Form 3520-A is the annual information return that a foreign trust with a US owner must file, and it is due by the fifteenth day of the third month after the end of the trust's tax year — 15 March for a calendar-year trust, a full month before your Form 1040. It can be extended to 15 September with a timely Form 7004, but the extension you file for your personal return does not extend it. If the trust does not file, the US owner is the one penalised: an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of the trust's assets treated as owned by that person. The single most common way Americans in the UK fall into this is by not realising that the thing they own is, in US eyes, a trust at all — and the second most common is assuming their UK trustee will handle a US filing they have never heard of.
Two forms, two deadlines, one problem
The foreign trust reporting regime runs on a pair of forms that are constantly confused with one another.
Form 3520 is filed by the US person. It reports transfers to foreign trusts, distributions from foreign trusts, ownership of foreign trusts, and — quite separately — the receipt of large foreign gifts and inheritances. It is due with your income tax return and follows its extensions. We covered the foreign gift side of it in our guide to Form 3520 and foreign gifts.
Form 3520-A is filed by the foreign trust, and it reports the trust's income, its balance sheet, and what was distributed to whom. The IRS explains the requirement on its page About Form 3520-A. Its deadline is 15 March, and this is where the trouble starts, because a UK trustee has no reason to know that a US deadline exists and the US owner usually assumes the filing tracks their own return.
There is a safety valve. If the foreign trust does not file, the US owner can file a substitute Form 3520-A themselves, attached to their own Form 3520 — but the substitute is due on the trust's deadline, not the owner's. Filing it in October with your 1040 does not cure a March default.
Who counts as the 'US owner' of a foreign trust
The reporting obligation attaches to a US person treated as owning any portion of a foreign trust under the grantor trust rules of subpart E of the Internal Revenue Code. In practice, that usually means one of two things.
Either you settled assets into the trust and retained interests or powers of a kind that make you the owner for US purposes — which is a much lower bar than most people expect, and is met by many perfectly ordinary UK arrangements. Or a foreign settlor created a trust with US beneficiaries in circumstances where the code deems a US beneficiary to be the owner.
What matters is that this is a US characterisation applied to a foreign arrangement. Whether the deed calls it a trust, whether English law treats it as a trust, and whether the trustee considers you a settlor are all interesting but not decisive. The IRS applies its own definitions, and it applies them to substance.
The UK arrangements that turn out to be foreign trusts
This is where Americans in Britain get caught, because a surprising number of everyday UK structures are trusts as a matter of English law and therefore foreign trusts as a matter of US law.
Bare trusts holding investments for children are the classic example — the standard way a UK grandparent passes money to a grandchild. Discretionary family trusts, extremely common in UK estate planning, are another. Will trusts and life interest trusts created by a deceased UK relative's will can make an American beneficiary a party to a foreign trust without anyone having chosen anything. Life assurance policies written in trust, a routine piece of UK IHT planning, are trusts. So are many employee benefit arrangements, and some UK property-holding structures used by families.
Then there are the pension and savings wrappers. UK registered pension schemes, SIPPs, Junior ISAs and Child Trust Funds are all, structurally, trusts. Whether they actually require Form 3520-A depends on the exemption discussed below — but the starting point is that they are within the regime, not outside it.
- Bare trusts holding investments or cash for a child
- Discretionary and life interest family trusts
- Will trusts created by a UK relative's estate
- Life assurance policies written in trust
- Junior ISAs and Child Trust Funds
- SIPPs and UK registered pension schemes
- Some employee benefit and share incentive arrangements
Rev. Proc. 2020-17: the exemption that saves most people
In 2020 the IRS accepted that applying the full foreign trust regime to ordinary foreign retirement and savings accounts was disproportionate, and issued Revenue Procedure 2020-17. It exempts eligible individuals from Form 3520 and Form 3520-A reporting in respect of certain tax-favoured foreign retirement trusts and certain tax-favoured foreign non-retirement savings trusts.
For an American in the UK this is the provision that removes most workplace pensions and many personal pension arrangements from the 3520 regime, and it is why the great majority of US expatriates in Britain do not in fact need to file these forms for their pension.
The exemption is conditional, not automatic. The trust must be tax-favoured under the law of its country, subject to conditions about the purpose of the arrangement, annual information reporting to the local tax authority, and — importantly — limits on the amounts that can be contributed. Arrangements that permit unlimited contributions, or that are not genuinely tax-favoured, fall outside it. And the eligible individual must be compliant with their US tax obligations for the years in question, which means a taxpayer who has not been filing cannot lean on it.
Two limits deserve emphasis. First, the relief covers only the specific categories described in the Revenue Procedure — it is not a general exemption for anything that looks like a pension. Second, and the IRS says this explicitly, it does not affect any other reporting obligation: your FBAR and your Form 8938 obligations are untouched. A pension exempt from Form 3520-A may still need to appear on both. Our guide to FBAR versus FATCA reporting for UK expats covers where those lines fall.
The penalty, and why it is out of proportion to everything else
The initial penalty where a foreign trust fails to file a timely and complete Form 3520-A is the greater of $10,000 or 5% of the gross value of the portion of the trust's assets treated as owned by the US person at the close of the tax year. Continuation penalties can follow if the failure persists after IRS notice.
Two things make this uniquely harsh. It is not a percentage of tax — it is a percentage of assets, so a trust that generated no income and cost the Treasury nothing can still produce a very large penalty. And it has historically been assessed systemically, meaning the notice arrives automatically on late filing rather than after any human consideration of why.
