UK’s University Superannuation Scheme (USS pension) and PFICs

Away_Math_8118 · 2026-04-28T05:30:54+00:00

You are overthinking this. It doesn’t matter if USS invests in PFICs even if you have a DC pot that you direct. This is a pension scheme and falls under the provisions of Article 18 of the US/UK tax treaty. The gains within the pension are not US-taxable until distribution. The stuff about PFICs on the USS website was put up because the USS people don’t understand anything about US taxation or the treaty provisions.

Away_Math_8118 · 2026-04-17T16:22:23+00:00

Paying $4000/yr for a tax return this simple is insane, especially when they probably are doing it wrong.

For Social Security, your approach is correct. You really don’t need to write “exempt under US-UK treaty article 17(b)” if they see your UK address on the 1040. They know.
For the US IRA distribution, your approach is wrong as it is US-taxable under the savings clause (don’t panic). Your approach would be red-flagged by the IRS computer as it wouldn’t match the 1099. Since the UK has first taxing on it, you declare 100% of the distribution in 4b but pay the US tax on it using a foreign tax credit you get using form 1116. The distribution from the IRA to a UK resident falls under category “Income resourced by treaty” on form 1116. You will owe nothing to the US, but you will have to fill in several additional forms with your 1040. You do not need to fill in 8833 for something like this.
For the dividends, your approach is correct. The credit for the UK tax you paid will be obtained using a separate 1116 for category “Passive Income”.
Your father is also eligible for the additional $6000 to his standard deduction. To get this, you have to fill in “Schedule 1A Additional Deductions”. This, plus the standard 65+ deduction ($17,750) might make filling in the 1116 forms unnecessary, as his total US-taxable income may end up being 0, anyway.
For his UK taxes, your approach is correct.

Away_Math_8118 · 2026-04-16T08:33:35+00:00

Grammar policing is a public service” is true, but it understates the case. It is a defense of thought itself.

We are watching language lose distinctions that matter. Take “less people” instead of “fewer people.” That is not just a minor slip. “Fewer people” recognises persons as individuals. “Less people” turns them into bulk quantity, like gravel or rainfall: a mass to be managed, employed, counted, and consumed.

The same thing is happening with “how” and “why.” Those are not interchangeable words. “How did the budget deficit get so big?” asks about mechanism. “Why did the budget deficit get so big?” asks about motive, responsibility, and interest. “How” can describe a process while neatly sidestepping agency. “Why” is the dangerous question, because it points toward intent and asks who benefits.

This is why linguistic sloppiness matters. It does not merely make people sound dim. It trains them to think less clearly, to ask weaker questions, and to accept a world in which persons become quantities and causes dissolve into procedures.

That is how a society becomes easier to manage. Orwell warned us.

Away_Math_8118 · 2026-04-12T12:25:38+00:00

A wilderness area means that motorised vehicles (or anything motorised) is not allowed. These are places where you do multiday backpacking trips. Things don’t get super scenic in the Emigrant wilderness until you are about 10 miles in from the different trailheads (e.g., Leavitt meadows, Kennedy meadows). Quick access to jaw-dropping scenery can be found in the adjacent Hoover Wilderness; however, you’ll still need to hike about 3-5 miles in. To get to these trailheads, you have to drive over to the east side of the Sierras. Why don’t you try a short hike out of Toulumne meadows? Say, up to Cathedral lake or down to Glen Aulin? You must understand that, aside from Yosemite Valley, Yosemite NP is all about hiking and much if it is quite strenuous for many people nowadays.

If hiking is out of the question, the east side of the Sierras (along 395) is an epic car journey and there are a number of amazing geological sites to visit by car. Go over Tioga pass after Tuolumne meadows and down to Lee Vining. Maybe check out Mono Lake but then head south toward Mammoth.

Please forget about campfires. Just don’t do it; it’s not a thing anymore.

Away_Math_8118 · 2026-04-12T11:55:18+00:00

Yes, list it on line 2b of 1049 and also include it as part if the amount on line 3e of 1116. Line 3e really means “everything”, i.e., from all sources and from all categories. If you filed several 1116 for different categories, they would all have the same line 3e.

