nun

I'm considering selling my house in the US and moving back to the UK to retire. I'm a UK/US dual citizen so have to deal with tax in both countries. On top of that all my funds are in US retirement accounts and brokerage accounts. There are many tax and investment issues with my situation and I was wondering if anyone has been in a similar situation ? and can offer sage advice.

robin1234

I'll be in a similar situation to you. I believe that your payments of pensions & annuities from the United States will be subject to 30% withholding.. presumably that's not punitive, just encourages you to file your 1040 at the proper time.

I expect you are already filing the FBAR every year with the US Treasury, the Form TD F 90-22.1. One tip with the FBAR; if you have less than 25 foreign accounts, you have to list them all. If you have more than 25 foreign accounts, you save a lot of time. You do not have to list them, just check the box "I have more than 25 accounts," and enter the total number of accounts. Under some interpretations, even something like a Transport for London Oyster Card is a reportable account. (Folks with $10,000 or more aggregate value in foreign accounts have to file the FBAR.)

One thing - I've tried asking questions like yours in UK Yankees. Even though in general that is a very knowledgeable, helpful group of people, I've not got much response to retirement/tax questions. I have a feeling the greater number of people over there are younger, 20s - 40s, so not much interest in retirement questions.. yet!

nun

Thanks! I'm still in the US and don't have any UK accounts so I don't have to file any FBAR of TDF forms and as Im a US citizen the 30% witholding doesn't apply. I've asked questions om ukyankee but as you point out there aren't many potential retirees on there and obviously even fewer Uk citizens. I'm going to get some professional tax advice when the time comes, but investment advice is hard to com by. Do you have any general strategy and approach to the issues?

robin1234

I'm a US Citizen too & I believe the 30% Withholding does apply to anyone who lives abroad, including citizens. I could be wrong on that, but my adviser at my retirement fund told me it applied to everyone..
My wife & I plan to keep our US retirement accounts (403b etc)in the funds they are in, just as we would if we were to remain in the states, & withdraw a small percentage each year for retirement income and gradually switch about 30% of our balance into immediate annuities, then at age 70 ensure that we are taking the required minimum distribution. Additionally, we both have social security and she has a New York state pension. We both will have British Old Age Pension too; I'd like to pay for some additional years with voluntary contributions, but at a certain point the US Social Security penalises you with the Windfall Elimination Provision.

dfjordan

When I left the USA about 12 years, I was quite an expert on such tax issues as I had worked in that area fro some years, but I wouldn´t like to give advice now as obviously things change. What I recall though is that everything depends on the treaties that exist, in your case, between the US and the UK. It can be quite complicated so make sure you get advice from a tax lawyer who specialises in that area. When I left, if you took your 401K savings in a lump sum, it was not subject to the usual witholding tax if you were a UK resident , and it was exempt from UK tax. If you didn´t take a lump sum, but opted for a gradual withdrawal it was not subject to withholding tax in the US but was taxable in the UK. In the UK, they aren´t concerned as to whether you are a citizen or not, but whether you are resident and/or domiciled there. Good luck!

nun

The 30% withholding only applies to "foreign persons". If you're a US person living abroad there is no withholding

http://www.irs.gov/businesses/articl...180219,00.html

I'm in a similar position as I have US and UK state pensions and a Massachusetts state pension coming. I'll get hit by the WEP twice for the UK and MA pensions, but to complain would be churlish as I have 3 pensions.
I'm going to leave my retirement funds and most of my after tax investments in the US as it's difficult to invest offshore for a US citizen. I'm going to sell my US house and all my after tax investments before I go to the UK to take the capital gains before I become ordinarily resident in the UK as HMRC will treat them as income. I'll buy a UK house to limit my need for income to keep the tax bill as low as possible

nun

They closed that loophole. UK taxation depends on your residency status, for the US it's simply citizenship and that leads to some complications. The new treaty covers retirement funds very well. Part of my strategy is to rollover funds from my IRA to a ROTH as that's free of tax in the US AND UK as long as you invoke the treaty.

dunroving

Could someone clarify - is the "30% withholding" some sort of automatic 30% income tax at source (e.g., by the pension fund company) on pension disbursement (including monthly payments)? If so, would the US/UK tax treaty allow you to reclaim that if it is greater than your tax liability in the UK?

