Invested Personal Pension (SIPP) is treated as a tax-deferred retirement account, and contributions, earnings, and gains are not taxed in the U.S. until distribution. However, the deferral is not automatic; you must file Form 3520-A annually to claim treaty protection, and failure to file incurs a severe penalty ($10,000 or 5% of the account value).

UK SIPP treaty protection under the U.S.-UK tax treaty:

• Contributions: Deferred from U.S. taxation in the year made
• Fund earnings and capital gains: Not taxed annually; compounded tax-deferred
• Form 3520-A: Must be filed annually (due March 15, extendable to September 15) to establish and maintain treaty protection
• FBAR: Required if your SIPP plus all foreign accounts exceed $10,000 at any point in the year
• Form 8938: Required if foreign financial assets exceed $200,000 (single) or $400,000 (MFJ) at year-end
• UK tax on distributions: When you withdraw, the UK may impose income tax at your marginal rate; you can claim a Foreign Tax Credit on Form 1116

How the treaty deferral works:

A SIPP is classified as a trust under U.S. tax law, but Article 18 of the U.S.-UK tax treaty explicitly exempts qualifying pensions from current U.S. taxation, provided Form 3520-A is filed.

Consequences of missing Form 3520-A:

• If you fail to file Form 3520-A for even one year, you lose treaty protection for that year
• The entire account balance becomes immediately taxable as ordinary income
• An accuracy-related penalty of $10,000 or 5% of account value (whichever is greater) applies
• Recovering treaty protection after a lapse requires amended filings and penalty abatement requests

Distribution planning:

• Withdrawals are taxable to the U.S. in the year received as ordinary income
• Lump-sum distributions in early/mid-retirement trigger ordinary income tax, not capital gains rates
• Qualified longevity annuity contracts (QLACs) from a SIPP are not recognized by the IRS; the annuity is taxable as income from the SIPP

For broader UK expat pension planning, see the U.S. Expat Tax Guide for Living in the UK.