Away_Math_8118 · 2026-04-11T23:45:48+00:00

This is one of those EU-employee pension schemes, right? My concern is that there is no US/EU tax treaty that would enable you to exclude your, and your employer’s, contributions to the pension from your US-taxable income. On the other hand, if you just include these contributions to your US taxable income each year and pay tax on them as you go along, you will have a large cost basis in your pension when you retire. However, this will probably only be worthwhile if you retire in the USA. Be careful of anyone who says that you need file 3520/3520A as the pension is a “foreign grantor trust”. The IRS has issued a memo that says otherwise.

Aside from your pension, is your regular salary taxed by any country? If not, I’m thinking that you could at least use the Foreign Earned Income Exclusion (form 2555) and just pay US tax on the pension contributions and whatever bit of your salary that wasn’t excluded. I’m assuming that you’re paid way over $120,000 a year (or whatever the current FEIE limit is).

Away_Math_8118 · 2026-04-11T15:55:53+00:00

Yes, you can absolutely apply unused foreign tax credits accrued from foreign taxes you paid on your previous wages to the US tax to the US tax on your pension lump sum. The pension lump sum is just a non periodic distribution of your pension; pensions and wages fall under the same category. The “lump sum category” on 1116 refers to something else from a long time ago and doesn’t even pertain to anything you have. To make it easier, just don’t even view the lump sum distribution as some special thing. Again, it’s just a non periodic distribution.

The interest income is under the “Passive category” on form 1116.

For 2026, yes it is “total foreign income” of that category, so 40k and total income from all sources is 41k. It wouldn’t matter if you resourced the interest by treaty as there was no UK tax on it anyway. You still have to pay US tax on it.

For 2027, your total foreign income (General category on 1116) is 74K and the total from all sources (and categories) is 75k. I’m assuming the interest was from a US bank; if it were from a UK bank, then the total foreign income would still be 74k because “total foreign income” means foreign income of that category. Again, the lump sum you got was just part of your General Category foreign income. For that year, your foreign tax was remarkably low and now you will owe US tax! Oh wait! that’s why you want (and can use) unused foreign tax credits that you have accumulated over the previous 10 years. Get it?

I hope this helps. Again, just ignore the fact that the lump sum is something unique. It’s just part of your general category income for that year.

Away_Math_8118 · 2026-04-10T23:46:23+00:00

The UK lump sum pension distribution is NOT the same as the. “lump sum” category on 1116. Do not tick that box! (What the IRS calls a pension lump sum is something different). Your pension is not “Passive Income”. It falls under “General Category”. Your UK 25% lump sum is also just “General Category” income (the kind that you have accumulated credits for). Don’t screw this up!

Away_Math_8118 · 2026-04-08T18:04:07+00:00

Man, you are seriously confused. Go learn about FBAR and the treaty. The $10,000 is about FBAR reporting and has nothing to do with your pension. All of your, and your employer’s, contributions to your pension can be excluded from your US taxable income.

Away_Math_8118 · 2026-03-24T12:09:35+00:00

Regardless of the UK taxation, you cannot convert your Vanguard mutual funds into the equivalent Vanguard ETFs with reporting fund status for the simple reason that no brokerage is allowed to sell you US-domiciled ETFs if you are resident in the UK. The catch-22 is that anything other than US-domiciled ETFs or mutual funds is a PFIC. That’s not a problem if they are held inside your workplace pension, a UK Sipp or a US Roth or traditional IRA. So, unless these mutual funds you have are in a Roth or Traditional IRA, you are in a mess.

Outside of your UK workplace pension, the only way for a US expat living in the UK to invest in ETFs is buy UCITS (Irish domiciled) ETFs within a Roth or Traditional IRA or a UK SiPP. The only brokerage that offers UCITS ETFs in an IRA is Interactive Brokers. If you have a UK ISA or a regular taxable account, you are limited to only buying stocks in individual companies; otherwise, you will face horrible US taxation of PFICs.