I'm getting a bit worried. I assumed if I retired in the UK, that any income from US retirement holdings would be paid gross, and I'd declare it on my US tax return at which point I'd be taxed appropriately. I don't like the idea of being automatically taxed 30% on all income from my US retirement fund ... does this also apply to US Social Security (if it even exists by then, of course)?

robin1234

As far as I know, there is no withholding on the Social Security and no US income tax due. But for distributions from tax-deferred retirement savings and the like, the company (TIAA-Cref or whoever) has to withhold the 30% to encourage you to file your income tax return. I thought this applied to everyone living abroad & receiving such US sourced income, but others here have said it only applies to non-US citizens.

I'm puzzled, because last time I looked into this, a year or so ago, I found plenty of useful info from the IRS & others on the topic. Now I seem to find much less and it does not answer all the questions.

dfjordan

As far as geting a partial refund of a withholding tax is concerned; you can´t. For example if you suffer a 30% withholding tax in oner country , then file your tax return in another that say taxes you 20% on that income, and it has a double tax treaty with the paying country, you can claim a credit for the tax paid but you can´t get back the difference. From the extract below that I took from the IRS website, it would seem that you will have withholding tax on any " periodic payments" , which include govt pensions

"Withholding on Periodic Payments
Generally, periodic payments are pension or annuity payments made for more than 1 year that are not eligible rollover distributions. Periodic payments include substantially equal payments made at least once a year over the life of the employee and/or beneficiaries or for 10 years or more. For wage withholding purposes, these payments are treated as if they are wages . You can figure withholding by using the recipient's Form W-4P, Withholding Certificate for Pension or Annuity Payments (PDF), and the income tax withholding tables and methods in Publication 15, Circular E, Employer's Tax Guide, or the alternative tables and methods in this publication.

Recipients of periodic payments can give you a Form W-4P to specify the number of withholding allowances and any additional amount they want withheld. They may also claim exemption from withholding on Form W-4P or revoke a previously claimed exemption. If they do not submit a Form W-4P, you must figure withholding by treating a recipient as married with three withholding allowances. Refer to Form W-4P for more information.

Nonperiodic Payments
Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution, is 10% of the distribution. You can also ask the payer to withhold an additional amount using Form W-4P. The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule.

Mandatory Withholding on Payments Delivered Outside the United States
The election to be exempt from income tax withholding does not apply to any periodic or nonperiodic payment delivered outside the United States or its possessions to a U.S. citizen or resident alien. Refer to Form W-4P for more information.

A nonresident alien can elect exemption from withholding only if he or she certifies to the payer that he or she is not (1) a U.S. citizen or resident alien or (2) an individual to whom Internal Revenue Code section 877 applies (concerning expatriation to avoid tax). The certification must be made in a statement to the payer under penalties of perjury. However, nonresident aliens who choose such exemption will be subject to withholding under Code section 1441. Refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and the Instructions for Form 1042-S (PDF). Refer to NRA Withholding and Pensions, Annuities, and Alimony (Income Code 14) in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities"

I really so suggest though as I did in my earlier post, that you spend a little cash and get good tax advice, as firstly you don´t want to end up paying more than you need,and on the other hand, you don´t want to find yourself with problems with the tax authorities in either country

nun

This is going getting really complicated.

Firstly the situations are different for US citizens and non-resident aliens. There are also different treatments for pensions, government pensions and other income. The Treaty is going to determine how each is handled, and if you've ever read it you know that it has so many dependent clauses as to make it unintelligible. However page 4 of IRS form W-4P has useful info for non-resident aliens who have payments from US pensions.

As a US citizen getting income from a private US pension you don't get to choose no withholding, nor are you subject to 30% withholding, you just have to fill out W-4P and have the appropriate tax withheld by the payer at source.

I didn't really want to get into how various pensions are taxed, just get an idea of how people are planning to arrange their finances.

nun

How you'll be treated depends on your residency and if you are a US citizen. My approach is to roll over as much of my IRA to a ROTH while I'm still in the US as it's tax free in US and UK making things simple.

keysi

Unfortunately if your status is married filing separately you are effectively locked out due to an extremely restrictive limit

kateg60

Does anyone know how pension/retirement work if you return to the UK before you retire. Should I leave my 403bin tact or make changes. What happens to my state pension and SS if I move to the UK and work for 10 years there.

robin1234

I wish someone would write a book based on your question as a thesis. I would buy that book.