The problem
UK retail investment structures and pensions are structurally misunderstood from a US reporting perspective. For US citizens in the UK, or UK firms coordinating with US CPAs, mainstream UK planning often triggers foreign trust (Form 3520), PFIC (Form 8621) and specified foreign financial asset (Form 8938) regimes.
This matters because US citizenship-based taxation under IRC §61 and §7701(a)(30) applies worldwide, irrespective of residence. The UK's shift to the Foreign Income and Gains (FIG) regime from April 2025, after abolishing domicile, has intensified coordination failures.
What triggers reporting
Three US frameworks overlap:
Worldwide taxation: US citizens are taxable on all income, wherever earned or held.
Form 8938: Specified foreign financial assets above $200,000 at year-end (higher for joint filers abroad) require disclosure under IRC §6038D.
Forms 3520/3520-A: Foreign trusts with US persons as creators, transferors or beneficiaries require reporting under IRC §6048. Penalties under §6677 are automatic and substantial.
UK structures that routinely catch practitioners out include ISAs, OEICs, unit trusts (PFIC treatment), and UK occupational pensions (grantor trust or foreign trust classification). 72% of UK defined benefit schemes use unit trusts or OEICs, structures the IRS may treat as PFICs, not pensions.
Trust-based vs contract-based pensions
UK pensions split into trust-based (governed by trustees under deed, regulated by The Pensions Regulator) and contract-based (provider-managed, FCA-regulated). There are 36 authorised DC master trusts in the UK, all under TPR scrutiny. Trust-based schemes provide trustee oversight but can trigger US foreign trust reporting. Contract-based schemes shift liability to providers but remain foreign financial assets for Form 8938 purposes.
What this means
This is not aggressive planning. It is recurring compliance failure on structures that are neither novel nor high-risk in the UK. Practitioners acting for US citizens in the UK need to map UK retail and pension structures onto US classification rules before they are implemented, not after.
Forms 3520, 8621 and 8938 are not optional. Penalties are not discretionary.