UK SIPP schemes and US beneficiaries
Generally, a retirement plan can be either an employer sponsored plan, where the employer sets up a scheme for the benefit of its employees, or it can be a self-sponsored plan such as a Self-Invested Pension Plan (SIPP). Either way, from a US tax perspective the retirement plan is actually a trust set up for the benefit of the taxpayer. US citizens who live and work in the UK are often taking part of their employer provided pension plans or they set up their own SIPP accounts. While the US-UK tax treaty allows US citizens to treat UK retirement plans as equivalent to US retirement plans, essentially allowing to defer tax on contributions and annual growth inside the plan, there are certain reporting requirements that both the US taxpayer and the plan custodian should be aware of. Those plan custodians who administer the SIPP accounts on behalf of US citizens in the UK are required to file an annual Form 3520-A “Annual Information Return of Foreign Trust With a U.S. Owner” with respect to the SIPP account. This is because from a US tax point of view the SIPP is treated as a grantor trust, while the plan custodial is acting as the trustee whose responsibility is the tax compliance for the trust.
Generally, even when the SIPP administrator fails to provide a Form 3520-A, the IRS requires the SIPP owner to file a substitute Form 3520-A.
We can assist retirement plan administrators who manage SIPP accounts of US citizens with the preparation of the Form 3520-A. Alternatively, we can also assist the SIPP account holder with preparation of a 3520-A substitute form.
U.S. person who has a UK SIPP may be subject to a penalty of 5% of the SIPP assets (or $10,000 if greater), if the SIPP custodian fails to file a timely Form 3520-A or does not furnish all of the information required by section 6048(b) or includes incorrect information.
Additional penalties will be imposed if the noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply with the required reporting.
For further information or assistance, please, contact us.