How the UK Taxes a US Life Annuity When You Retire There (2026)

Written by Hans Goldstein, EA, licensed insurance agent · CA 4273294
Admitted to practice before the IRS
Updated October 2026

I sell annuities and I am an Enrolled Agent, admitted to practice before the IRS. I do not give UK tax advice. This page lays out what the UK statute, HMRC's own manuals and the US-UK treaty say, with the source and the date I checked each rule, so you can take a clean question to a UK adviser.

How the UK taxes a life-only annuity paid to a resident

Take a non-qualified, life-only immediate annuity (SPIA) bought with after-tax money. The UK charges income tax on payments under a purchased life annuity (ITTOIA 2005 s.422, checked 18 Oct 2026), and a UK resident is taxed on income from any source in the world (ITTOIA 2005 s.368, checked 18 Oct 2026). The statute does not require the insurer to be British. It defines the annuity as one granted for money in the ordinary course of a business of granting annuities on human life, payable for a term that ends with a life (ITTOIA 2005 s.423, checked 18 Oct 2026).

Part of each payment is exempt (ITTOIA 2005 s.717, checked 18 Oct 2026). When the payments depend only on how long you live, the same proportion of every payment is exempt, and the proportion is the purchase price divided by the actuarial value of the payments, using prescribed mortality tables and no discounting (ITTOIA 2005 s.720, checked 18 Oct 2026) and (s.719, checked 18 Oct 2026). The prescribed table is Table A11 in Continuous Mortality Investigation Report 17 (SI 2008/562 reg 7, checked 18 Oct 2026). HMRC's manual puts it in one line: the exempt amount is the purchase price divided by life expectation from the tables (HMRC IPTM4100, checked 18 Oct 2026).

Two things follow. The exempt share is fixed for life, so it does not stop when you have got your money back. That differs from the US rule, where the exclusion ends once your cost is recovered. And the taxable remainder is savings income (Income Tax Act 2007 s.18(3)(b), checked 18 Oct 2026), taxed in England at 20% to £50,270, 40% to £125,140 and 45% above that in 2026/27, after a £12,570 personal allowance (GOV.UK, checked 18 Oct 2026) and (PwC UK, reviewed 23 July 2026, checked 18 Oct 2026). Savings rates rise to 22%, 42% and 47% from 6 April 2027 (Finance Act 2026 s.5, checked 18 Oct 2026). Scotland sets different bands; I use England (GOV.UK, checked 18 Oct 2026).

I have not computed the exact UK exempt share, because I do not have the table's life-expectation figure at your age. The worked example below uses the IRS 20.0-year multiple at 65 as a stand-in. If the UK table gave 17 years instead, the taxable UK slice of a $35,000 check would be about $5,588; at 22 years it would be about $12,273. Ask the insurer or a UK adviser for the real figure.

Who calculates the exempt share on a US contract

This is the practical catch. HMRC's procedure has the insurer complete part A of form PLA6, the annuitant complete parts B and C, and the insurer then calculate the exempt capital amount (HMRC IPTM4350, checked 18 Oct 2026) and (form PLA6, checked 18 Oct 2026). The insurer in that sequence is a UK insurer, a UK branch, or the UK tax representative of a non-UK insurer. Until the annuitant returns the form, HMRC says the annuity is treated as having no exempt sum or proportion (HMRC IPTM4351, checked 18 Oct 2026).

For non-UK insurers HMRC says a life annuity may still have an exempt capital amount, but the insurer must meet extra requirements and the income goes on the foreign pages of the tax return (HMRC IPTM4400, checked 18 Oct 2026). A non-UK insurer that sells or intends to sell annuities to annuitants in the UK must nominate a UK tax representative within 3 months of the first payment, unless HMRC releases it on a declaration that it will follow UK annuity rules (HMRC IPTM4410, checked 18 Oct 2026).

What I could not verify: what HMRC does when a US insurer sold you the contract while you lived in the US, has no UK representative and does not complete PLA6. Section 717 itself has no form condition, but the manual says no exemption until the form is returned. Before you move, ask the insurer in writing whether it will complete PLA6, and get a UK adviser's written view on a fallback.

The 4-year FIG regime: your first four UK tax years

On 6 April 2025 the 4-year FIG regime replaced the remittance basis. You qualify if you are UK tax resident under the statutory residence test and are in your first 4 years of UK residence after at least a 10-year period as a non-UK resident (HMRC FIG guidance, checked 18 Oct 2026). HMRC's list of qualifying foreign income includes purchased life annuity payments (HMRC RFIG45100, checked 18 Oct 2026). PwC says the same: no UK tax on foreign income and gains for new arrivals in their first four years, and you can bring the money into the UK, with a duty to report what you claim on (PwC UK, reviewed 23 July 2026, checked 18 Oct 2026).

