Go Back   British Expats / Living & Moving Abroad / USA

Reply
 
Thread Tools
Old Mar 27th 2017, 2:02 pm   #16
nun 
BE Forum Addict
 
nun's Avatar
 
Joined: Aug 2004
Posts: 4,719
nun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by Cook_County View Post

I think in any case because of law changes in 2015 in the UK you might want to ask the attorney if he thinks that the position would have been different had you taken the payment as an UFPLS versus a PCLS.


I think you also need the attorney to provide you with draft wording for you to type on IRS Form 8833; so that his position is clearer. The brave part of the argument is treating this as "pension" versus a "lump-sum".
The OP is arguing that because the UK 25% tax free amount does not meet the IRS's definition of a lump sum then it can be treated as pension income and Article 17.1 applies and not Article 17.2. However, does a single 25% payment from a retirement account actually meet the IRS criteria for pension income from a non-qualified plan. I think the UK 25% free sum is a non-periodic distribution from a non-qualified plan.....as pension income must be periodic it's not obvious that Article 17.1 applies which raises the question of whether any non-periodic withdrawal from a UK pension account actually meets the criteria of pension income under the treaty?

The OP could have left the 25% tax free amount inside the pension wrapper and used it to buy a larger lifetime income or invested it for drawdown so they have a tax free basis in any withdrawals that meet the IRS rules for income. Doing either of those things would have put the OP on pretty firm ground to avoid US tax on the 25% UK tax free amount.
__________________
OCCUPY BritishExpats.com

Last edited by nun; Mar 27th 2017 at 2:24 pm.
nun is offline   Reply With Quote
Old Mar 27th 2017, 3:17 pm   #17
Premium Member
 
lansbury's Avatar
 
Joined: Apr 2005
Location: Milwaukie, Oregon
Posts: 8,608
lansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

I have found this from HMRC dated May 2016. The Lump Sum paragraphs at the bottom of page one seem to agree partly with the tax attorney in that since 2004 US citizens can be taxed on the lump sum. It says a US resident is exempt, a US citizen is not

https://www.gov.uk/hmrc-internal-man...elief/dt19876a

Quote:
Lump Sums


Under the old Agreement, a lump-sum payment from a pension scheme was taxable only in the country of residence. So if an individual moved from the US to the UK before receiving a lump sum from a US pension scheme, they would be taxable on the lump sum neither in the US (because of the treaty) nor in the UK (which does not tax lump sums anyway).


The new provision prevents this occurring by providing that a lump-sum payment derived by a resident of one State from a pension scheme established in the other State shall be taxable only in that other State.


The provision preserves the exemption from income tax of a lump sum relevant benefit where it is paid by a UK approved pension scheme to a beneficial owner who is a US resident. However, Article 1(4) will apply in respect of US citizens as the provisions of Article 17(2) are not amongst those listed at Article 1(5). So the US are able to tax lump sums received by US citizens from UK schemes.

__________________
Looking for life on Mars.

Last edited by lansbury; Mar 27th 2017 at 3:19 pm.
lansbury is offline   Reply With Quote
Old Mar 27th 2017, 4:23 pm   #18
nun 
BE Forum Addict
 
nun's Avatar
 
Joined: Aug 2004
Posts: 4,719
nun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by lansbury View Post
I have found this from HMRC dated May 2016. The Lump Sum paragraphs at the bottom of page one seem to agree partly with the tax attorney in that since 2004 US citizens can be taxed on the lump sum. It says a US resident is exempt, a US citizen is not

https://www.gov.uk/hmrc-internal-man...elief/dt19876a

Interpretation is everything......my inclination is that a single 25% cash payment from a UK pension plan, being non-periodic, is more like a lump sum than periodic income and so those that might have a US tax liability should do everything they can to give the UK tax free amount the characteristics of periodic payments and then claim a US tax free basis using Article 17.1
__________________
OCCUPY BritishExpats.com
nun is offline   Reply With Quote
Old Mar 27th 2017, 5:22 pm   #19
BE Enthusiast
 
Joined: Nov 2012
Posts: 588
Cook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Under US domestic law an LSD is a complete distribution. Anything else is arguably periodic. I think this is the argument.