That systemic assessment has been the subject of sustained criticism, including from the National Taxpayer Advocate. Since late 2024 the IRS has said it will review a reasonable cause statement attached to a late-filed return before assessing a penalty in the relevant cases, which is a meaningful improvement — though the penalty can still be assessed if the explanation is not accepted. Proposed regulations covering foreign trust reporting remain in proposed form as of mid-2026, and a separate IRS working group is reviewing penalty processes for these forms. None of that has yet produced a change in the penalty amounts.
If you are already late
The instinct on discovering an unfiled Form 3520-A is to file it quietly and hope. That is usually the worst available option, because a bare late filing is exactly what triggers the automatic assessment.
The better routes depend on the rest of your position. If the only defect is the trust forms and your income was otherwise correctly reported and taxed, a late filing with a full reasonable cause statement attached is often appropriate — and the statement needs to be a real one, setting out what you knew, when you knew it, what advice you had, and what you did on discovering the problem. Generic assertions that the rules are complicated do not work.
If the trust forms sit alongside unreported income, unfiled FBARs or missed returns, the disclosure programmes are usually the right vehicle, because they package everything together and are designed to deal with penalties comprehensively rather than form by form. Our guides to the IRS Streamlined Filing Compliance Procedures and choosing between the domestic and foreign offshore procedures set out how that works and what non-wilfulness requires.
What you should not do is decide between these routes without advice. The choice of route is itself a substantive decision that is difficult to reverse.
The income tax consequence sitting underneath the forms
It is easy to treat 3520-A as a pure paperwork problem. It is not. If you are the US owner of a foreign grantor trust, the trust's income is your income for US purposes, year by year, whether or not anything is distributed to you.
That means the trust's UK investments have to be looked at through US eyes. UK-domiciled funds and investment trusts held inside the structure are very likely to be passive foreign investment companies, with the punitive section 1291 default regime and its interest charge, unless a QEF or mark-to-market election is in place. Our guides to PFIC rules and UK ISAs and choosing between mark-to-market and QEF explain why a perfectly sensible UK portfolio can be a US disaster.
So the trust that produces a 3520-A obligation frequently also produces a Form 8621 obligation for each fund it holds, and a materially higher US tax bill than the same assets would generate held directly. The reporting is the visible part of a larger problem.
What the trustee will and will not do
UK professional trustees are generally excellent at UK compliance and generally unwilling to take responsibility for US filings. Many trust deeds are silent on the point, and many trustees will decline to sign a US information return at all.
This is why the substitute Form 3520-A mechanism exists and why, in practice, it is what most Americans end up using. It requires you to obtain from the trustee the information the form needs — an income statement and balance sheet for the trust in US dollars, prepared on US principles, plus details of distributions.
Ask for that information in January, not March. Trustees who have never been asked before will need time, and the accounts they produce for UK purposes will not be in the form the IRS wants. Building that request into the annual trustee correspondence is the single most effective administrative fix available.
- Ask the trustee in January for the trust's income and balance sheet information
- Confirm in writing whether the trustee will file or whether you will file a substitute
- If the trust will file, ensure Form 7004 goes in by 15 March if more time is needed
- Identify every underlying fund holding for PFIC purposes at the same time
- Keep the trust deed and any letter of wishes with your permanent tax records
The estate planning angle nobody mentions
Americans in the UK are often steered towards trust structures by UK advisers for entirely sound UK inheritance tax reasons. The advice is usually correct as far as it goes, and it goes only as far as the English Channel.
A structure that saves UK inheritance tax can create annual US reporting obligations, US grantor trust income inclusion, PFIC exposure on the underlying assets, and a penalty risk out of all proportion to the sums involved. Since the move to a residence-based inheritance tax system, the UK-side calculus has changed too — see our guide to the long-term resident test and its ten-year tail.
None of this means trusts are wrong for Americans in Britain. It means the decision has to be taken with both tax systems in the room. A trust proposal that has been reviewed only by a UK adviser has been reviewed by half the relevant advisers.
A practical annual checklist
- List every arrangement you are connected with that is a trust as a matter of English law, including pensions, Junior ISAs and policies written in trust.
- For each, determine whether you are a US owner under the grantor trust rules, or a beneficiary receiving distributions, or both.
- Test each one against Rev. Proc. 2020-17 rather than assuming a pension is automatically exempt.
- For anything not exempt, diarise 15 March and decide by January whether the trustee or you will file.
- Separately confirm the FBAR and Form 8938 position — the trust exemption does not reach them.
- Identify underlying fund holdings and deal with the PFIC position before, not after, filing season.
Where this usually lands
In our experience most Americans in the UK who worry about Form 3520-A do not in fact need to file it, because their only trust-shaped asset is a workplace pension covered by Rev. Proc. 2020-17. The people who do need to file are usually the ones who have not thought about it at all: a beneficiary of a grandparent's will trust, a parent holding investments in bare trust for a child, or a family that took UK estate planning advice and set up a discretionary trust.
The difference between those two groups is not wealth or sophistication. It is simply whether anyone has ever gone through the list. That exercise takes an hour and it is the whole of the risk management here — because the penalty regime does not care that you did not know, and the deadline arrives a month before the one you have in your diary.
You can check the current filing requirements and the substitute-return mechanics directly in the IRS instructions for Form 3520-A before you speak to anyone.