Three limits. You claim on your Self Assessment return and can pick which income to claim on. A claim makes you lose the Income Tax and Capital Gains Tax tax-free allowances (HMRC FIG guidance, checked 18 Oct 2026). And it runs for a maximum of 4 consecutive years. The allowance point matters for a retiree: the $10,000 income element in my example is about £7,560 at 0.756 pounds per dollar (Fed H.10, 9 Oct 2026, checked 18 Oct 2026), which is less than the £12,570 personal allowance. With no other UK income, a FIG claim buys you nothing and costs you the allowance. It earns its keep when other UK income uses the allowance up.

DIA and MYGA: what changes

DIA (deferred income annuity). Once payments start, a life-only DIA is the same as the SPIA above: one fixed exempt share, the same PLA6 question. During the deferral years nothing is paid, so there is no income to tax.

MYGA or other deferred annuity. It is not a purchased life annuity until it pays a life income. Before that, UK law has a separate chapter for gains on policies of life insurance and contracts for life annuities (ITTOIA 2005 s.473, checked 18 Oct 2026), and HMRC has a help sheet for foreign policies (HMRC HS321, checked 18 Oct 2026). I did not verify whether a US MYGA is inside that chapter, or whether UK tax falls on accrual or only on withdrawal. Treat it as unsettled and ask a UK adviser before you buy a deferred contract with a UK move in mind.

Treaty: Article 17(4) and the foreign tax credit

Article 17(4) of the 2001 US-UK treaty says an annuity derived and beneficially owned by a resident of one state is taxable only in that state, and defines an annuity as a stated sum paid periodically during the life of the annuitant, or for a specified period, for adequate and full consideration (US-UK treaty, Art. 17(4), checked 18 Oct 2026). A life-only SPIA fits the wording. So the UK, as your state of residence, has the first and only treaty right to tax it.

The US still taxes its citizens: Article 1(4) is the saving clause. Article 1(5)(a) keeps Article 24 (relief from double taxation) working for citizens (US-UK treaty, Art. 1(4)-(5), checked 18 Oct 2026). Article 24(6) is the rule that matters. For a US citizen resident in the UK, the UK credits only the US tax a non-citizen could be charged, which here is nothing under Article 17(4). The US then allows a credit for the UK income and capital gains tax paid, and treats the income as UK-source to the extent needed to avoid double tax (US-UK treaty, Art. 24(6)(b)-(d), checked 18 Oct 2026). That re-sourcing is what lets the credit absorb the UK tax on income from a US insurer.

Who taxes first, and does it cancel out? A $500,000 example

Assumptions, all illustrative: a US citizen, age 65 at the start, pays $500,000 of after-tax money for a non-qualified life-only SPIA. I assume a 7.0% payout, $35,000 a year (illustrative, not a quote). US side: the IRS multiple at 65 is 20.0 (IRS Pub 939 Table V, checked 18 Oct 2026), so the expected return is $700,000, the exclusion ratio is 71.4%, $25,000 a year is excluded and $10,000 is taxable until the $500,000 is recovered, about year 20; after that all $35,000 is taxable (26 U.S.C. 72(b)(1)-(2), checked 18 Oct 2026). I assume a 22% federal bracket, which for 2026 covers taxable income of $50,400 to $105,700 for an unmarried person (IRS Rev. Proc. 2025-32, Table 3, checked 18 Oct 2026). UK side: I assume a 20% basic rate on the income element (GOV.UK, checked 18 Oct 2026) and use the same $10,000 as the UK taxable slice (the stand-in above). I ignore state tax, other US taxes and exchange-rate moves, and show everything in dollars.

The total is the higher of the two taxes. At 20% UK tax the US tax dominates; at 40% the UK tax dominates and $1,800 of it gets no US credit, because the credit stops at the US tax on that income. From year 21 (age 85) the US taxes all $35,000, which is $7,700 at 22%, while the UK still taxes only its fixed $10,000 slice; the UK tax of $2,000 is credited and the total is $7,700, again the higher of the two. If you start at 70 instead, the IRS multiple is 16.0, so on the same $35,000 the exclusion is $31,250 and only $3,750 is taxable in the US; a real age-70 payout would be higher.

Wealth tax, inheritance tax and leaving

The UK does not tax an individual's wealth each year (PwC UK, other taxes, checked 18 Oct 2026). Inheritance tax is the UK's estate tax: 40% above the nil-rate band (GOV.UK, checked 18 Oct 2026), which is £325,000 until 5 April 2031 (GOV.UK IHT thresholds, checked 18 Oct 2026). Since 6 April 2025 it turns on residence, not domicile. You are a long-term UK resident if you were UK resident in at least 10 of the last 20 tax years, and then your worldwide assets are in scope; after you leave, the tail runs 3 to 10 years depending on how long you lived here (HMRC IHTM47020, checked 18 Oct 2026).

For a new arrival that means foreign assets are generally outside UK IHT for roughly the first ten years of residence. I did not verify where HMRC treats a claim against a US insurer as situated. HMRC also says domicile still matters where a double tax convention uses it (HMRC IHTM47001, checked 18 Oct 2026), so the separate US-UK estate tax treaty may change the result. I found no UK exit tax that reaches an annuity contract. US citizenship-based tax stays whatever you do.