Now that we have flexi-access drawdown and UFLPS to think about as well as the traditional PCLS which the OP took, the answer is cloudier than ever before. This is why we need the attorney to look at her/his thinking in the context of today's UK pension rules to explain the logic.
Cook_County is offline   Reply With Quote
Old Mar 27th 2017, 5:46 pm   #20
theOAP 
BE Enthusiast
 
Joined: Apr 2011
Location: The Shire
Posts: 931
theOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond reputetheOAP has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by nun View Post
Interpretation is everything......my inclination is that a single 25% cash payment from a UK pension plan, being non-periodic, is more like a lump sum than periodic income and so those that might have a US tax liability should do everything they can to give the UK tax free amount the characteristics of periodic payments and then claim a US tax free basis using Article 17.1
Quote:
Originally Posted by Cook_County View Post
Under US domestic law an LSD is a complete distribution. Anything else is arguably periodic. I think this is the argument.


Now that we have flexi-access drawdown and UFLPS to think about as well as the traditional PCLS which the OP took, the answer is cloudier than ever before. This is why we need the attorney to look at her/his thinking in the context of today's UK pension rules to explain the logic.
Does the basis in the pension (for US tax purposes), and how, where, and under what circumstances acquired, have any consequence on the calculation of the 25% tax free amount?

Full basis (entire history of employee + employer + growth contributions) vs. fully 8833 excluded? Partial basis? All pension accumulation made before becoming a US person? It's still the same non-qualified foreign pension.

Does the discussion of the 25% amount start from square one, with the basis being totally irrelevant?

Last edited by theOAP; Mar 27th 2017 at 5:50 pm.
theOAP is offline   Reply With Quote
Old Mar 27th 2017, 6:27 pm   #21
nun 
BE Forum Addict
 
nun's Avatar
 
Joined: Aug 2004
Posts: 4,719
nun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by Cook_County View Post
Under US domestic law an LSD is a complete distribution. Anything else is arguably periodic. I think this is the argument.


Now that we have flexi-access drawdown and UFLPS to think about as well as the traditional PCLS which the OP took, the answer is cloudier than ever before. This is why we need the attorney to look at her/his thinking in the context of today's UK pension rules to explain the logic.
Periodic distributions are taken over more than a single year. A single payment or one that is made on demand is not a periodic payment.So I don't think that the UK 25% tax free amount is taken in a one time cash amount is a periodic payment. Setting up a regular drawdown plan would qualify as periodic payments.
__________________
OCCUPY BritishExpats.com
nun is offline   Reply With Quote
Old Mar 27th 2017, 6:32 pm   #22
nun 
BE Forum Addict
 
nun's Avatar
 
Joined: Aug 2004
Posts: 4,719
nun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by theOAP View Post
Does the basis in the pension (for US tax purposes), and how, where, and under what circumstances acquired, have any consequence on the calculation of the 25% tax free amount?

Full basis (entire history of employee + employer + growth contributions) vs. fully 8833 excluded? Partial basis? All pension accumulation made before becoming a US person? It's still the same non-qualified foreign pension.

Does the discussion of the 25% amount start from square one, with the basis being totally irrelevant?
Stop making things even more complicated......

It's a good question for UK pensions with a US tax free basis....however it's probably not relevant to the OP as they are not a US citizen and their pension contributions were made while living in the UK....so there was no opportunity to build up a US tax free basis while resident in the UK and there has been no mention of paying US tax on the gains since becoming a US resident.
__________________
OCCUPY BritishExpats.com

Last edited by nun; Mar 27th 2017 at 6:35 pm.
nun is offline   Reply With Quote
Old Aug 10th 2017, 10:51 pm   #23
Forum Regular
 
Joined: Mar 2015
Posts: 40
Dominic0012 is an unknown quantity at this point
Default Re: UK Pensions related to UK/US Tax Treaty

I would like to resurface this debate.

The consensus is that the savings clause applied and art 1(4) makes the PCLS taxable.

I would like the debate to shift to who exactly falls under art 1(4) as per art 4 and specifically art 4(2)

For a green card holder my understanding is that normally the PCLS is taxable in the U.S. when they become a GC holder and live and work in the U.S.

It looks like that in the first year being dual status does not meet art 4(4)(b)

"he shall be deemed to be a resident only of the State in which he
has a permanent home available to him; if he has a permanent home available
to him in both States, he shall be deemed to be a resident only of the State with
which his personal and economic relations are closer (centre of vital interests) "

So what are your thoughts if someone has recently moved to the U.S. but does not meet the Substantial Presence Test for that year then they are also a U.K. resident in that year and are able to take the PCLS with no tax penalty.

Also it looks like a USC/green card holder may recieve the PCLS without penalty if they are not yet resident in the U.S.

