Even though you are a UK citizen and live in the UK, the US still will attempt to tax your US pension. However, the US/UK tax treaty states that most pensions are only taxable in the country where the beneficiary is a resident. Therefore, living in the UK gets you exempt from US tax on your pension. In order to claim an exemption from this tax, there are several steps that must be taken. First, you must contact the IRS and obtain a US Taxpayer Identification Number (TIN). Once you have this, you should fill out Form W-8BEN and send it to the institution paying your pension benefits. This will allow them to send you your pension payments in full without withholding US tax. Be sure to specify the article and paragraph of the treaty that allows the taxpayer to claim this exemption (Article 18, paragraph 1).
Note: the above rules do not apply for lump-sum pension payments. If you live in the UK and receive a lump-sum pension payment from your US pension company, that company may withhold the standard 30% of the pension amount. Keep this in mind when choosing a pension plan.
US person living in the UK with a US pension:
As a US citizen in the UK, similar rules apply regarding the taxation of your US pension. You must fill out Form W-8BEN, but this time just use your Social Security Number instead of applying for a TIN. When this is completed, you should be exempt from US taxation on your pension. As above, be sure to specify the article and paragraph that allows the exemption. Once again, this does not apply to lump-sum pension payments.
US person living in US with UK pension:
If you are a US citizen residing in the States with a UK pension, similar steps must be taken. Pension income should be reported on your US tax return, and the IRS will tax it as such. As a US resident, the US has the right to tax your pension income, even though it is from a UK company. As long as your pension provider knows that you do not live in the UK, they will not attempt to withhold any tax from your pension. If they do withhold tax for some reason, you can contact the HMRC and attempt to get a refund or claim the Foreign Tax Credit on your US return to reduce your US tax liability by the amount of tax you paid to the UK. This would be in violation of the US/UK tax treaty, but it would relieve the individual from double taxation. Again, lump-sum pension payments are taxed in the country where the pension scheme is established. So the UK would be able to withhold tax for a lump-sum payment.