UK pension PFIC reporting is usually not required. UK funds held inside a registered pension are Passive Foreign Investment Companies in principle, but Treasury Regulations section 1.1298-1(c)(4) removes the Form 8621 filing duty where a US income tax treaty defers tax on the pension's income until it is paid out. The UK-US Income Tax Treaty does that in Article 18. The same funds in an ISA get no such relief.
Americans in the UK are often warned that every UK fund is a tax trap. That warning is right for ISAs and general investment accounts. However, it is usually wrong for a workplace pension or a Self-Invested Personal Pension (SIPP). This guide explains why the UK pension PFIC position is different, the conditions behind the exemption, and where the protection ends.
What a PFIC is and why UK funds are caught
A Passive Foreign Investment Company is defined in section 1297 of the Internal Revenue Code. A non-US corporation is a PFIC if at least 75% of its gross income is passive, or at least 50% of its assets produce passive income. Almost every UK unit trust, OEIC, investment trust and non-US exchange-traded fund meets one of those tests.
The default tax regime
Without an election, section 1291 applies. Gains and excess distributions are spread over your holding period, taxed at the highest ordinary rate for each earlier year, and an interest charge is added. In addition, you file a separate Form 8621 for each fund, each year. The IRS describes the form on its About Form 8621 page. Our guide to the PFIC rules for Americans covers the regime in full.
Why the UK pension PFIC position is different
Two rules work together. The treaty defers US tax on what happens inside the pension, and the PFIC regulations then switch off the reporting.
The treaty deferral in Article 18
Article 18(1) of the UK-US Income Tax Treaty provides that income earned by a pension scheme may be taxed as the member's income only when, and to the extent that, it is paid to the member. Article 18(5) gives matching protection to a US citizen who lives and works in the UK and belongs to a UK scheme. Both paragraphs are listed as exceptions to the saving clause in Article 1(5), so a US citizen can rely on them. The treaty is published on GOV.UK in the USA tax treaties collection.
The Form 8621 exemption in the regulations
Treasury Regulations section 1.1298-1(c)(4) then deals with the form. A shareholder who owns PFIC stock through a foreign pension fund does not file Form 8621 for that stock where, under a US income tax treaty, the fund's income is taxable to the shareholder only when paid out. You can read the rule in the Electronic Code of Federal Regulations. As a result, the funds inside a qualifying UK pension need no annual PFIC reporting, however many there are.
UK pension PFIC treatment compared with other wrappers
The exemption follows the wrapper, not the fund. The same global tracker can be harmless in a pension and costly in an ISA.
| Where the UK fund is held | Treaty deferral of income | Form 8621 for each fund | Other US reporting |
|---|---|---|---|
| Workplace pension (defined contribution) | Yes, Article 18 | Not required under section 1.1298-1(c)(4) | FBAR and Form 8938 for the pension itself |
| SIPP or personal pension | Generally yes, as a UK registered pension scheme | Generally not required | FBAR and Form 8938 for the pension itself |
| Stocks and Shares ISA | No | Required, subject to the small-holdings exception | FBAR, Form 8938, income on Form 1040 |
| General investment account | No | Required, subject to the small-holdings exception | FBAR, Form 8938, income on Form 1040 |
| Offshore investment bond | No | Position depends on the policy; advice needed | FBAR, Form 8938, possible Form 3520 |
The small-holdings exception is not the same thing
A separate rule, in Treasury Regulations section 1.1298-1(c)(2), excuses Form 8621 where all your PFIC stock is worth $25,000 or less on the last day of the tax year, or $50,000 on a joint return, and you had no excess distribution or sale. That exception only removes the form. The section 1291 tax still applies when you sell. In contrast, the pension rule rests on treaty deferral, so no PFIC tax arises inside the scheme.
Conditions and limits of the exemption
The exemption is generous, but it is not automatic for every arrangement with the word pension on it.