Return of premium and the refund feature

A refund feature cuts the check by about 5% in my model and adds a death benefit. What the UK does with it, from what I verified:

• Income tax during life. Consideration given for a right to a return of premiums is treated as given solely for the annuity, so the refund right does not split your purchase price (ITTOIA 2005 s.722(2), checked 18 Oct 2026).
• On death. For a life annuity that provides a capital sum on death, the death is a chargeable event under the gains chapter (ITTOIA 2005 s.484(1)(d), checked 18 Oct 2026). I did not work out whether a refund payout produces a taxable gain; that depends on the gains calculation and is a question for a UK adviser.
• Inheritance tax. A refund payable to your estate or a named person is part of what passes at death. Whether it is in scope depends on the long-term residence test above and on where the claim is situated, which I did not verify.
• US side. IRS Publication 939 says a refund feature reduces your investment in the contract by its actuarial value, which trims the exclusion (IRS Pub 939, refund feature, checked 18 Oct 2026).

The dollar

The annuity pays dollars and your costs are in pounds. Federal Reserve H.10 daily data pulled 18 Oct 2026 (FRED DEXUSUK, inverted, checked 18 Oct 2026) show pounds per dollar between 0.47 (8 Nov 2007) and 0.93 (26 Sep 2022) over the last 20 years, and 0.76 on 9 Oct 2026. On a $35,000 check that is about £16,600 at the low, £32,700 at the high and £26,500 on 9 Oct 2026. No prediction. A home or other assets in pounds offset it.

How to use this

I am a US-licensed insurance agent and can only help while you still live in the US. I am also an Enrolled Agent, admitted to practice before the IRS. If you are weighing a UK move, run the US side with me before you buy, and have a UK adviser confirm the three open points in writing: the PLA6 question, the exempt-share figure and how HMRC treats the refund feature. This is education, not tax advice.

Frequently asked questions

Related reading

• Moving abroad on a fixed income: the hub
• Where a US annuity is tax-smart abroad
• How Europe taxes a US annuity
• UK spouse visa financial requirement
• Wealth tax by country and US annuities
• The exclusion ratio abroad
• Ireland: US annuity tax for retirees

Sources

• US-UK income tax convention (2001, Treasury text): Articles 1(4)-(5), 17(4), 24(6)
• ITTOIA 2005 s.717: exemption for part of purchased life annuity payments
• ITTOIA 2005 s.719: extent of the exemption
• ITTOIA 2005 s.720: exempt proportion (PP over AV)
• ITTOIA 2005 s.722: consideration for the grant of annuities (return of premiums)
• ITTOIA 2005 s.422: charge to tax on purchased life annuity payments
• ITTOIA 2005 s.423: meaning of purchased life annuity
• ITTOIA 2005 s.368: territorial scope of Part 4 charges
• ITTOIA 2005 s.473: policies and contracts to which the chargeable event gains chapter applies
• ITTOIA 2005 s.484: when chargeable events occur (death under a life annuity with a capital sum)
• Income Tax Act 2007 s.18: meaning of savings income
• SI 2008/562 reg 7: mortality table for purchased life annuities (CMI Report 17, Table A11)
• HMRC IPTM4100: purchased life annuities, introduction
• HMRC IPTM4350: partial exemption procedure and form PLA6
• HMRC IPTM4351: annuitant fails to return form PLA6 (overseas insurer example)
• HMRC IPTM4400: annuities paid by overseas payers
• HMRC IPTM4410: overseas payers, tax representative
• HMRC form PLA6: exemption from income tax on the capital element of a purchased life annuity
• HMRC: Check if you can claim the 4-year foreign income and gains regime
• HMRC RFIG45100: FIG regime qualifying foreign income (lists purchased life annuity payments)
• GOV.UK: Income Tax rates and Personal Allowances 2026 to 2027
• Finance Act 2026 s.5: savings rates 22%, 42%, 47% for 2027-28
• PwC Worldwide Tax Summaries: United Kingdom, taxes on personal income (reviewed 23 July 2026)
• PwC Worldwide Tax Summaries: United Kingdom, other taxes (no annual wealth tax)
• GOV.UK: Inheritance Tax (40% standard rate)
• GOV.UK: Inheritance Tax thresholds (nil rate band 325,000 pounds to 5 April 2031)
• HMRC IHTM47001: long-term UK residence test, introduction
• HMRC IHTM47020: long-term UK residence test (10 of 20 years, tail 3 to 10 years)
• HMRC help sheet HS321: gains on foreign life insurance policies (2026)
• 26 U.S.C. 72 (annuities; exclusion ratio in 72(b))
• IRS Publication 939 (12/2025): Table V expected return multiples, refund feature rules
• IRS Rev. Proc. 2025-32: 2026 tax rate Table 3 (22% bracket $50,400 to $105,700, unmarried)
• Federal Reserve H.10 via FRED: US dollars per British pound (inverted to pounds per dollar), 2006 to 2026