Does anyone have any experience where the IRS has challenged a PCLS for a green card or USC?
Dominic0012 is offline   Reply With Quote
Old Aug 10th 2017, 11:27 pm   #24
Closed Account
 
Joined: Aug 2002
Location: Kentucky
Posts: 38,868
ian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond reputeian-mstm has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by Dominic0012 View Post
I would like to resurface this debate.
To what end?


Quote:
I would like the debate to shift to who exactly falls under art 1(4) as per art 4 and specifically art 4(2)
Let's make it easier... why don't you give us an idea of what your specific situation is, what you'd specifically like to see happen, and what your specific questions are... and then, rather than debate the rules and someone else's hypothetical needs, you might actually get knowledgeable people who can help you with your specific concerns.

Of course, if you're simply curious... then let the debate begin!

Ian
ian-mstm is offline   Reply With Quote
Old Aug 11th 2017, 12:02 am   #25
Premium Member
 
lansbury's Avatar
 
Joined: Apr 2005
Location: Milwaukie, Oregon
Posts: 8,608
lansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

I'm not sure what the question is but the link in post #17 which gives HMRC view that only US citizens pay tax on a lump sum, US residents do not, might be the answer to whatever question is hidden in the post by Dominic0012
__________________
Looking for life on Mars.
lansbury is offline   Reply With Quote
Old Aug 11th 2017, 12:33 am   #26
imacd 
Just Joined
 
Joined: Jul 2017
Posts: 5
imacd is an unknown quantity at this point
Default Re: UK Pensions related to UK/US Tax Treaty

Greetings all. This is my first post on Britishexpats and I must say contains a treasure trove of information. I am so impressed with the regular contributors on this site, who are so willing to give freely of the considerable time it takes to offer help and advice to those of us in need.

I left the UK in 1996 due to marriage, but I am still a green card holder. I will receive a UK pension from TPS for my 12 years teaching in the UK this coming October. It consists of a UK tax free lump sum of $25,000 this October and there after $150 per month for life. I understand that living in the US, the tax free status of the lump sum may be a moot point.

I also barely understand that the status or type of pension will determine whether it will be taxed in the USA or UK according to the US/UK tax treaty. Teachers' Pensions are responsible for administrating the Teachers' Pension defined benefit Scheme on behalf of the Department for Education.

So does this mean that it is a UK Government backed scheme? If so, does this mean that by the treaty, it will only be taxed in the UK? In an earlier thread, Nun stated;
“If you are US resident, but not a US citizen, UK Government pensions are only taxable in the UK.”

How should I go about contacting or preferably convincing the IRS on this matter?

Also, if the lump sum is taxed by the IRS, because the entire UK pension is not taken as a lump sum but also as a series of periodic payments could I argue that it is taxed under Article 17.1 which is exempt from the saving clause and so 25% is tax free in the US?

Having ploughed through the epic 93 page thread on WEP, I think I largely get that, but this US/UK tax treaty stuff is a different beast, any answers to my questions and where to go from there would be much appreciated!?
imacd is offline   Reply With Quote
Old Aug 11th 2017, 6:13 am   #27
BE Enthusiast
 
Joined: Nov 2012
Posts: 588
Cook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond reputeCook_County has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by imacd View Post
Greetings all. This is my first post on Britishexpats and I must say contains a treasure trove of information. I am so impressed with the regular contributors on this site, who are so willing to give freely of the considerable time it takes to offer help and advice to those of us in need.

I left the UK in 1996 due to marriage, but I am still a green card holder. I will receive a UK pension from TPS for my 12 years teaching in the UK this coming October. It consists of a UK tax free lump sum of $25,000 this October and there after $150 per month for life. I understand that living in the US, the tax free status of the lump sum may be a moot point.

I also barely understand that the status or type of pension will determine whether it will be taxed in the USA or UK according to the US/UK tax treaty. Teachers' Pensions are responsible for administrating the Teachers' Pension defined benefit Scheme on behalf of the Department for Education.

So does this mean that it is a UK Government backed scheme? If so, does this mean that by the treaty, it will only be taxed in the UK? In an earlier thread, Nun stated;
“If you are US resident, but not a US citizen, UK Government pensions are only taxable in the UK.”

How should I go about contacting or preferably convincing the IRS on this matter?

Also, if the lump sum is taxed by the IRS, because the entire UK pension is not taken as a lump sum but also as a series of periodic payments could I argue that it is taxed under Article 17.1 which is exempt from the saving clause and so 25% is tax free in the US?