The scheme must qualify under the treaty
Article 3(1)(o) of the treaty defines a pension scheme as an arrangement that is generally exempt from income tax in its home country and operates principally to provide pension or retirement benefits. UK registered pension schemes meet that description. Workplace schemes fit squarely. SIPPs and personal pensions are also registered schemes, and advisers widely treat them as covered. However, the IRS has not issued guidance that names SIPPs, so the position should be reviewed for your facts and recorded on file.
Reporting of the pension itself continues
The exemption covers Form 8621 only. You still report the pension as a foreign financial account on FinCEN Form 114 and, above the thresholds, on Form 8938. You report the pension's total value, not each fund. Our guide to reporting a UK SIPP on Form 8938 and the FBAR sets out what each form wants.
Pensions outside the treaty
A scheme in a country with no US income tax treaty has no deferral to rely on. Likewise, a UK pension transferred to an overseas scheme must be tested under that country's treaty, not the UK one. In those cases the funds inside can be PFICs with full reporting. Our guide to transferring a UK pension abroad explains the wider risks.
What happens when you take money out
Distributions from the pension are taxed as pension income, under Article 17 of the treaty and section 72 of the Internal Revenue Code. They are not taxed under the PFIC rules. Therefore, you do not compute excess distributions on the funds sold inside the scheme to pay you. UK tax paid on the withdrawal is normally available as a foreign tax credit. Our foreign tax credit and double taxation page explains how the credit is claimed.
An illustrative case
Consider an illustrative US citizen in Edinburgh. The figures are illustrative. He holds £180,000 in a workplace pension invested in four UK index funds, and £40,000 in a Stocks and Shares ISA invested in two of the same funds. For the pension, he files no Form 8621. He reports one account on his FBAR and one line on Form 8938. For the ISA, he must file two Forms 8621 each year, and a later sale falls under section 1291 unless he made an election. The funds are identical. Only the wrapper differs. He stops ISA contributions and directs new savings to the pension and to US-domiciled funds with UK reporting status.
If you hold UK funds in more than one wrapper, book a consultation with our cross-border team. We review each account, confirm the UK pension PFIC position and deal with any missed Forms 8621.
Frequently Asked Questions
Are funds inside a UK pension PFICs?
Technically yes. UK unit trusts and OEICs held in a pension meet the Passive Foreign Investment Company tests in section 1297 of the Internal Revenue Code. However, where the UK-US Income Tax Treaty defers tax on the pension's income, Treasury Regulations section 1.1298-1(c)(4) removes the Form 8621 filing requirement and no PFIC tax arises inside the scheme.
Do I need to file Form 8621 for my SIPP?
Generally no. A SIPP is a UK registered pension scheme, and advisers widely treat it as a pension scheme under Article 3(1)(o) of the UK-US Income Tax Treaty, so the exemption in Treasury Regulations section 1.1298-1(c)(4) applies. The IRS has not issued guidance that names SIPPs, so the position should be confirmed for your circumstances.
Does the PFIC exemption also cover my Stocks and Shares ISA?
No. An ISA is not a pension scheme and the UK-US Income Tax Treaty gives it no deferral. UK funds in an ISA are PFICs with Form 8621 due for each fund, unless total PFIC holdings are within the $25,000 exception in Treasury Regulations section 1.1298-1(c)(2), or $50,000 on a joint return.
Do I still report my UK pension on the FBAR and Form 8938?
Yes. The exemption applies to Form 8621 only. A UK pension with an account value is reported on FinCEN Form 114 when your foreign accounts exceed $10,000 in aggregate, and on Form 8938 when you exceed the filing threshold for your status and residence.
Does HMRC tax fund growth inside a UK pension?
No. Investment income and gains inside a UK registered pension scheme are free of UK Income Tax and Capital Gains Tax. UK tax applies when you draw benefits, apart from the tax-free lump sum, which is normally 25% of the fund up to the lump sum allowance of £268,275 (HMRC, 2026/27).
Does the exemption apply to a pension or savings plan in the UAE?
No. The exemption depends on a US income tax treaty that defers tax on the fund's income, and the United States has no income tax treaty with the United Arab Emirates. Funds held in a UAE workplace savings plan or offshore pension can therefore be PFICs with Form 8621 reporting.
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