Americans Holding UK Assets: Why Form 8938 and 3520 Reporting Is Being Missed by Wealth Managers

TAX • CROSS-BORDER • 2026

Summary: Many US citizens living in the UK are fully compliant with HMRC — but quietly non-compliant with the IRS. UK ISAs, UK trusts, UK pensions and even standard investment accounts can trigger US Forms 8938 and 3520 reporting. This is where otherwise well-advised clients get caught out.

  • UK tax efficiency does not equal US compliance.
  • Form 8938 and Form 3520 are commonly overlooked by non-US advisers.
  • Penalties can arise even where no additional US tax is due.

Context: Who This Applies To

This applies to US advisers with American clients resident in the UK who hold local UK assets — ISAs, UK unit trusts, UK discretionary trusts, UK pensions, investment bonds, and UK property structures.

The client often believes they are “fully compliant” because their UK accountant and UK wealth manager have structured everything tax-efficiently for HMRC. That is only half the story. The IRS does not care that an ISA is tax-free in Britain. Nor does it ignore foreign trusts simply because they are common planning tools in the UK.

Rules & Thresholds (2026)

US citizens remain taxable on worldwide income under IRC §61, regardless of residence. That includes Americans living in London, Manchester or Edinburgh for decades.

Form 8938 (Statement of Specified Foreign Financial Assets) applies where foreign financial assets exceed threshold amounts under IRC §6038D. For US taxpayers living abroad, the threshold generally begins at $200,000 on the last day of the year (higher for joint filers).

Form 3520 is required for certain transactions with foreign trusts, including ownership or receipt of distributions (IRC §§6048, 6677). UK discretionary trusts frequently fall within this definition.

Planning Route When It Helps Tax Exposure Admin Burden Notes
UK ISA Common UK tax-free wrapper Fully reportable to IRS Medium Often PFIC exposure inside
UK Discretionary Trust Estate / IHT planning Form 3520 required High Severe penalties for failure
UK Pension Long-term savings May require 8938 reporting Low–Medium Treaty relief does not remove reporting

Real-World Examples

This is rarely deliberate non-compliance. It is usually structural blind spots.

The ISA That Triggered PFIC Issues

A US citizen in Surrey holds £450,000 across Stocks & Shares ISAs invested in UK unit trusts. Fully compliant in the UK. No US reporting was done for years. The underlying funds were PFICs under IRC §1297. Form 8621 filings were missing. Form 8938 was incomplete. No UK adviser raised the issue.

The Discretionary Trust for IHT

A UK-based American created a discretionary trust for inheritance tax planning. Perfectly normal UK advice. The IRS views this as a foreign trust. Form 3520 filings were required annually. None were submitted. The penalty regime under IRC §6677 can be 35% of distributions or contributions.

The UK Pension Misunderstanding

An American executive contributed to a UK occupational pension. Treaty Article 17 may provide income deferral, but reporting still applies. The asset often exceeds 8938 thresholds. US advisers who assume pensions are ignored frequently miss this.

Records to Keep (Audit-Ready)

  • Annual investment statements and historic cost basis records
  • Trust deeds, trustee resolutions, distribution records
  • UK residence evidence and treaty tie-breaker analysis

Further Reading and Resources

Book a 1:1 Cross-Border Review

If you advise US citizens resident in the UK and want a second pair of eyes on trust, pension or investment reporting exposure, a structured review can prevent expensive surprises.

Book an International Consultation

Cross-border US/UK advisory support for wealth managers and private clients.

Action List

  • Review all UK assets for 8938 inclusion
  • Identify any trust structures requiring 3520 reporting
  • Check PFIC exposure inside ISAs
  • Confirm treaty reliance documentation
  • Align US and UK advisers before year-end

Disclaimer (heading only bolded): General information only. Cross-border advice depends on facts and treaty position.

About the Author

Simon Misiewicz is a UK and US tax specialist (FCCA, ATT, EA, MBA) advising internationally mobile families and wealth managers on cross-border structuring and reporting alignment.

Hashtags: #USTax, #UKUSTax, #Form8938, #Form3520, #CrossBorderTax

Keywords: Form 8938, Form 3520, US expats UK, UK assets US reporting, American wealth managers UK

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