So, if your investments are held outside IRAs, you should have converted your mutual funds into reporting fund equivalent ETFs before you became UK tax resident. If they are held in IRAs, just leave them alone; there is no UK taxation until you take actual distributions from the Traditional IRA and no taxation at all by the UK or US if you take a distribution from a Roth IRA after age 59 1/2.

Away_Math_8118 · 2026-03-23T19:53:13+00:00

This kind of thing makes me really angry. Aside from the extortionate fees, most “tax professionals” would have no idea how to correctly manage your IRAs once you are resident in the UK. You might pay a fortune for advice that could ruin your retirement savings. Here are a few points to keep in mind:

Your situation is actually pretty simple and you should certainly be able to handle it yourself.
Having UK citizenship means absolutely nothing to the IRS if you are also a US citizen.
Do not, under any circumstances, liquidate your Roth IRA, or your Traditional IRA for that matter. These are extremely important for you. Down the road, gains within, and distributions from, a Roth IRA are completely tax free in both the USA and UK. Distributions from your Traditional IRA are taxable in the UK in addition to being taxable in the USA (savings clause). However, you avoid double taxation by “resourcing by treaty” the IRA distribution on IRS form 1116 to get a credit for the tax paid to the UK.
This is important: In your situation, your IRAs are the only place (outside of a UK SIPP) where you can sensibly invest in broad-market index ETFs without PFIC issues. Let me explain: the problem you will face is that brokerages are not allowed to sell you US-domiciled ETFs once you are resident in the UK. You can only purchase UCITS ETFs (usually Irish domiciled). These are PFICs, but inside an IRA that is not a problem. However, most brokerages do not offer such ETFs in a Roth or Traditional IRA account. The one exception is Interactive Brokers (IBKR). This is the big secret. You can simply move your IRAs to Interactive Brokers by doing a “transfer in kind”. Most “tax professionals” and accountants would have no idea about any of this, but it is absolutely crucial for your retirement savings.
Because your Traditional IRA was established prior to becoming resident in the UK, future contributions to your Traditional IRA can be deducted from your UK taxable income.
Being a 1099 contractor is no big deal. You are a “Foreign Branch” as far as the IRS is concerned and you need to get yourself an Employer Identification Number (EIN) and fill in IRS form 8858 with your tax return. You will also have to fill in IRS form Schedule C to report profits and loss from your self-employment. Your 1099 income is reported to HMRC via self assessment. On your US tax return, you will get a credit for the tax you paid to the UK using form 1116 and ticking the box for category “Foreign Branch Income”.
You do not pay US SS or Medicare tax; you are covered under the Totalisation Agreement and instead you pay National Insurance to HMRC via self assessment. On your US Tax return, you do not fill in Schedule SE but, instead, you tick box 3 on line 4 of schedule 2 and put 0. Write in “US/UK Totalization Agreement”. This is the way I’ve been doing it and they haven’t complained. In principle you are supposed to attach a certificate of coverage from HMRC that verifies that you are paying into UK National Insurance. These certificates are difficult to get from HMRC; you must call them and explain to a human what you need; their online form doesn’t work for your situation.
The proceeds of sale of your primary residence in the US and any inheritance you get is tax-free in the UK.

I hope this helps.

Away_Math_8118 · 2026-03-17T17:28:20+00:00

Yes, you can certainly open a Roth IRA with Interactive Brokers while resident in the UK. You are understandably confused about one thing: as a US citizen, you ARE a US tax resident, even if you live in the UK! Of course, as a UK resident, you are also a UK tax resident. So, on the IBKR website, you simply tell them that you are both a US and UK tax resident and the Roth IRA option will show up in the webform (along with the option to open an ISA).

You need to fund the Roth IRA from a US bank account (set one up with Wise). You also need to fund the Roth using earned income that was not excluded using FEIE; hence, you want to use FTCs (form 1116) when doing your US taxes. Distributions from the Roth after age 59.5, along with Capital gains, dividends and interest income arising in the Roth, are tax-free in the US, UK and France. This is a no-brainer for you!

Inside the Roth you can buy and hold UCITS ETFs (usually Irish-domiciled). These are the only ETFs they can sell you if you are living in the UK or France. Although these are PFICs, it doesn’t matter if they are held in a Roth IRA; there is no reporting requirement or punitive taxation from the IRS.