Having ploughed through the epic 93 page thread on WEP, I think I largely get that, but this US/UK tax treaty stuff is a different beast, any answers to my questions and where to go from there would be much appreciated!?
Small question first...how have you been describing the Teachers' Pension Plan on your annual Forms 8938?
Cook_County is offline   Reply With Quote
Old Aug 11th 2017, 7:19 am   #28
Premium Member
 
lansbury's Avatar
 
Joined: Apr 2005
Location: Milwaukie, Oregon
Posts: 8,608
lansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond reputelansbury has a reputation beyond repute
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by imacd View Post
Greetings all. This is my first post on Britishexpats and I must say contains a treasure trove of information. I am so impressed with the regular contributors on this site, who are so willing to give freely of the considerable time it takes to offer help and advice to those of us in need.

I left the UK in 1996 due to marriage, but I am still a green card holder. I will receive a UK pension from TPS for my 12 years teaching in the UK this coming October. It consists of a UK tax free lump sum of $25,000 this October and there after $150 per month for life. I understand that living in the US, the tax free status of the lump sum may be a moot point.

I also barely understand that the status or type of pension will determine whether it will be taxed in the USA or UK according to the US/UK tax treaty. Teachers' Pensions are responsible for administrating the Teachers' Pension defined benefit Scheme on behalf of the Department for Education.

So does this mean that it is a UK Government backed scheme? If so, does this mean that by the treaty, it will only be taxed in the UK? In an earlier thread, Nun stated;
“If you are US resident, but not a US citizen, UK Government pensions are only taxable in the UK.”

How should I go about contacting or preferably convincing the IRS on this matter?

Also, if the lump sum is taxed by the IRS, because the entire UK pension is not taken as a lump sum but also as a series of periodic payments could I argue that it is taxed under Article 17.1 which is exempt from the saving clause and so 25% is tax free in the US?

Having ploughed through the epic 93 page thread on WEP, I think I largely get that, but this US/UK tax treaty stuff is a different beast, any answers to my questions and where to go from there would be much appreciated!?
Public service pension schemes | The Pensions Regulator There is a list of people who receive government service pensions at this link, second paragraph. Teachers are included.

For my police pension my CPA said that as I was not a US citizen the lump sum fell under the "can't be taxed in the US rule". I would take professional advice if you intend to go down that route, and not rely on what us well meaning amateurs might opine.
__________________
Looking for life on Mars.
lansbury is offline   Reply With Quote
Old Aug 11th 2017, 1:39 pm   #29
imacd 
Just Joined
 
Joined: Jul 2017
Posts: 5
imacd is an unknown quantity at this point
Default Re: UK Pensions related to UK/US Tax Treaty

Quote:
Originally Posted by Cook_County View Post
Small question first...how have you been describing the Teachers' Pension Plan on your annual Forms 8938?
My wife(a US citizen) and I have always filed joint tax returns and since this teachers pension is worth a lot less than $100,000 the IRS does not require it to be entered on the form 8938.
imacd is offline   Reply With Quote
Old Aug 11th 2017, 3:32 pm   #30
Forum Regular
 
Joined: Mar 2015
Posts: 40
Dominic0012 is an unknown quantity at this point
Default Re: UK Pensions related to UK/US Tax Treaty

The main area which I do not think has been covered is residence and what actually constitutes a state to have taxing rights under the treaty in art 4

So the specific matter which i think is interesting is about the first year where an individual is dual resident of both the U.K. and the U.S. same year under the statutory residence test for the U.K. and the statutory residence test for the U.S.

If we are in agreement that the savings clause applies to an individual it seems that subject to art 4(4) of the treaty that the residence is determined by a series of tests

Also, the tax years in the U.S. and the U.K. are not concurrent so how do you go about determining residence under the treaty when the tax dates differ in a dual resident scenario?

For instance say a U.K. resident under the statutory residence for tax year 2017-2018 vested a U.K. pension on the 15th march 2018 (thier 55th birthday) who moved to the U.S. in July 2017 but had a main residence in the U.K. which they kept and has 3 significant family ties to the U.K. and stayed over 45 days in the tax year 2017-2018.

Would this be a viable strategy for someone who is approaching retirement age?
Dominic0012 is offline   Reply With Quote
Reply

Go Back   British Expats / Living & Moving Abroad / USA


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off



All times are GMT. The time now is 4:00 pm.


We are a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for us to earn fees by linking to Amazon.com and affiliated sites.
Powered by vBulletin: ©2000 - 2017, Jelsoft Enterprises Ltd.
© 1999-2010 BritishExpats.com