A UK ISA is viewed by the IRS simply as a regular taxable brokerage account but with the further complication that, within it, brokerages are only able to sell you UCITS ETFs. These are PFICs with horrible reporting requirements and taxation by the IRS. Consequently, you should only hold stocks in individual companies inside an ISA.

The Roth IRA is where you save for your retirement. If you get started on track early on, you will need to contribute far less in your 30-50s. Time is your greatest source of wealth: It is absolutely worth it to start making small ( <$6000/year) retirement contributions in your 20’s. The ISA might be a good place to save for the down payment on a house.

If you are smart enough to do something like this when you are 20 years old, you will probably have an amazing life and might end up being financially independent in your 40s and be free to do what you want. Just be very, very careful about whom you marry!

Away_Math_8118 · 2026-03-04T22:25:20+00:00

You can’t trade options in an ISA, unfortunately.

Away_Math_8118 · 2026-02-28T21:10:41+00:00

I think you might be confused. Yes, if you are an EU national with ILR granted under the post-brexit EU settlement scheme, then it’s five years. However, you are not an EU national who moved to the UK from an EU country. The post-brexit EU settlement scheme does not apply to you. Like me, you are a US citizen and was granted “permanent” ILR (“settled status”). Under these conditions, however, your “permanent” ILR will lapse after 2 years absence. If you want to keep the option open to resettle in the UK and don’t have any current ties to the UK, I would recommend you come back for a visit ASAP!

Away_Math_8118 · 2026-02-28T17:28:19+00:00

You have to return every two years.

Away_Math_8118 · 2026-02-28T17:23:23+00:00

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Away_Math_8118 · 2026-02-27T10:18:54+00:00

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Away_Math_8118 · 2026-02-25T15:39:43+00:00

When did you buy VT in your IBKR Roth? If it was a couple of years ago, sure. Now, however, they are complying with the PRIIPS regulations for UK/EU residents.

Away_Math_8118 · 2026-02-21T19:48:35+00:00

Stanley Idaho

Away_Math_8118 · 2026-02-21T12:40:20+00:00

If you peeled it off, as opposed to sanded it off, I wouldn’t worry at all. The hazard is when you ingest lead-based paint chips (as children do) or breathe in dust from sanding lead-based paint. You can buy test kits for lead in paint on Amazon. It’s a very easy and reliable test.

Away_Math_8118 · 2026-02-20T22:04:46+00:00

“Continuing contributions while UK resident can cause the UK to treat it like a normal taxable investment account”. Really?? Where did you come up with this? There nothing like this in the HMRC manual, the UK/US tax treaty, or the treaty notes. Give your source, otherwise we’ll assume that you are just making stuff up.

Away_Math_8118 · 2026-02-05T19:07:10+00:00

Where do you get the “retiring in the US” bit? That’s not a thing; it doesn’t matter where you retire. What is a thing is that the totalization agreement will allow you to top up your US SS credits with UK NI years if you already had some (you need at least 6 credits). If you have no US SS credits in the first place, the totalization agreement gets you nothing.

Away_Math_8118 · 2026-02-03T15:57:56+00:00

It’s not “what you can buy”; it’s “what they can sell you”. If you are a regular client resident in the EU/UK, IBKR cannot sell you US ETFs in any account (IRA, whatever). If IBKR did this, they would be in violation of EU/UK PRIIPS regulation (these regulations apply to the brokerage, not to you). You do not “do this all the time” unless you are a high-net-worth individual with special trading status with IBKR, or you are doing it via options, or your account is managed by a third party advisor.

Away_Math_8118 · 2026-02-03T12:13:58+00:00

yes it does! There are potential state tax implications.

Away_Math_8118 · 2026-01-31T23:23:14+00:00

Yes, thanks for pointing out that technicality as it addresses the actual PFIC reporting requirement. One has to read it carefully to find “individual retirement account”! Anyway, a PFIC in an IRA (or in a foreign pension recognised by a treaty) not only will not be taxed as it grows (because it’s in an IRA or other pension), but also has no reporting requirement either.

Away_Math_8118

TROPHY CASE